Axa to buy Bermuda-based XL Group for $15.3bn

David Keohane in Paris and Oliver Ralph in London

March 5, 2018

French insurer Axa is to buy Bermuda-based XL Group in a $15.3bn deal that cements its position as one of the world’s biggest property and casualty insurance companies.

It will also give it more access to markets such as commercial property and reinsurance in the latest step in chief executive Thomas Buberl’s plan to change the shape of the business.

“It is a unique opportunity to shift our profile from being exposed to financial risks to being exposed to insurance risks,” he said.

M&A activity has been gathering pace in the insurance world this year. Already AIG has agreed to pay $5.6bn for Bermuda-based Validus, while Japan’s SoftBank has been in talks about taking a stake in Swiss Re.

Last year Axa announced the IPO of its US business, which is heavily exposed to the financial markets and are vulnerable to the sort of risks Mr Buberl is trying to move away from.

“This is a combination for growth. Axa has a small operation in the field that XL represents. We have €2.3bn of revenue, they have $15bn so there is not much overlap . . . this deal represents lots of potential,” said the chief executive.

“This transaction is a unique strategic opportunity for Axa to shift its business profile from predominantly life and savings business to predominantly property and casualty business, and will enable the group to become the number one global property and casualty commercial lines insurer based on gross written premiums,” added Mr Buberl.

The all-cash deal at $57.60 a share represents a premium of 33 per cent to XL Group’s closing share price on March 2 2018, according to Axa.

Axa shares were down 7 per cent in morning trading on Monday.

The French insurer will fund the deal, which was reported over the weekend, using €3.5bn of cash at hand, €6bn from the planned US IPO and related transactions and €3bn of subordinated debt.

The flotation was announced last May and is likely to happen in the coming months. There had been debate around whether the cash raised would be used to fund acquisitions or for share buybacks.

However, Mr Buberl said that he was not keen on buybacks. “Buybacks mean you have no entrepreneurial ideas any more, and I’m full of entrepreneurial ideas,” he said.

Mr Buberl had said that proceeds from the float could be used for acquisitions but that Axa was “not looking at tiny deals or very large deals. We are looking for deals worth €1bn to €3bn and for that we need financial flexibility.”

Analysts at Goldman Sachs said that “longer term, we believe there is a clear strategic logic to the transaction, which would expedite Axa's shift in business mix towards a greater reliance on technical earnings and reduced market sensitivity”.

They added that the deal “could potentially reduce its financial flexibility for a period”.

UBS analyst Colm Kelly was more sceptical: “We think this is not an obvious fit for Axa. Historically, Axa has grown via bolt-on acquisitions to achieve scale, not large scale M&A,” he said.

Mike McGavick, who has been XL’s chief executive for the past decade, will stay on as a special adviser to Mr Buberl.

Mr McGavick said: “In Axa, we have found like-minded partners committed to the absolute necessity to innovate and move this industry forward.”

The deal is expected to close in the second half of 2018.

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