French insurance group Covéa and EXOR, the Agnelli family owned holding company investor, have struck an agreement to cooperate on reinsurance-linked investments going forward, finding a way to settle with each other over the failed PartnerRe sale.
Covéa is set to inject €750 million of capital into special purpose reinsurance vehicles managed by PartnerRe, which will see the French firm benefit from a share of the returns and profits of the portfolios, while reinsurer PartnerRe will benefit from a capital increase that can be put to work in the current hardening market environment.
As a reminder, EXOR had agreed to sell PartnerRe outright to Covea for $9 billion, but the price was subject to renegotiations that failed during the Covid-19 pandemic and so the deal was called off.
Covéa had wanted to renegotiate the price in the wake of the Covid-19 pandemic it appears, but EXOR stuck by the original sale price and has said that it would not accept anything lower given PartnerRe was not set to suffer a significant hit from the impacts of the coronavirus.
It was reported by the Italian press that pulling out from the acquisition would have seen Covea subject to a penalty of as much as $175 million, although that was never confirmed.
But now the parties have found a constructive way to move forwards, one which allows Covea to tap into the returns of PartnerRe’s reinsurance business, while EXOR benefits from capital support to grow PartnerRe, as well as additional investment commitments from the French insurer.
EXOR N.V. said late yesterday that it reached an agreement with Covéa Coopérations S.A., under which the French insurance group will invest a total of €1.5 billion with Exor, half of which will be directed into special purpose reinsurance vehicles managed by PartnerRe.
€750 million will be allocated for investment opportunities where Covea will sit alongside EXOR, which will assist the Italian investment group in being more expansive at a time when capital liquidity may have been less abundant.
On the reinsurance linked investment deal, Covea will allocate the other €750 million into a number of special purpose insurance vehicles managed by PartnerRe.
The reinsurance linked investments will have a three- to five-year lock-up period and be invested into property catastrophe and other short-tail reinsurance contracts.
The first €500 million investment in special purpose insurance vehicles (SPV’s) will be made on January 1st 2021, to coincide with the January 2021 reinsurance renewals, with an additional €250 million investment to be made before the January 1st 2024 renewals.
This gives PartnerRe a significant new chunk of short-tailed reinsurance capacity, which it can put to work in being more expansive at the next renewal season.
The reinsurer is already partnering with third-party investors through its insurance-linked securities (ILS) operations, which include its own Lorenz Re sidecar and dedicated investor structures such as the one recently announced with Dutch pension investor PGGM, the so-called Huygens relationship.
Meanwhile, Covéa benefits through accessing the diversified source of returns that is catastrophe reinsurance and other short-tailed reinsurance lines, which should be relatively uncorrelated with its largely European insurance book.
The agreement and way of working together going forwards, shows that investors can come into large reinsurance companies without buying equity, even if that had been their original goal, with the end-result being a way to try out the returns of the reinsurance business without any of the corporate overheads that would have come from a full acquisition.
John Elkann, Chairman and Chief Executive Officer of Exor, commented, “After having decided definitively to continue our project to build one of the world’s leading independent reinsurers, we’re more than happy now to have been able to agree with Covéa this constructive cooperation extending also to other fields of our activity.”
Covéa said that the cooperation would see the parties, “seizing together investment opportunities in the context of a deeply changing economy.”
The French insurer said that it, “intends to carry out the first investments in the reinsurance field as of now, and with respect to the investment component as from 2021.”
For PartnerRe, the reinsurer has now significantly boosted the third-party reinsurance assets under its management, while gaining a source of capacity to boost its expansion and take advantage of rates at the next renewals.