AXA announced March 5 in Paris that it has entered into an agreement to acquire 100% of XL Group Ltd (NYSE: XL), a Bermuda-based leading global Property & Casualty commercial lines insurer and reinsurer with strong presence in North America, Europe, Lloyd’s and Asia-Pacific.
The merger agreement has been unanimously approved by the boards of AXA and XL Group, but the transaction remains subject to approval from XL’s shareholders and regulators. Total consideration for the acquisition would amount to $15.3 billion, to be fully paid in cash. Under the terms of the transaction, XL Group shareholders will receive $57.60 per share. This represents a premium of 33% to XL Group closing share price on March 2, 2018.
“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,” said Thomas Buberl, CEO of AXA. “The transaction offers significant long-term value creation for our stakeholders with increased risk diversification, higher cash remittance potential and reinforced growth prospects. The future AXA will see its profile significantly rebalanced towards insurance risks and away from financial risks.”
Buberl said XL Group has the right geographical footprint, world-class teams with recognized expertise and is renowned for innovative client solutions. “Our combined P&C Commercial lines operations will have a strong position in the large and upper mid- market space, including in specialty lines and reinsurance, and will complement and further enhance AXA’s already strong presence in the SME segment. The two companies share a common culture around people, risk management and innovation, positioning AXA uniquely for the evolving future of the P&C industry,” Buberl said.
In a statement issued Monday, AXA said the acquisition is aligned with AXA’s Ambition 2020 preferred segments favoring product lines with high frequency customer contacts, quality service and superior technical expertise. XL Group provides both a premier specialty platform complementing and diversifying AXA’s existing commercial lines insurance portfolio, and reinsurance capabilities that will allow AXA an access to enhanced diversification and alternative capital. The combination of AXA’s and XL Group’s existing position will propel the Group to the #1 global position in P&C Commercial lines.
The opportunity to acquire XL Group has led AXA to review its exit strategy from its existing U.S. operations, which AXA now expects to accelerate. Market conditions permitting, AXA hopes to spin off AXA Equitable as a separate company by June 30. Together with the planned IPO of AXA’s U.S. operations and intended subsequent sell-downs, this transaction would gear AXA further towards technical margins less sensitive to financial markets.
The strong complementarities between AXA and XL Group provides opportunities for significant value creation, offsetting the planned U.S. IPO earnings dilution as soon as 2018. It also allows for material capital diversification benefits under the Solvency II framework and a strong return on investment. In this context, AXA also reaffirmed its Ambition 2020 targets.
XL generated revenues of $11 billion in 2017, but still lost $560 million last year mainly because of the string of hurricanes that slammed the U.S. and the Caribbean, wildfires in California and earthquakes in Mexico. Mike McGavick, CEO of XL Group, said XL will not run the business with the same natural catastrophe exposure once AXA takes over.
“Today marks an unrivalled opportunity to accelerate our strategy with a new strength and dimension. With every confidence in how we have positioned XL Group for the future, it is a substantial testament to AXA’s leadership and commitment to maintaining the XL Group brand and culture that we have come to an alignment,” McGavick said. “We are excited at the opportunity to build the scale, geographical footprint, product portfolio, and the unmatched commitment to innovation that relevance in the global insurance industry requires. In AXA we have found like-minded partners committed to the absolute necessity to innovate and move this industry forward.”