Coverage: Axa is in talks to purchase insurer XL Group

French insurance company Axa SA is in advanced talks to buy XL Group Ltd., a property and casualty insurer with a market value of $11 billion.

Matthew Monks, Manuel Baigorri, Ruth David and Dinesh Nair of Bloomberg News had the story:

Buying XL, which sells insurance to other insurers, would bolster Axa’s casualty coverage business in the U.S., and mark the biggest insurance deal since 2015, according to Bloomberg data. Such firms have become ripe takeover targets as policy prices begin to increase after firms booked heavy losses last year due to a spate of natural disasters. Some $17.5 billion in deals have been stitched together so far this year, according to data compiled by Bloomberg.

The biggest of the takeovers so far has been American International Group Inc.’s January agreement to buy Validus Holdings Ltd. for more than $5 billion in cash.

XL shares have advanced 23 percent this year in New York, giving the Hamilton, Bermuda-based company a market value of about $11 billion. AXA has gained 1.3 percent in Paris so far this year, valuing the company at 61 billion euros ($75 billion).

XL’s Chief Executive Officer Mike McGavick, who expanded the insurer in 2015 with the $3.9 billion deal to buy Catlin Group Ltd., last month said he was optimistic about “where we are going” on the back of a solid capital position and growth in premiums.

James Fontanella-Khan, Alistair Gray, Arash Massoudi and David Keohane of the Financial Times reported that it could lead to other insurance deals:

Meanwhile, Japanese conglomerate SoftBank is in talks to take up to a 30 per cent stake in SwissRe, a reinsurer that is also looking to participate in consolidation.

Deal activity has been particularly strong in the reinsurance sector as the industry’s long-term profitability is being threatened by capital pushed into the sector by low interest rates.

Shares in XL Group have climbed 23.1 per cent to $42.73 since the start of the year, giving the company a market value of $11.1bn. The group struck the biggest deal in its history in 2015, with a £2.79bn takeover of UK-based Catlin, a Lloyd’s of London underwriter.

Bloomberg first reported news about Axa nearing a deal with XL.

Axa recently launched a wide-ranging shakeup of its business, cutting costs and giving more autonomy to its local managers.

James Booth of City A.M. reports that Allianz is also interested in XL Group:

XL has also reportedly received interest from German insurance giant Allianz.

Meanwhile French-headquartered Axa has a market valuation of €61bn (£54.4bn) meaning a deal between the two could create a £60bn insurance player.

In February Axa published its full year results for 2017 revealing a two per cent slump in revenue to €98.5bn while profit grew 6.5 per cent to just over €6bn.

Axa chief executive Thomas Buberl announced last year that it plans to float a minority stake in its US business in the first half of 2018.

Buberl said: “We believe the current environment is supportive of this strategic initiative which would create significant additional financial flexibility to accelerate the transformation of the Axa Group around health, capital-light savings, protection and property and casualty commercial lines, our priority lines of business.”

In its 2017 results XL announced revenue of $11.3bn and a net loss attributable to shareholders of $560m.