France's largest insurance group AXA yesterday announced that it would buy 100% of Bermuda-based XL Group for US$15.3 billion to create what it said would be a world leader in property and casualty insurance.
Europe's second biggest insurer offered $57.60 for each XL share, a 33% premium on the closing price on 2 March, and said buying XL would result in P&C insurance rising to half of AXA's earnings, from 39%. The company expects the XL takeover to be cash accretive, and result in cost synergies of around $400 million per year, based on pre-tax earnings.
XL, which is a leading global P&C commercial lines insurer and reinsurer with a strong presence in North America, Europe, Lloyd’s and Asia-Pacific, has already agreed to AXA's offer, and AXA will look to de-list XL's shares. AXA said it would finance the deal with debt, cash and the proceeds of the IPO of its US business.
The merger agreement has been unanimously approved by the boards of AXA and XL Group.
AXA Chief Executive Thomas Buberl said the deal will enable AXA to dominate the global P&C market, and reduce its exposure to the volatility of financial markets.
He 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.”
He said that the future AXA will see its profile significantly rebalanced towards insurance risks and away from financial risks.
However, analysts at UBS said XL would not necessarily fit AXA's plans to grow in Asia, given XL's predominantly US-exposed business, reported Reuters. "AXA targets growth in health, protection and commercial lines, P&C (property & casualty) markets preferably in Asia rather than US reinsurance," UBS said.
"However, acquiring XL does give global commercial P&C lines exposure and further accelerate AXA's exit from more volatile business lines in the US," it added.