British life insurer Phoenix Group is in talks to buy the Admin Re unit of Swiss Re, re-starting its drive to consolidate the sector and achieve savings after a hiatus caused by its heavy debts.
Both companies said on Friday they were in preliminary talks, while Phoenix said that if a deal materialised, Swiss Re would take a minority shareholding in the British group, signalling it would pay for the transaction in shares.
Sky News said on Thursday the deal could be worth 3 billion pounds ($4.5 billion) and would create a business with more than 100 billion pounds under management and close to 10 million policy holders.
Both firms declined to comment on the value of any transaction on Friday.
Analysts said a deal would benefit both groups. Admin Re is "a relative drag" on Swiss Re returns, and management had sought to find a solution by the end of 2013, Citi analysts said.
For Phoenix, which makes money by buying life insurers that are closed to new customers and running them more efficiently, a deal would put on track a campaign to expand by acquisition.
"It facilitates a significant opportunity for synergy gains as well as providing a break in the hiatus of deal-flow for the group," said Shore Capital analyst Eamonn Flanagan.
Earlier this year, Phoenix said it was ready to consider acquisitions for the first time in two years after hammering out easier terms with banks.
It had earlier put its buying spree on hold after a heavy debt burden forced it into a financial restructuring in 2009.
A partial repayment of its 2.3 billion pounds debt after a 250 million pounds sale of new shares in January spurred a share price recovery that boosted its fire power on the acquisition trail..
"There is no certainty that these discussions will lead to any transaction or the terms on which any such transaction might proceed. Further statements will be made if and when appropriate," said Phoenix, which has a market capitalisation of about 1.5 billion pounds.
Swiss Re has used its strong capital position to please shareholders with payouts.
Last month, it said it would stick to financial targets for 2011-2015 and focus on dividend growth while shifting assets towards corporate debt and away from government bonds.
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