AXIS buying Novae gives increased options for third-party capital

by Artemis on July 6, 2017

Bermudian insurance and reinsurance specialist AXIS Capital Holdings announced late yesterday that it is acquiring London and Lloyd’s specialty market player Novae Group for $604 million, in a deal that will help the firm broaden its activities with third-party capital providers.

AXIS will add “scale and breadth” to its international specialty insurance business through the addition of Novae, with the acquisition of the Lloyd’s specialist helping it to create a $2 billion London market re/insurance operation and a company that will sit in the top ten operating at Lloyd’s.

As our sister publication wrote last night, the combined entity, that will be branded AXIS, will be a global specialty re/insurance business with gross written premiums in excess of $6 billion, based on 2016 figures.

Both companies have initiatives involving the capital markets and third-party reinsurance capital activities, and AXIS feels that the combination will help it to expand in this area.

Fee income from third-party capital partners is a target area of growth for AXIS, and an area of the business where the firm has been having some success largely in reinsurance lines of business.

AXIS has its third-party reinsurance capital initiatives within its AXIS Ventures unit, where its ILS fund management type activities occur, as well as its total-return reinsurance joint-venture with asset manager Blackstone Harrington Re, that also brings external investor money into the business as an additional reinsurance balance-sheet.

Novae, on the other hand, has a very different approach to third-party capital, using if for its own reinsurance, we understand, but is perhaps most well-known for its activities in partnership with specialist ILS investment manager Securis Investment Partners in a Lloyd’s of London special purpose arrangement that underwrites U.S. E&S property business.

AXIS Capital has an established U.S. E&S and facilities property business, with a particular focus on catastrophe exposed property and a reach that covers the entire nation. Novae has been expanding rapidly into this space as well, with the help of efficient capital backing through the special purpose Lloyd’s of London syndicate 6129 joint venture between Securis and Novae.

That special purpose syndicate targets growth into U.S. excess and surplus lines property business, with the help and support of the third-party capital under the management of ILS manager Securis.

This helps to make the E&S offering more efficient, which in a time when ILS fund managers and other collateralized reinsurance providers are targeting catastrophe exposed commercial property in the U.S. could benefit the AXIS E&S strategy as well.

The combination of the two businesses E&S divisions will like be complementary or even additive and the enhanced E&S platform a benefit to Securis in its strategy of working with a soon to be larger specialist through Lloyd’s, while putting its third-party capacity to work.

Overall the combination of the AXIS and Novae businesses will provide more options for leveraging third-party capital within AXIS’ overall business.

AXIS noted Novae’s “growing third party capital business” saying that the acquisition will provide it with an “Ability to further leverage Novae and AXIS’ third party capital relationships” and allow it to “Expand stable fee income and market presence / capacity through increased options for third party capital.”

In the current market environment that should benefit all parties, the combined and enlarged AXIS, and the third-party investors that work with AXIS or Novae today.

The enhanced access to the Lloyd’s specialty insurance and reinsurance market will ultimately benefit the investors that work with AXIS in the Harrington Re and Ventures vehicles as well.

President and CEO of AXIS Capital, Albert Benchimol, commented on the impending acquisition, “A key component of our growth strategy is to have leadership positions, relevance and scale in each of the specialty risk markets where we choose to compete.

“The acquisition of Novae is a great opportunity to accelerate the breadth and depth of talent, lines of business, and leadership positions that we are developing in the London market for specialty risks, advancing our growth and enabling us to better serve our clients.”

The question that remains is whether the acquisition of Novae will give AXIS the scale and relevance it wants and also needs to navigate the challenging market environment (remember this is the company that almost came together with PartnerRe)?

Perhaps. It certaintly positions the company better for certain markets and relevance in Lloyd’s. It will be interesting see whether AXIS has other acquisitions in mind.

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