The idea of a Japanese technology group spending $ 10 billion on a stake in one of the world’s biggest reinsurer companies sounds like the fevered ramblings of a hallucinating investment banker.
But SoftBank Group 9984 0.98% has a $ 100 billion investment fund to play with. And when you think about what it could be trying to build in the background, it starts to make frighteningly good sense.
Swiss Re, SSREY -4.47% the reinsurance company, confirmed late on Wednesday that it was in early-stage discussions with SoftBank about the group buying a minority stake. The Wall Street Journal had earlier reported that SoftBank was interested in buying as much as one-third of the roughly $ 30 billion reinsurer.
SoftBank’s motive definitely isn’t yet another attempt to emulate the Berkshire Hathaway -Warren Buffett investment empire founded on the mammoth cash flows of a big reinsurance book. A stake in Swiss Re wouldn’t give SoftBank access to the reinsurer’s assets.
But Swiss Re could give it insight into one important way of selling life insurance: namely the digital life insurance that Swiss Re creates for others to sell, its only obvious consumer product right now. The life policy one buys online from Brand X may actually be produced by Swiss Re under a so-called white-label arrangement—like how food companies make sausages, say, for supermarkets’ own brands.
This isn’t SoftBank’s only look at insurance—and Swiss Re might not be its only option for insurance know-how. The group already bought a 5% stake in ZhongAn Online, the Hong Kong-listed digital property insurer backed by Alibaba.
ZhongAn’s smartphone model is designed to cut out the costs of traditional salespeople. Marrying that with the underwriting and data skills of a big reinsurer could create a bigger insurance retailer without any of the traditional costs.
SoftBank may be interested in becoming a backer of financial-services infrastructure on mobile phones. Think of something like iTunes, but for banking— and more sophisticated. It would distribute products—personal loans, savings accounts, funds or insurance—as well as transmit payments. It would share data with the product providers who are taking the risks: That is key to keeping banks happy because the thing they are scared of is losing their customer relationships.
But most of all, as a closed system—like iTunes—it could help wed consumers to SoftBank’s broader telecom services, or a set of hardware products that SoftBank could also source.
This isn’t fantasy. Banks themselves are working on similar efforts: Société Générale does white-label digital card-payments services for smaller banks and is developing a consumer-finance version. These services depend on infrastructure—the platforms that services run off—as much as the user interface, or the application that you see on your screen.
If SoftBank can build a universal consumer-finance infrastructure for phones, one that is acceptable to banks and insurers, it could find itself in a very powerful position. Much like Apple has with music.
Write to Paul J. Davies at email@example.com