The creation of one of the world’s largest reinsurers in an all-stock merger paves the way for more deals.
AXIS Capital Holdings Ltd. and PartnerRe Ltd.’s combination without taking on debt will leave the new firm with ample capacity to expand, make acquisitions and return funds to shareholders, AXIS Chief Executive Officer Albert Benchimol said in an interview Monday.
“My expectation, frankly, is that over the next several years, we will utilize that capital to do all three,” Benchimol said by phone. “If we wanted to issue debt to do something, we could do that.”
AXIS and PartnerRe announced their plan to combine late Sunday in New York, creating a Bermuda-based insurer and reinsurer with a market value of almost $11 billion. Benchimol, who will be CEO of the combined company, said the firms are still working on a name for the new entity.
During the conference call held Jan. 26 to discuss the deal, Benchimol said the companies’ combined global specialty insurance business will be “sizeable.” He said that the combined capital and resources “can accelerate profitable growth in specialty insurance, both organically and through strategic acquisitions.”
Traditional reinsurers have been seeking deals to diversify offerings and gain scale amid increased competition from hedge funds and other investors pushing into their market. XL Group Plc agreed this month to buy Catlin Group Ltd., a Lloyd’s of London company, for about $4 billion. RenaissanceRe Holdings Ltd. struck a deal in November to purchase Platinum Underwriters Holdings Ltd.
Combined, AXIS and PartnerRe will be able to offer more types of coverage and larger policies, making the new company a more attractive partner for brokers and other firms, Benchimol said. He said the deal also improves his company’s position in the market for catastrophe bonds and its ability to negotiate with funds that make insurance-linked wagers.
Mike McGavick, XL’s CEO, said earlier this month that investors such as hedge funds are becoming more sophisticated and are seeking out new bets as they look to work with insurers. Traditionally, the outside investors had mainly wagered on catastrophe coverage.
Together, AXIS and PartnerRe would be the No. 5 seller of property-casualty reinsurance by gross premiums, according to a presentation Monday. That’ll help the firm compete with larger rivals like Berkshire Hathaway Inc., Munich Re and Swiss Re AG.
AXIS advanced 6.4 percent to $52.49 at 1:20 p.m. in New York. PartnerRe rose 1.9 percent to $116.34.
Cost-savings tied to the merger will probably be about $200 million annually, according to the Sunday announcement. Benchimol said it’s too soon to say how many people may lose their jobs, or which offices might close. He noted that PartnerRe and AXIS have duplicate locations in some cities.
“Now that we are a combined company, we certainly don’t necessarily need two offices,” he said. “That’s clearly an opportunity for some savings.”
–With assistance from Noah Buhayar in Seattle.