Credit Suisse Group, Switzerland's second-largest bank, said it plans to sell its Winterthur insurance business to Axa SA for 12.3 billion Swiss francs ($9.9 billion) in cash.

The transaction, Axa Chief Executive Officer Henri de Castries's biggest purchase in more than five years, is for 100 percent of Winterthur, the Zurich-based bank said today in an e-mailed statement. The transaction is expected to close around the end of 2006, Credit Suisse said.

Credit Suisse said Axa also will redeem 500 million pounds ($918 million) of hybrid debt outstanding between Credit Suisse and Winterthur.

``This transaction is a unique opportunity to reinforce our leading position in our core European market and to increase our presence in emerging markets, notably in Eastern Europe and Asia,'' de Castries, 51, said in the statement.

Axa is Europe's second-largest insurer. Winterthur is Switzerland's second-largest insurer in terms of premiums after Zurich Financial Services AG. Winterthur, based in the Swiss town of the same name, earned 1.06 billion francs in 2005, a 52 percent increase from the previous year. Credit Suisse had announced plans in December 2004 to prepare Winterthur for a stock market sale after failing to find a buyer.

``Axa is an opportunistic company,'' Keefe, Bruyette & Woods Ltd. analyst William Hawkins said in a note before the announcement. ``Winterthur has a good franchise in Switzerland as well as other European markets. Axa values franchises highly.''

De Castries said in a February interview the insurer was on the lookout for deals and that ``there will be more purchases if the right opportunities come along.'' His $1.5 billion takeover of life insurer Mony Group Inc. in 2004 turned Axa into the No. 3 seller of variable annuities in the U.S., where it generates about 20 percent of revenue.

History of Takeovers

De Castries' largest purchase was the $9.5 billion buyout of minority shareholders of U.S. unit Axa Financial Inc. in 2000, weeks after agreeing to sell U.S. investment bank Donaldson, Lufkin & Jenrette Inc. to Credit Suisse for $13.4 billion.

Claude Bebear, 70, Axa's founder and supervisory board chairman, built the company from a Normandy-based insurer into a business with offices stretching from Europe to the U.S. to Asia by buying companies including Equitable Life Assurance Society and Alliance Capital Management LP of the U.S., Germany's Colonia AG and Japan's Nippon Dantai Life Insurance Co.

Winterthur made 37 percent of its revenue in Switzerland last year, where it had about 24 percent of the life and pensions market and about 17 percent of the property and casualty market. Germany accounted for 20 percent of revenue. The company generated 12 percent of its revenue outside Europe, including in China, where it holds 15.6 percent of Taikang Life Insurance Co., according to its annual report.

Credit Suisse CEO Oswald Gruebel, 62, is unwinding the strategy of his predecessor, Lukas Muehlemann, who bought the insurer in 1997 in a share exchange valued at about 14.7 billion francs to boost profit by selling insurance and banking products to the same clients.

``We plan to reinvest the proceeds from the sales of Winterthur in the development of our banking business,'' Gruebel said in today's statement, adding Credit Suisse doesn't plan any ``transforming acquisitions.''

Reversal of Strategy

Credit Suisse's purchase of Winterthur went awry when stock markets slumped and Credit Suisse had to add 3.7 billion francs to the insurer's reserves. Credit Suisse had a record loss of 4.5 billion francs in 2002, hurt by writedowns at the insurance division.

Gruebel told investors already in December selling Winterthur will let Credit Suisse to invest at higher returns.

``Your message is coming through very clearly that you want us to be in the banking business and employ the capital we have employed in the insurance business in banking business. There are higher returns on equity there,'' Gruebel said Dec. 7.

Winterthur returned to profit in 2003 as it sold units and stock markets stabilized. From 2002 to 2004, it shed 15 businesses, at least five at a pretax loss. Earnings in the first quarter amounted to 505 million francs, a 21 percent increase from the same period in 2005.

Winterthur's return on equity, a measure of profitability, was 15 percent in the first quarter compared with 27.4 percent for Credit Suisse's banking division.

Winterthur has turned to expanding outside its home market. In September, it agreed to buy the Polish pension fund Dom from Warta SA, Poland's second-largest insurer, for 135 million zloty ($43 million), its first acquisition since 2002.

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To contact the reporter of this story:
Alice Ratcliffe in Zurich at  aratcliffe1@bloomberg.net

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