Axis-PartnerRe $11bn deal to reshape reinsurance

Axis Capital and PartnerRe have agreed an $11bn transaction to combine the two New York-listed insurers, in the clearest sign yet that a wave of dealmaking is transforming the industry.

The tie-up, billed as a merger of equals, is expected to create a new S&P 500 company and an enlarged rival to Warren Buffett's Berkshire Hathaway, Lloyd's of London and Munich Re. It brings together two of the five largest insurance groups by total assets that are based in Bermuda, a large industry hub.

The merger will create the world's fifth-largest property and casualty reinsurer, with about two-thirds of the combined company's $10.7bn annual premium income coming from this line of business. Reinsurers allow insurance companies to transfer the risks of hurricanes, earthquakes and other disasters.

The enlarged group will also generate about $2.5bn of premium income from specialist insurance, ranging from sport event cancellation to terrorism cover, and $1.5bn from life, accident and health policies. It will have an investment portfolio of $33bn.

Both companies were formed to take advantage of a rise in premiums following disasters - PartnerRe in 1993 after Hurricane Andrew, and Axis in 2001 after the September 11 terrorist attacks.

More recently, however, fierce competition has pushed premiums in the lucrative catastrophe reinsurance business down to their lowest levels in more than a decade, encouraging underwriters to consolidate.

The transaction - the largest in a series of recent deals that are shaking out the fragmented business - is structured as a nil-premium merger. Shareholders in PartnerRe, which has a market capitalisation of $5.59bn, will hold 51.6 per cent of the combined entity and those in Axis, with a market value of $5.04bn, will own 48.4 per cent.

Backers of the deal say the enlarged group will be in a stronger position to manage structural changes in the industry, especially as insurance companies and their brokers increasingly favour larger reinsurance providers.

Axis and PartnerRe, which have duplicate offices in New York, Zurich, Bermuda and Ireland, are planning to cut at least $200m of costs within two years of the deal. Managers have yet to determine how many jobs will be at risk among a combined 2,300-strong workforce.

PartnerRe's chairman, Jean-Paul Montupet, is to lead a new 14-strong board. Axis's chief executive, Albert Benchimol, plans to assume the same role at the enlarged insurer.

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.

The transaction comes almost three years after John Charman, among the industry's most colourful characters, stood aside from Axis, which he had led since its inception.

It follows XL's agreement this month to buy smaller UK-listed rival Catlin for £2.8bn and RenaissanceRe's deal in November to purchase Bermuda-based rival Platinum Underwriters for $2bn.

Bankers expect further consolidation, noting that smaller reinsurers of natural catastrophes that operate in Bermuda and at the Lloyd's of London market are under particular pressure.

Premium levels have fallen as yield-hungry investors buy "insurance-linked" securities such as catastrophe bonds, which are an alternative to traditional reinsurance.

A relative dearth of costly natural disasters in recent months has propped up short-term profits, but is expected to hurt long-term returns by further depressing prices.

Axis is being advised by Goldman Sachs and PartnerRe by Credit Suisse. The deal has been unanimously agreed by the two boards, the companies said in a statement on Sunday night, but remains subject to approval by shareholders and regulators. It is expected to complete in the second half of the year.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation