AXA reported to be in discussions to acquire XL Group

by Artemis on March 3, 2018

Media reports today state that French insurance and investment giant AXA is in advanced talks to buy Bermudian insurance and reinsurance firm XL Group, a deal that could see two entities with related ILS investment fund operations coming together.

Update – March 5th 2018: AXA has confirmed its intention to acquire XL Group in a transaction valued at $15.3 billion this morning, roughly a 33% premium to XL’s share price.

Bloomberg reported first today, closely followed by the Financial Times, that AXA is deep in talks with XL Group about a possible acquisition of the Bermudian, a purchase that would increase AXA’s footprint in the U.S., particularly in casualty lines.

Both news sources report people familiar with or close to the matter as sources, who told them that a deal could be announced in a matter of days. No response has been forthcoming from either party at this time.

XL Group was the subject of rumours over a potential acquisition just a few weeks ago, when it was reported that major players such as Allianz had been discussing a possible deal with the company.

XL Group as a franchise, with its XL Catlin brand, appears very attractive at this time, despite the fact its valuation has soared in recent weeks to almost $11 billion, a 23% rise on its share price at the end of 2017.

XL has a strong footprint in U.S. P&C insurance and reinsurance markets, an area that not all of the big European insurers are as strong. Hence for an AXA, or other buyer, the company makes an attractive target given it would have less crossover with their core books of business.

AXA CEO Thomas Buberl has reportedly said that a growth area for his firm would be commercial P&C business, an area XL could certainly help it grow into.

AXA Group is a major insurance, investment and retirement solutions house, with global operations and broad reach. Under the AXA Investment Managers brand the firm has an insurance-linked securities (ILS) and reinsurance linked investment management arm with over $1 billion of ILS and catastrophe bond assets under management.

Of course XL Group also has its own ILS interests, not least the fact it now leverages around $3 billion of alternative reinsurance capital, from investors in its catastrophe bond issues, collateralized players and ILS funds, as well as through its own ILS fund management venture New Ocean Capital Management.

New Ocean Capital Management, which XL is one of the founders and lead backers of, has around $600 million of commitments from its ILS investors for the 2018 underwriting year and XL’s catastrophe bond issues now total an impressive close to $2 billion.

There could be clear synergies and benefits for the pair, in terms of expanding the use of alternative reinsurance capital, should an acquisition arrangement be reached.

Of course if XL was acquired by such a large player the use of reinsurance and retrocession by the firm could shrink a little, given the scale and diversification of the combined group.

Given the way the M&A rumour mill has been working overtime lately, we’ll have to wait and see whether any announcement is forthcoming from either AXA or XL Group.

Update – March 5th 2018: AXA has confirmed its intention to acquire XL Group in a transaction valued at $15.3 billion this morning, roughly a 33% premium to XL’s share price.

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