Axis to Merge With PartnerRe, Form $11 Billion Reinsurer

Axis Capital Holdings Ltd. agreed to merge with PartnerRe Ltd., combining two Bermuda-based reinsurers with a total market value of almost $11 billion amid accelerating consolidation in the industry.

PartnerRe shareholders will own 51.6 percent of the new insurer, and the company declined in New York trading while Axis advanced. The combined entity will be among the world’s five largest reinsurers, with more than $10 billion in policy sales, according to a statement late Sunday in New York. Invested assets and cash will be more than $33 billion.

The transaction “will leverage the complementary strengths of both companies,” Axis Capital Chief Executive Officer Albert A. Benchimol, who will serve as CEO of the combined firm, said in the statement. The deal will “create an organization with the size and breadth to enhance product and service offerings, maximize growth opportunities, optimize portfolios and deliver both economies of scale and capital efficiencies.”

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 $4.2 billion. RenaissanceRe Holdings Ltd. struck a deal in November to purchase Platinum Underwriters Holdings Ltd.

Axis advanced 3.4 percent to $51.02 at 10:21 a.m. in New York, giving the company a market value of about $5.2 billion. PartnerRe slipped 0.6 percent, giving it a market value of $5.5 billion.

‘Weaker Economics’

“PRE seems to be getting modestly weaker economics,” Josh Shanker, an analyst at Deutsche Bank AG, said in a research note dated Monday, using PartnerRe’s ticker symbol.

Shanker said investors generally think that PartnerRe has set aside more funds than Axis to guard against future losses.

“The terms of the deal do not seem to acknowledge a difference between Axis’s and PartnerRe’s potential for redundancy” of reserves, he wrote.

Reinsurers take on risks initiated by primary carriers. They have also been seeking to add specialty offerings for commercial clients.

Combining will help Axis and PartnerRe compete with larger rivals like Warren Buffett’s Berkshire Hathaway Inc., Munich Re and Swiss Re AG. Together, Axis and PartnerRe would be the No. 5 seller of property-casualty reinsurance by gross premiums, according to a presentation Monday.

Global Plans

The merged firm also will sell specialty policies to businesses, as well as life and accident-and-health coverage. The deal will lead to at least $200 million of annual cost savings before tax within the first 18 months of operations, the pair said.

The transaction will help the new company expand in Latin America, the Middle East and Asia, Benchimol said on a conference call on Monday.

Competition and a glut of money in the industry has pushed down reinsurance prices and eaten into providers’ margins. Rates for property-catastrophe coverage fell 11 percent for policies that renewed on Jan. 1, a major date for arranging the coverage, according to Guy Carpenter, a division of Marsh & McLennan Cos. Rival broker Aon Plc said this month that reinsurer capital reached a record $575 billion at the end of the third quarter.

‘Frenzy’ Predicted

Ace Ltd. CEO Evan Greenberg predicted in October that those those trends would lead to a “frenzy” of mergers and takeovers in the industry as companies try to keep from shrinking.

“In the current competitive market, size, scale and breadth are more important than ever,” PartnerRe Chairman Jean-Paul L. Montupet said on a conference call with investors on Monday. “We will be better positioned to compete and excel in this evolving new global marketplace as a combined entity.”

Axis Capital was founded by Marsh & McLennan and began operations in 2001 after the industry was shaken by the Sept. 11 terrorist attacks. Its Axis Re Ventures unit helps investors bet on weather risks through securities such as catastrophe bonds.

PartnerRe, formed in 1993 after claims from Hurricane Andrew pressured established insurers, provides catastrophe coverage and also guards against risks in industries including agriculture, aviation and energy. The company expanded with the 2009 purchase of Paris Re Holdings Ltd. and backed Essent Group Ltd., the mortgage insurer that had a public offering in 2013. The company this month announced the establishment of PartnerRe Asia after winning a license from regulators in Singapore.

Combined Board

Benchimol worked for PartnerRe for about a decade as chief financial officer until stepping down in 2010 a few months before Costas Miranthis was set to become CEO. Benchimol soon joined Axis Capital as finance chief, later becoming its CEO.

Miranthis is now stepping down from that post at PartnerRe and leaving its board as of Sunday. Another director, David Zwiener, will serve as interim CEO until the deal’s expected completion in the second half of this year, the companies said.

Seven directors from each company will constitute the combined firm’s board, with PartnerRe Chairman Montupet serving as non-executive chairman. Axis Capital Chairman Michael A. Butt will become chairman emeritus. PartnerRe investors will get 2.18 shares of the combined company for each of their shares. The ratio will be one-to-one for Axis shareholders.

Credit Suisse Group AG is providing financial advice to PartnerRe on the deal. Davis Polk & Wardwell and Appleby Global are serving as legal counsel. Goldman Sachs Group Inc. is Axis Capital’s financial adviser. Simpson Thacher & Bartlett and Conyers Dill & Pearman are acting as legal counsel.

Expansion provides “opportunities in terms of relationship with clients and brokers,” Catlin CEO Stephen Catlin said after agreeing to sell his Bermuda-based company to XL. “It’s the question of being relevant.”

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