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Analysts "cautious" about Storebrand's Swedish push

NORDICS - Norwegian life insurer Storebrand is to buy Swedish Handelsbanken's occupational pension branch SPP for SEK18bn (€1.9bn).

The Storebrand purchase is a major push into the Swedish occupational pension market, however, market commentary suggests analysts remain cautious about the short-term effect on the company.

Standard & Poor's reviewed its outlook for Storebrand Liv, the pension and insurance arm, to negative from stable following the announcement of its takeover.

Analysts suggest there is "the risk that Storebrand will not be able to successfully integrate and leverage the newly-acquired Swedish operations".

Furthermore, S&P thinks "the finite management resource of Storebrand will be stretched by this acquisition" and there is a refinancing risk associated with the transaction.

That said, if those points are addressed successfully, the takeover of SPP "will be positive for Storebrand Liv's operating performance and competitive position," S&P's credit analyst Stephen Hadfield noted.

Similar concerns have been expressed by the rating agency Moody. "Given the size of SPP relative to the existing Storebrand Group, the proposed acquisition poses a meaningful integration risk," said Dominic Simpson, Moody's vice president senior credit officer.

He added "substantial management action is likely to be required to reverse SPP's declining market share in recent years".

In 2000/01, Handelsbanken bought the life insurance and part of the pension arm of the insurance group SPP for SEK7.1bn. The remaining pension business was renamed Alecta.

Following its purchase, Handelsbanken re-structured SPP, cut operational costs and  in 2006 SPP had a 10.3% market share in the Swedish occupational pensions market.

Then in May 2007, SPP won a contract to manage SEK67.6bn in assets for the SAS pilot pension scheme, bringing assets under management to SEK155.7bn to the end of June 2007.

Handelsbanken noted it wanted to sell off SPP because the marketing approach required to compete in the Swedish occupational pension market was too different from the bank's usual approach.

"The battle for market share is more and more frequently conducted via representatives of the companies and large, centralised advertising campaigns," Handelsbanken pointed out in a press release. 

"At Handelsbanken, it is our branches that do business in close relationship with every customer," explained the bank's chief executive Pär Boman. "Central marketing is therefore rare since each customer offering is unique."

He added he would not go as far as to say SPP had hampered Handelsbanken's growth, but added "it is more that we have moved in different directions".

Storebrand said the takeover will create "the leading life insurance and pension provider in the Nordic region" with a 12.3% market share in Sweden and a 39% market share in Norway.

The deal includes SPP Livförsäkring and its subsidiaries as well as fund manager SPP Fonder and Handelsbanken Life & Pensions, formerly Euroben. Storebrand also has a two-year call option to acquire Handelsbanken Liv's remaining occupational pension portfolio.

However, Handelsbanken stresses it is not totally withdrawing from the occupational pension arena as it will collaborate with Storebrand in the area of product development and risk management for occupational pensions.

Furthermore, Handelsbanken's mutual funds will be part of Storebrand's occupational pensions offering in the Swedish and Norwegian markets.

Handelsbanken will continue to manage the pension assets going to Storebrand during a 12-month transitional period.

The deal is still pending regulatory and shareholder approval.

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