Covéa buying PartnerRe for $9bn. EXOR taking on reinsurance investments

French mutual insurer Covéa has now agreed and signed a Memorandum of Understanding to acquire Bermuda headquartered global reinsurer PartnerRe from Italian holding company EXOR, at the same $9 billion valuation as had been on the cards in the deal that fell-apart in 2020.

EXOR and Covéa have also agreed to expand their reinsurance investment cooperation, involving special purpose reinsurance vehicles managed by PartnerRe.

As we reported on Monday, the deal was rumoured to have been rekindled and now the parties have come forward and announced that, as long as a required consultation with works councils completes successfully, then PartnerRe will be sold to Covéa this time.

The transaction is expected to reinforce PartnerRe’s strategy and further confirm its status as one of the world’s leading reinsurance companies.

EXOR and Covéa had previously agreed to a deal that would have seen Covéa paying a price tag of US $9 billion for PartnerRe, a sum that represented a roughly 30% profit on the $6.9 billion that Exor paid for PartnerRe in 2016.

But that deal fell apart, after attempted renegotiations over the price faltered in the wake of the Covid-19 pandemic and the pair failed to find an agreement on how to value PartnerRe in the context of the situation in the first-half of 2020.

Later in 2020, Covéa and EXOR struck an agreement to cooperate on reinsurance-linked investments going forward, finding a way to settle with each other over the failed PartnerRe deal.

Valuation was said to be the main topic of conversation around the rekindling of negotiations between EXOR and Covéa and at the same price it seems the deal could even be more attractive for Covéa at this time, given PartnerRe has grown its book over the last year.

Since the deal fell apart in 2020, PartnerRe has continued to expand its business and grow its third-party reinsurance capital, perhaps also making it even more attractive and which many thought could have boosted its valuation as well.

The $9 billion price tag is still a premium, as its based on PartnerRe’s consolidated common shareholders’ equity value of $7 billion. Preferred Shares issued by PartnerRe and listed on the NYSE are not included in the proposed acquisition though.

Covea said the acquisition of PartnerRe is consistent with its strategy of international growth and through the diversification of products, risks and geographies.

“The entry at scale into the global reinsurance business represents a further decisive step in the Covéa’s development, creating as it does a top tier European diversified insurance and reinsurance group,” the company said.

Since the deal fell apart the first time and the reinsurance-linked investment agreements were signed, Covéa now says it has an even greater appreciation for the reinsurance business and for PartnerRe, while a close cooperation between the PartnerRe and Covéa executive and operating teams has been fostered.

“A transaction with Covéa would reinforce PartnerRe’s development as a great company in its industry thanks to a significant increase in the scale and capital strength that membership of a larger financial institution would bring, and the value placed on this by primary insurance clients when reinsuring their risks,” the insurer said.

Interestingly, the reinsurance-linked investments, that previously saw Covéa injecting €750 million of capital into special purpose reinsurance vehicles, so effectively private collateralised reinsurance sidecar type structures, managed by PartnerRe is set to continue, although the investment will now come from EXOR instead.

Exor will acquire the interests in the special purpose reinsurance vehicles managed by PartnerRe from Covéa for approximately $725 million (€625 million).

Note that the original investment by Covea into them was for €500 million on January 1st 2021, with an additional €250 million investment agreed to be made before the January 1st 2024 renewals.

These special purpose vehicles will continue to invest in property catastrophe and other short-tail reinsurance contracts underwritten by PartnerRe.

On top of this, Covéa, Exor and PartnerRe are set to continue jointly investing into Exor-managed funds with a reinforced alignment of interests.

So the benefits of the previous agreement to scrap the acquisition are maintained and perhaps even strengthened for all parties.

John Elkann, Chairman and Chief Executive Officer of Exor commented, “The cooperation agreement signed in the summer of 2020 with Covéa has been positive in many ways and has contributed to a strong level of mutual trust between our companies. Also, thanks to Jacques Bonneau’s leadership and the excellent work of his team, PartnerRe has further improved its performance and strengthened its distinctive capabilities. Together, these have created a new opportunity to significantly reinforce PartnerRe’s development as a global reinsurance company.”

Thierry Derez, Chairman and Chief Executive of Covéa added, “PartnerRe has proved in the past year the relevance of its strategy, risk management and resilience in the pandemic’s uncertain environment and the quality of its management team. Our proposed transaction comes at the right time with the insurance sector undergoing a fundamental transformation. It fits perfectly with Covéa’s growth and diversification strategy, our ability to adapt and to bring together complementary expertise, extend our geographic reach and manage risks on a global basis. It would further strengthen the excellent prospects for PartnerRe and for our Group, serving the interests of our members and clients, as well as those of our employees and partners. And all this while continuing the reinsurance and investment partnerships we have successfully developed with Exor, and maintaining strong solvency and capital flexibility.”

Jacques Bonneau, CEO of PartnerRe also said, “Our focus at PartnerRe is on building a great and diversified (re)insurance business, constantly improving every aspect of our company, our expertise and the services we provide to our clients and broker partners. A combination with Covéa represents an important opportunity to grow profitably and achieve more rapidly these objectives.”

The goal is to sign a definitive sale agreement by the end of this year and for the transaction to complete in mid-2022.

All of the reasons to pursue this acquisition remained intact even after the break in negotiations due to the pandemic and are perhaps now strengthened after the cooperation for some months.

For PartnerRe, retaining the reinsurance linked investments is also a positive, as that has become a key lever alongside its other third-party reinsurance capital activities.