Germany's Hannover Re AG (HNR1.XE), one of the five largest reinsurers worldwide by gross premiums, Friday said it is acquiring a U.S. individual life reinsurance portfolio from Bermuda-based reinsurer Scottish Re Group Ltd. (SKRRF) in a reinsurance and asset-transfer transaction that's expected to boost its market presence in the U.S.

Hannover Re Chief Executive Wilhelm Zeller said the acquisition of the portfolio will boost group net profit by $30 million annually, or EUR0.20 a share, from 2009 and for the next five years.

The earnings boost will be on top of a "high-double-digit million U.S. dollars" one-off contribution in 2009 due to the value of the portfolio acquired, Zeller said.

After five years, the annual profit contribution will gradually decline in subsequent years, as the portfolio is in runoff, that is, gradually to be wound down, he said. The deal is to be closed in the first quarter.

Hannover Re said it will assume all liabilities of the portfolio, dubbed ING Business, and will in turn receive assets from Scottish Re to fund those liabilities. Under the deal, Scottish Re will transfer $1.3 billion liabilities and assets in cash and/or securities acceptable to Hannover Re, Zeller said.

"There was no purchase price," Zeller said in a conference call when asked to comment about financial details of the deal.

ING Business was bought by Scottish Re from ING Groep NV (ING) in December 2004. Effectively, Hannover Re is replacing Scottish Re as reinsurer for the ING U.S. life reinsurance portfolio, a Hannover Re spokesman said.

ING agreed to provide more than $3 billion of collateral initially, which will grow to $5 billion over time, Zeller said.

The reinsurer will also receive policy administration systems from Scottish Re and will also employ part of Scottish Re's staff, ensuring operational continuity and a transfer of know-how.

Reinsurers such as Hannover Re, Munich Re AG (MUV2.XE) or Swiss Re Co. (RUKN.VX) reinsure primary insurers like Allianz SE (AZ), so the latter can take more risks onto their books.

In 2009, the new business is expected to generate a premium volume of around $1.2 billion for Hannover Re.

"This contributes a large block of business in force, together with industry-leading capabilities in mortality research, pricing, underwriting and reinsurance administration which will substantially increase our presence and earnings from the U.S. mortality risk market," Zeller said who will retire at the end of June.

Scottish Re said it had originally had targeted a sale of its entire North American Segment, but due to the financial crisis, could pursue the sale of a specific block of individual life reinsurance only.

"This transaction is the next step in Scottish Re's previously disclosed change to its strategic focus to preserve capital and mitigate growing liquidity demands," said CEO Paul Goldean.

At 1424 GMT, Hannover Re shares were up EUR0.25, or EUR1.2% at EUR21.01, outperforming the wider market, which was down 3.2%.

Standard & Poor's Rating Services Friday affirmed Hannover Re's 'AA-' long-term counterparty credit and insurer financial strength ratings.

Some bank analysts perceived the transaction as cautiously positive for Hannover Re as it will increase the portion of less volatile business in the group's overall portfolio, making its earnings less vulnerable to heavy U.S. hurricane seasons and other natural disasters, which in recent years hit its property and casualty reinsurance business.

However, the deal raises some questions, as Hannover Re decided in late 2006 against buying Scottish Re as a whole, and peer Swiss Re (RUKN.VX) recently had problems with its U.S. life reinsurance business, Landesbank Baden-Wuerttemberg analyst writes who rates the share at hold.

In November 2006, Hannover Re said it had abandoned pursuing a bid for all of Scottish Re, after it had indicated in September of the same year its interest in bidding for the cash-strapped reinsurer or parts of it, along with other peers such as Scor SE (SCR.FR).

Scottish Re in July 2006 announced a $123.9 million second-quarter net loss, which caused its stock to fall more than 70% in a single day and its chief executive to resign. The company was recapitalized by two private equity investors at the end of 2006.

Company Web sites: www.hannover-re.com

www.scottishre.com

-By Ulrike Dauer, Dow Jones Newswires; +49 69 29725 500; ulrike.dauer@dowjones.com

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