Swiss Re unit to buy Guardian Financial for 1.6 billion pounds

ZURICH (Reuters) - Reinsurer Swiss Re AG has agreed to buy Guardian Financial Services, the Swiss group said on Wednesday, bolstering the British business of its unit which buys and manages closed life insurance policies.

It is the latest tie-up in the sector as reinsurers, which help insurance companies cope with big damage claims from hurricanes or earthquakes, turn to mergers for growth in the face of falling prices.

Swiss Re's business unit Admin Re will buy Guardian from private equity firm Cinven for 1.6 billion pounds ($2.45 billion).

"The expected returns exceed our profitability targets for new business and represent an excellent fit with our group strategy as well as with Admin Re's capabilities and existing infrastructure," Chief Executive Michel Lies said in a statement.

Phoenix Group Holdings, Britain's largest owner of life assurance funds closed to new customers, said last week it was is in talks to buy Guardian Financial Services.

Admin Re is expected to generate around $1.7 billion of gross cash, including capital synergies, over the first three years, Swiss Re said. Swiss Re's assets under management will increase by 12.5 billion pounds or about 15 percent.

"This is a major Admin Re transaction and makes sense from a diversification point of view and also appears sensible to offset headwind in a challenging (Dutch) reinsurance market," Vontobel analyst Stefan Schuermann, who has a "hold" rating on the stock, wrote in a note.

Swiss Re has been on the lookout for acquisitions, especially in Britain for its Admin Re unit.

Its finance chief told Reuters this month that the group does not plan major acquisitions in its main business of property-casualty reinsurance and will likely stand aside as a consolidation wave grips the sector.

Reinsurers have seen prices slide amid an oversupply of available capital and reduced demand from insurance company clients.

The acquisition, which is subject to regulatory approval, could be completed in early 2016 and would be financed from cash on the balance sheet as well as debt financing.

The acquisition would add 900,000 annuity, life insurance and pension policies in Britain and Ireland, boosting Admin Re's UK business to over four million policies.

Swiss Re shares edged up 0.1 percent by 0925 GMT, lagging a 0.5 percent rise in the STOXX Europe 600 Insurance index.

(Reporting by Brenna Hughes Neghaiwi and Joshua Franklin; Additional reporting by Jonathan Gould; Editing by Anand Basu, Stephen Coates and Adrian Croft)