French insurer Axa agrees to buy XL Group for $15.3bn

Axa agreed to buy XL Group Ltd for $15.3 billion in cash, seeking to capture a bigger slice of the US property and casualty market as premiums rise after last year's natural disasters.

The French insurer is paying $57.60 per share, according to a statement on Monday. That’s about a 33 per cent premium compared with the stock’s closing price of $43.30 on Friday. Bloomberg reported on Saturday that Axa was in advanced talks on the deal, citing people familiar with the matter. Financing will come from €3.5 billion of cash at hand, an expected €6 billion from the planned US IPO and €3 billion of subordinated debt.

Less than two years since taking over Axa’s top job, chief executive Thomas Buberl is ramping up dealmaking, refocusing on businesses such as P&C commercial lines while shedding some assets and focusing on fewer countries. The initial public offering of Axa’s US life unit is expected in the second quarter.

Axa “must believe the timing is right in the cycle to expand in the US reinsurance and P&C markets,” said Karim Bertoni, who helps manage $12 billion at Bellevue Asset Management in Switzerland, before the announcement. Given capital market conditions, “there’s maybe a window of opportunity for both an IPO and an acquisition to reinforce areas where higher returns can be expected.”

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Brexit

XL Group said last September that it plans to move its main European insurance company from the UK to Dublin as a result of Brexit. On Tuesday a spokeswoman said they were sticking with this plan. “We are committed to moving ahead with our plans to move XL Insurance Company SE to Dublin, Ireland, and look forward to getting the necessary regulatory approvals,” she said.

Companies such as XL Group provide insurance backstops for other insurers and have become takeover targets after the heavy toll of natural disasters last year pushed prices for coverage higher. The Bermuda-based insurer also attracted interest from bigger rivals including Germany’s Allianz SE, people familiar with the matter said last month. As of Friday’s close, XL shares had gained 23 per cent this year in New York.

Economic losses from weather-related disasters including hurricanes Harvey, Irma and Maria, and Californian wildfires, reached $306 billion in 2017, according to the US government. Costs from such disasters helped drive down XL’s shares in both 2016 and 2017. To resist pressure from new rivals in the catastrophe market, chief executive Mike McGavick sought expansion in specialty coverage and reinsurance through the $3.9 billion purchase of Catlin Group Ltd. in 2015.

Last month, McGavick said he was optimistic about XL’s progress on the back of a solid capital position and growth in premiums. Axa’s purchase of XL Group marks the biggest insurance deal since 2015, according to data compiled by Bloomberg. The biggest insurance takeover this year had been American International Group Inc’s January agreement to buy Validus Holdings Ltd for more than $5 billion in cash.

Axa is making a return to large dealmaking more than a decade after its last major transaction, the purchase of Switzerland’s Winterthur. Formerly a regional insurer in Normandy, Axa built itself into Europe’s second-largest insurer through major takeovers in the 1990s. Recent deals have been smaller-scale, acquiring assets or setting up partnerships in emerging markets including China, Nigeria and Colombia. – Bloomberg