“The Swiss Reinsurance Company, one of the world’s largest insurers of insurance companies, is buying Lincoln Reinsurance, the largest life reinsurance company in the United States, for $2.5 billion, the companies said last night,” writes Joseph Treaster in today’s Wall Street Journal.

“The deal, announced in Zurich and Philadelphia, the headquarters of Lincoln Re’s parent, Lincoln National, will strengthen Swiss Re in its rivalry for world leadership with Munich Reinsurance of Germany. It will also double the size of Swiss Re’s life insurance business in the United States and, analysts said, give it a company that is widely respected for its underwriting skills and stellar financial performance. “

“Under terms of the transaction, Lincoln National said, Swiss Re will pay $2 billion in cash and, partly for tax reasons, $500 million of Lincoln Re’s capital will move to the books of Lincoln National.”

“Lincoln Re has been one of the most successful units of Lincoln National, a leader in life insurance and investment products, analysts said. But reinsurance is a volatile business, they said, and that has hurt Lincoln National’s stock price.”

” ‘This deal is something investors in Lincoln National had been hoping for,’ said Andrew Kligerman, an analyst at Bear, Stearns. ‘Lincoln National is a stock that should be trading at a premium to its peer group rather than at a slight discount. But investors have been critical of the reinsurance business. They get rattled when the numbers aren’t exactly as expected.’ “

“By contrast, the volatility is unlikely to be a problem for Swiss Re, said Colin Devine, an analyst at Salomon Smith Barney, because its entire business is in that line. ‘Reinsurance investors are inherently more tolerant of the volatility,’ Mr. Devine said. ‘And my experience is that European investors don’t focus as much on quarterly fluctuations as do Americans.’ “