AXIS Capital Holdings Limited and PartnerRe Ltd have signed a definitive amalgamation agreement to create one of the world’s pre-eminent specialty insurance and reinsurance companies, with gross premiums written in excess of US$10 billion, total capital of more than $14 billion, and cash and invested assets of more than $33 billion. This would create the world’s fifth largest property and casualty reinsurer.
Upon completion of the transaction, shareholders of PartnerRe and AXIS Capital will own approximately 51.6% and 48.4% of the combined company, respectively.
PartnerRe Chairman Jean-Paul L Montupet will be non-executive chairman of the combined company. AXIS Capital CEO Albert A Benchimol will serve as CEO of the combined company. The new company will have a 14-person Board of Directors, consisting of seven AXIS Capital directors and seven PartnerRe directors, including Messrs Montupet and Benchimol. Current AXIS Capital Chairman, Michael A Butt will continue to serve on the Board as Chairman Emeritus.
The merger is expected to achieve at least $200 million in annual pre-tax cost synergies in the first 18 months of operations and the transaction is expected to close in the second half of 2015, subject to approval by the shareholders of both companies, regulatory clearance and customary closing conditions.
Rating agencies cautious
Rating agencies, meanwhile, are cautious about the merger, raising concerns over a smooth integration, mainly because both entities are huge and complex, said Intelligent Insurer.
S&P said they are confident that the merger will create a stronger global franchise in the next two to three years but it is concerned about the integration risks between the two complex entities, citing uncertainties in the management of its capital adequacy and efficiencies, property catastrophe exposure, potential business overlap and resulting attrition. It has put the ratings of the two entities on creditwatch with negative implications.
A.M. Best said there would be greater inherent risk to the ongoing operations of the combined company and has placed both companies under review with negative implications. Likewise, Fitch has both companies on negative watch citing possible complications during integration.
Moody’s however is more positive about the merger, acknowledging that while the transaction carries some business and operational risks, it believes the integration and execution risks are manageable. It affirmed PartnerRe’s ratings and placed AXIS Capital’s ratings under review for an upgrade.
This deal is the latest in a string of mega merger deals in the industry recently, following RenaissanceRe’s agreement to buy Platinum Underwriters and then XL Group’s $4.2 billion takeover of Catlin.