The news story, which originally appeared in Bloomberg, “is credible,” according to Berenberg Capital Markets in a research note. The research analyst pointed to the fact that Covéa has been in the market for an acquisition for the past few years.
In 2018, Covéa attempted a hostile takeover of reinsurer SCOR, but ultimately abandoned the deal in early 2019. Then in early 2020, the company sought to purchase PartnerRe from EXOR, but pulled out of the deal as a result of last year’s economic turmoil caused by the COVID-19 crisis.
Research Report: Reimagining marketing and distribution in a post-pandemic world.
Berenberg believes such “a deal would be very positive to the AXA valuation” for reasons that include:
- The deal would have a potential upside of 4%-6% for AXA.
- It would remove earnings volatility. “Essentially, while we believe that the commercial lines and speciality part of AXA XL are good fits with AXA, the reinsurance business adds too much volatility. Therefore, in our view AXA is not the best long-term owner of this business.”
- An estimated gain of up to €1 billion ($1.2 billion), assuming a potential sale price of €4 billion-€5 billion ($4.7 billion-$6 billion), worth up to €0.40 a share.
- Assuming a €5 billion sale price and if AXA XL’s reinsurance unit reports a €400 million ($477.4 million) net profit, then the deal would create a 12x price-to-earnings ratio, which is well above AXA’s own 8x P/E. “This clearly would create value.”
- By reducing required capital, it would potentially add to AXA’s group solvency, which Berenberg estimates is approximately 205% for Q2 2021, down from 208% in Q1 2021.
But while the SCOR and Covéa saga has finally come to an end, with the pair recently coming to an agreement, reports claim that the French insurer has its eyes on yet another Bermudian reinsurance entity.
In April, AXA XL announced the consolidation of its reinsurance businesses under the AXA XL Re entity, based in Bermuda.
As explained by AXA at the time, this new unit predominantly consist of renewing reinsurance policies previously underwritten by XL Bermuda Ltd., which AXA acquired in 2018.
Reports note that during 2020, AXA XL Re recorded almost $5 billion in gross written premiums, which places it nicely inside the top 15 of the sector.
For Covéa, the takeover of AXA XL Re would strengthen its standings in the non-life reinsurance sector and diversify its offering.
Source: Reinsurance News
