AXA pays XL premium to insure more stable future

FRANCE-INSURANCE-EARNINGS-AXA
Axa CEO Thomas Buberl said the deal was a"unique strategic opportunity
Author

06 March, 2018

The acquisition will accelerate Axa's exit strategy from its existing U.S. operations, the group said.

XL chief executive Mike McGavick said: "Today marks an unrivalled opportunity to accelerate our strategy with a new strength and dimension".

The deal equates to $57.60 per XL Group share, a 33% premium to Friday's closing price.

AXA ranks as Europe's second-largest insurer in terms of market capitalization behind Germany's Allianz, which had also been seen as a possible suitor for XL.

However, AXA shares fell 5 percent in early trading, as some analysts said the XL deal looked pricey.

AXA CEO Thomas Buberl said, "This transaction is a unique strategic opportunity for AXA to shift its business profile from predominantly L&S business to predominantly P&C business, and will enable the Group to become the #1 global P&C Commercial lines insurer based on gross written premiums". "We will be No. 1 in commercial insurance", he told a news conference in Paris.

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But analysts are more upbeat about the outlook for the region despite prospects of rising US inflation and rates. The Fed's projection on rate hikes came with the release Friday of its semi-annual monetary report to Congress.

Some analysts were skeptical about the price. XL Group provides both a premier specialty platform complementing and diversifying AXA's existing commercial lines insurance portfolio, and reinsurance capabilities that will allow AXA an access to enhanced diversification and alternative capital. XL, however, presents AXA with a different type of risk: "It is heavily exposed to the business of insuring against disasters".

XL is a leading global property and casualty commercial lines insurer and reinsurer, which has a strong presence in North America, Europe, Lloyd's and Asia-Pacific.

Calling the acquisition of the Bermuda-based business a "major leap forward in Axa's strategic journey", Axa promised it would now accelerate its exit from its existing USA operations. In reaction, XL shares are up almost 30% to $56.50 in pre-market trading.

Mr Jerome Schupp, a fund manager at Geneva-based Prime Partners, which owns AXA shares, said it was a "good deal", given AXA's plans to cut its exposure to financial markets, and that it looked positive on a long-term view. AXA also reaffirmed its financial objectives for 2020, according to which French insurer seeks to increase earnings per share between 3 and 7% per annum during period 2016-2020.

Law firm Skadden said it was advising XL over the AXA takeover, while AXA added that JP Morgan was involved in part of the financing of the XL takeover.


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