Bermuda reinsurers Axis Capital and PartnerRe in $11bn merger

Axis Capital Holdings and PartnerRe have agreed an all-share $11 billion merger to create one of the world's largest reinsurers, responding to intensifying pressure in the industry to consolidate.

Reinsurers are being squeezed by price competition and subdued demand from insurers for their products and consolidation in various forms is expected for companies that lack either global reach or a specialised focus.

The combination of the two Bermuda-based companies may displace France's Scor as the world's fifth largest property and casualty reinsurer. It will have gross premiums topping $10 billion, PartnerRe said in a statement.

“This is not a sale; we’re not buying them, they’re not buying us,” Axis Capital chief executive Albert A. Benchimol, who will be CEO of the new company, told a conference call with investors.

“We are both contributing our operations, our potential and our tangible book value,” Mr Benchimol said.

The deal is the latest in a series of moves by reinsurance firms to seek greater heft by expanding product lines or geographical reach, with some looking to branch more into insurance and curb exposure to the tough reinsurance market.

Earlier this month, XL Group said it would buy underwriter Catlin Group for about £2.79 billion ($4.2 billion), increasing the Dublin-based insurer's share of business written in the Lloyd's of London market to nearly 10 per cent.

Analysts have frequently flagged a number of small-to-medium sized players among the global Top 40 reinsurers as potentially taking part in consolidation, including Everest Re, Arch Capital, Endurance and Aspen.

Reinsurers help insurers pay large damage claims, in exchange for part of the profit.

Partner Re’s shares rose 0.6 per cent, while Axis Capital’s shares rose 4.9 per cent.

Cost savings

PartnerRe was the world’s 10th largest reinsurer and Axis was ranked 22nd by reinsurance premiums in 2013, according to data compiled by credit rating agency Moody’s.

Mr Benchimol said the merger would improve diversification and prospects for growth, including through acquisitions.

“We have overlapping offices in most key insurance centers and major markets,” Mr Benchimol said, without giving specifics on office closures or job losses.

The merger would achieve pre-tax cost savings of at least $200 million in the first 18 months and improve earnings per share for the shareholders of both companies, PartnerRe said.

"It's all about achieving scale in an industry where demand is declining and pricing is reducing," Canaccord Genuity analyst Ben Cohen said. "Scor has been active in M&A and may look to respond to consolidation in the market."

Partner Re has a market capitalisation of about $5.6 billion, while Axis Capital’s market cap is about $5 billion, according to Thomson Reuters data.

PartnerRe shareholders will get 2.18 shares of the combined company’s common shares for each PartnerRe share. Axis Capital shareholders will get one share for each Axis share they own.

The terms mean PartnerRe shareholders will own 51.6 per cent of the merged company and Axis holders 48.4 per cent, the statement said.

Asked in the call whether anything would prevent a third party bidder from entering the process, Mr Benchimol said: “I’m not going to go into hypotheticals.”

The deal is expected to close in the second half of 2015.

– Reuters