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SCOR-PartnerRe combo could produce top-three reinsurer, say analysts

8th February 2019 - Author: Matt Sheehan

A potential merger deal between French reinsurer SCOR and Bermuda-based PartnerRe would make strategic sense for both firms and could produce a combined entity that ranks in the top-three global reinsurers, according to analysts at AlphaValue.

partnerships-and-mergersRumours about a potential deal between the companies have been circulating since SCOR rejected an €8.2 billion takeover bid from Covéa last year on the grounds that it would be “fundamentally incompatible with SCOR’s strategy of independence.”

Covéa recently dropped its bid and SCOR subsequently initiated criminal actions against the insurer and its CEO, Thierry Derez, in the process revealing that its strategic committee had discussed a scenario regarding a possible combination with PartnerRe as early as July 2018.

SCOR has been under pressure from investors to raise the value of its shares (currently ~€38 per share) closer to the level offered by Covéa (€43), and analysts at firms such as Berenberg have previously suggested that a merger deal with PartnerRe would be an easy way to quickly boost prices.

However, SCOR and PartnerRe also have highly complementary business lines and significant cost and capital synergies, according to AlphaValue, a provider of Independent European Equity and Credit Research.

For example, the top line of PartnerRe is dominated by the property and casualty (P&C) segment (50% of gross premiums) and will be attractive to SCOR, which is targeting a 3-8% growth rate for 2016-19 for its P&C segment (currently 40% of gross premiums).

Analysts noted that a fresh focus on P&C is also warranted as SCOR cannot rely indefinitely on its leading position in the U.S life reinsurance market and its long-term relationships with cedants.

A merger deal would also work well geographically, as PartnerRe has experience in the French market and has its main offices based in Hamilton, Dublin, Stamford, Toronto, Paris, Singapore and Zurich.

These would complement SCOR’s main hubs in New York-Charlotte-Kansas City for the Americas, Paris-London-Cologne-Zurich for Europe and Singapore for Asia.

AlphaValue noted that the combined gross premiums of a SCOR-PartnerRe entity would total €15.72 billion based on 9M 2018 figures, which would put it well ahead of Hannover Re’s sales and potentially place it among the top-three global reinsurers.

Such a deal would also be advantageous for PartnerRe, which is currently suffering from a high combined ratio of 114.7% for its P&C business, compared to 93.6% for SCOR.

Therefore, while the merged entity’s earnings could look disappointing for the first couple of years, a combined ratio within the 95-97% range would be a reasonable target afterwards, analysts suggested.

For Exor, the Italian holding company that owns 100% of PartnerRe, a deal would also allow it to stabilise its dividend income, as SCOR is largely a dividend annuity.

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