Axis Capital Holdings Ltd and PartnerRe Ltd released a joint statement on Monday announcing they have agreed to an all-share $11 billion merger to create a truly global reinsurance firm.
Analysts note the move is clearly in response to pressure to consolidate in the reinsurance industry. Reinsurers are suffering from both tough price competition and reduced demand from insurers. This means that consolidation of one sort or another is expected for firms lacking in global reach or a specialized focus.
Of note, reinsurers work with insurers to help cover and pay large damage claims, typically in return for part of the long-term profit.
Axis Capital – PartnerRe merger: Not a buyout
This transaction is a relatively rarity in today’s complex M&A world — a true merger. “This is not a sale; we’re not buying them, they’re not buying us,” emphasized Axis Capital Chief Executive Albert A. Benchimol, who will be CEO of the new company, in a conference call with investors Monday.
“We are both contributing our operations, our potential and our tangible book value,” Benchimol continued in describing the merger.
Consolidation among reinsurers
The deal announced today is just the latest manuever by reinsurance firms as they seek greater market share by expanding product lines or geographical reach. Some reinsurance firms are even trying to move into the traditional insurance business and try to minimize their exposure to the ultra-competitive reinsurance market.
Of note, just a couple of weeks ago, XL Group Plc announced it was purchasing underwriter Catlin Group Ltd for nearly $4.2 billion, upping the firm’s share of business written in the Lloyd’s of London market to close to 10%.
A January 26th Reuters article notes that industry analysts have already identified a number of small-to-medium sized companies among the global Top 40 reinsurers as potential targets for some form of consolidation, such as Everest Re, Arch Capital, Endurance and Aspen.