AXA to Buy Insurer XL Group for $15.3 Billion -- 4th Update
06 March 2018 - 4:46AM
Dow Jones News
By Matthew Dalton and Ben Dummett
PARIS -- French financial giant AXA SA said it would buy New
York-listed insurance company XL Group Ltd. for $15.3 billion on
Monday, creating one of the world's largest property and casualty
insurers.
The deal marks another step in AXA's plan to cut its exposure to
financial markets and focus more on insurance products that aren't
sensitive to swings in interest rates and stock prices. XL,
however, presents AXA with a different kind of risk: It is heavily
exposed to the business of insuring against natural disasters. The
Bermuda-based company lost $560 million last year mainly because of
the string of powerful hurricanes that slammed the U.S. and the
Caribbean.
AXA Chief Executive Thomas Buberl said he would unload some of
that risk when the French giant takes control of XL.
"We will not run the business with the same natural catastrophe
exposure, " Mr. Buberl said in an interview.
In light of the XL deal, Paris-based AXA said it would
accelerate existing plans to spin off its large U.S. life-insurance
business in a public offering. That division owns a majority stake
in AllianceBernstein, a money manager struggling against
competition from cheaper index funds.
Shares in AXA dropped nearly 10% Monday. Investors appear to be
concerned that AXA is paying too much for a company whose shares
are trading near a 10-year high, said Gianluca Ferrari, an analyst
at Mediobanca. Shareholders in XL will receive $57.60 a share,
which represents a 33% premium to the company's closing price on
Friday.
Investors also were expecting AXA to use the proceeds of the IPO
of its U.S. business on a mix of share buybacks and modest, bolt-on
acquisitions.
"This one is a big deal. It's not a bolt on," Mr. Ferrari said.
"We can forget about buybacks."
Mr. Buberl said that buybacks are a possibility once the
combined business is generating more cash.
XL generated revenue of $11 billion last year, but hurricanes,
California wildfires, two Mexican earthquakes and other
catastrophes forced the company to pay out $2.1 billion in damage
claims.
Reinsurers such as XL are struggling to raise premiums despite
these disasters -- which would typically allow the industry to
raise rates -- amid competition from so-called catastrophe bonds.
Such bonds, which essentially package insurance risk as debt, have
attracted investment from pension funds and other investors seeking
higher returns.
Although global property catastrophe policy rates were up just
under 5% at the start of 2018, policy prices were still below those
of 2016 even though 2017 marked the "most expensive catastrophe
loss year on record," according to a study by reinsurance broker
JLT Re.
That is pushing companies with reinsurance businesses to seek
greater scale through deals. The purchase of XL represents the
second acquisition of a Bermuda-based insurer and reinsurer this
year after American International Group Inc. agreed in January to
buy Validus Holding Ltd for $5.56 billion.
The XL deal also highlights a broader consolidation trend in the
insurance sector. In February, reinsurance giant Swiss Re AG
confirmed a Wall Street Journal report that it was in talks to sell
a minority stake to Japan's SoftBank Group Corp.
To finance the deal, AXA said it would use EUR6 billion ($7.4
billion) in proceeds from the coming IPO of its U.S. business, EUR3
billion in cash and issue EUR3 billion in debt. AXA filed for the
offering of the U.S. business, AXA Equitable Holdings, in November
with U.S. regulators, though shares have yet to be sold to the
public.
"This means we intend to progressively sell down the AXA Group's
stake in AXA Equitable Holdings over the next couple of years
subject, of course, to market conditions," Mr. Buberl said.
AXA and XL's boards have both approved the deal but the
transaction remains subject to approval from XL's shareholders and
regulators.
--Nathan Allen contributed to this article.
Write to Matthew Dalton at Matthew.Dalton@wsj.com and Ben
Dummett at ben.dummett@wsj.com
(END) Dow Jones Newswires
March 05, 2018 12:31 ET (17:31 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
Axa (EU:CS)
Historical Stock Chart
From Apr 2024 to May 2024
Axa (EU:CS)
Historical Stock Chart
From May 2023 to May 2024