AXA buying Bermuda-based XL Group for $20b

AXA chief executive Thomas Buberl said the purchase of XL Group will enable AXA to dominate the global property and casualty insurance market, and reduce its exposure to the volatility of financial markets.
AXA chief executive Thomas Buberl said the purchase of XL Group will enable AXA to dominate the global property and casualty insurance market, and reduce its exposure to the volatility of financial markets.PHOTO: AGENCE FRANCE-PRESSE

PARIS • France's AXA moved to buy Bermuda-based XL Group for US$15.3 billion (S$20 billion) yesterday to create what it said would be a world leader in property and casualty (P&C) insurance.

It offered US$57.60 for each XL share, a 33 per cent premium to last Friday's closing price, and said buying XL would result in P&C insurance rising to half of AXA's earnings, from 39 per cent.

XL has already agreed to AXA's offer, and AXA, which ranks as Europe's second-biggest insurer in terms of market capitalisation behind Germany's Allianz, will look to delist XL's shares. AXA said it would finance the deal with debt, cash and the proceeds of the initial public offering of its US business.

Insurers are turning to takeovers to boost their businesses as they face tougher regulation and falling returns from financial market investments. AXA's deal comes just over a month after American International Group said it would buy reinsurer Validus for around US$5.6 billion.

P&C insurers' stocks fell during last year's natural disaster season and have attracted the attention of bidders as premiums are rising after several years of falling rates.

Allianz had also been seen as a possible suitor for XL, but a source close to the German company said it was not overly concerned by AXA scooping up XL.

AXA shares fell yesterday as some analysts said the deal looked pricey.

Chief executive Thomas Buberl said the deal will enable AXA to dominate the global P&C market, and reduce its exposure to the volatility of financial markets. "We will be No. 1 in commercial insurance," he told a news conference in Paris.

Some analysts were sceptical about the price. "In our view, the acquisition of XL fits AXA's strategy of growing in commercial insurance. But the purchase price looks quite high even after synergy effects and AXA's debt ratio is again rather stretched," said analysts at German brokerage Bankhaus Lampe.

Analysts at UBS said XL did not necessarily fit AXA's plans to grow in Asia, given XL's predominantly US-exposed business. "AXA targets growth in health, protection and commercial lines, P&C markets preferably in Asia rather than US reinsurance," UBS said.

"However, acquiring XL does give global commercial P&C lines exposure and further accelerates AXA's exit from more volatile business lines in the US," it added.

AXA has not been hit as hard as some by a series of costly natural catastrophes last year, thanks to reinsurance contracts and a diversified business model, and last month it reported higher-than-expected 2017 net profits of €6.2 billion (S$10 billion). It expects the XL takeover to be cash accretive and result in cost synergies of some US$400 million a year, based on pre-tax earnings.

Mr Jerome Schupp, a fund manager at Geneva-based Prime Partners, which owns AXA shares, said it was a "good deal", given AXA's plans to cut its exposure to financial markets, and that it looked positive on a long-term view.

AXA also reaffirmed its 2020 financial targets, under which it aims to increase earnings per share by 3 per cent to 7 per cent a year over the 2016-2020 period.

REUTERS

A version of this article appeared in the print edition of The Straits Times on March 06, 2018, with the headline 'AXA buying Bermuda-based XL Group for $20b'. Print Edition | Subscribe