PartnerRe the subject of $9bn sale talks between Exor & Covéa

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PartnerRe, the Bermuda headquartered reinsurance company, is the subject of exclusive talks regarding a potential $9 billion sale between its owner Exor and French insurance group Covéa.

Exor, the Italian holding company and investment entity of the Fiat owning Agnelli family, confirmed the exclusive talks were underway yesterday, after media reports emerged from Bloomberg, the FT and Wall Street Journal.

Exor confirmed that it “has entered into exclusive discussions with Covéa regarding a possible all-cash acquisition of PartnerRe.”

However, it added that “These discussions are ongoing and there is no certainty that they will result in a transaction,” saying that it will “Refrain from further comment until the final outcome of the discussions is known.”

The discussions have been triggered by an approach from Covéa as it looks to acquire PartnerRe, Exor explained.

The French insurance group had already been linked with a bid for reinsurance company SCOR in 2018, which was spurned but has now resulted in a prolonged legal back and forth in recent months.

Covéa is seeking diversification within its business and adding a global reinsurance platform that would expand its horizons far beyond France and Europe, while also helping it generate reinsurance efficiencies as well could be an attractive deal for the company.

Of course, SCOR had also reportedly seen PartnerRe as a potential target back in 2018 as well, although the reinsurer denied those rumours at the time.

The price tag is said to be around US $9 billion, representing a roughly 30% profit on the $6.9 billion that Exor paid for PartnerRe in 2015, following a three-way tussle that also involved Bermudian specialty player AXIS Capital (which also wanted PartnerRe at the time).

Exor, run by Agnelli family member John Elkann, acquired PartnerRe as it sought diversification of its business model as well, seeing reinsurance as a solid way to reduce its reliance on profits from its holdings in entities such as the Fiat car manufacturing group.

While PartnerRe has become core to Exor since then, the profit it could generate through a quick sale to Covea may prove very attractive to the company, if terms can be agreed.

There are clear benefits to a combination of PartnerRe with Covéa, as the resulting re/insurer would have much greater diversification and opportunities to generate synergies across its insurance and reinsurance businesses.

Covéa also has the cash to help propel PartnerRe higher up the reinsurer league tables, while the access to primary risk in Europe would also be a positive driver of growth for the reinsurance strategy.

Both Covéa and PartnerRe are users of alternative capital, with Covéa having sponsored some catastrophe bonds in the past, while PartnerRe leverages insurance-linked securities (ILS) capital as a manager within its business through its sidecar, quota shares and other private deals and also for retrocession.

Whether a deal can be reached remains to be seen, as while the price is good there are clear reasons Exor may want to retain its hold on PartnerRe at this time when the reinsurance market has been turning more favourable.

That said, an interesting option could be for Covéa to take control as major shareholder, but to keep Exor as a financial supporter and investor in PartnerRe.

Exor could then continue to benefit from the diversifying source of return that it finds reinsurance to be, while Covéa gets its reinsurance platform, but both benefit from the potential growth opportunity they could attain by injecting capital and risk into PartnerRe to fund more rapid growth and expansion of the firm.

If successfully closed, an acquisition of PartnerRe by Covéa for around $9 billion would be the largest reinsurance M&A deal since AXA acquired XL Catlin.

Given where market conditions currently sit, with pricing more attractive and so reinsurance returns improving, the market seems ripe for further consolidation at this time.

Scale, efficiency and diversification within insurance and reinsurance companies remains key. Something that all parties could benefit from in this deal, if the right terms can be found to make all parties happy.

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