Risk Management

Reinsurers Agree on $11B Merger

Combined, reinsurers AXIS Capital Holdings and PartnerRe will have cash and invested assets of more than $33 billion.
Katie Kuehner-HebertJanuary 26, 2015

Reinsurers AXIS Capital Holdings and PartnerRe agreed on Sunday to a merger-of-equals with a combined market capitalization of nearly $11 billion.

In a joint press release Sunday, the Bermuda-based firms said the deal would create “one of the world’s preeminent specialty insurance and reinsurance companies,” with gross premiums written in excess of $10 billion, total capital of more than $14 billion, and cash and invested assets of more than $33 billion.

“This transformational combination will leverage the complementary strengths of both companies and create an organization with the size and breadth to enhance product and service offerings, maximize growth opportunities, optimize portfolios, and deliver both economies of scale and capital efficiencies,” said AXIS Capital chief executive Albert A. Benchimol, who would serve as CEO of the combined company.

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“As a top five global reinsurer with leading positions in a number of specialty lines, we will be strongly positioned to turn the challenges presented by the structural changes in the reinsurance market into opportunities,”

PartnerRe chairman Jean-Paul L. Montupet would be non-executive chairman of the combined company’s 14-person board of directors, consisting of seven AXIS Capital directors and seven PartnerRe directors. Current AXIS Capital chairman, Michael A. Butt, would continue to serve on the board as chairman emeritus.

The deal’s terms calls for PartnerRe shareholders to receive 2.18 shares of the combined company’s common shares for each share of PartnerRe common shares they own. AXIS Capital shareholders will receive one share of the combined company’s common shares for each share of AXIS Capital common shares they own. Upon closing, shareholders of PartnerRe and AXIS Capital would own roughly 51.6% and 48.4% of the combined company, respectively.

Midday Monday Standard & Poor’s put both PartnerRe and AXIS Capital on “creditwatch negative.”

The management teams will face many challenges in integrating two complex entities and effectively executing the new strategy, an S&P release said.

“There are uncertainties around how the combined entity will manage its capital adequacy and efficiencies, property catastrophe exposure, and potential business overlap and the resulting attrition,” said Standard & Poor’s credit analyst Taoufik Gharib.

“More importantly,” according to S&P, “it is not clear how the enterprise risk management (ERM) programs will be integrated rapidly and efficiently and how the new risk tolerances will be defined. However, these risks are partially mitigated by the familiarity between both companies’ management teams.”

A New York Times article Sunday said that the reinsurance sector is consolidating in an effort to compete against new players, particularly hedge funds, which have put downward pressure on premiums. Other recent deals to gain more scale, cut costs, and add new product offerings include acquisitions announced by both XL Group plc in Dublin and RenaissanceRe Holdings in Bermuda.

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