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XL Group cited as M&A target for large re/insurers: Reports

8th February 2018 - Author: Steve Evans

According to Bloomberg, XL Group the Bermudian parent company of global insurance and reinsurance brand XL Catlin, is a target for M&A, with Allianz and other major re/insurers said to be showing interest.

XL Catlin logoXL Group is perhaps the largest Bermudian re/insurer and its global diversification makes it an attractive target for any company looking to add more reinsurance and P&S specialty focus to its business.

The mergers and acquisitions rumour-mill has heated up over night, with this being the second major news story to break, after the news that Swiss Re is in talks with Japanese tech conglomerate SoftBank Group over a potential investment in the reinsurer.

Scale and relevance remain key, but it can work both ways and the report says that insurance giant Allianz has made an approach and preliminary talks are said to be underway with XL.

Sources told Bloomberg that Allianz is looking to XL as a way to expand its business further into the United States P&C market, but it’s clear that XL has a lot more to offer from its large book.

Allianz is underweight to U.S. risks, despite being one of the largest non-life insurer in the world.

XL Group is valued at around $10 billion and the companies shares soared on this news, rising almost 12.5%.

The news follows AIG’s acquisition of Bermudian re/insurer Validus Group, which is underway.

There is a clear sign coming from these deals, that the market is thought to be ripe for M&A, that companies may be open to offers and that deals are being sought that could be transformational for at least one party, while scale and reach based for the other.

Analysts are mixed on the prospects for an Allianz XL M&A deal.

Deutsche Bank’s Hadley Cohen wrote, “While we estimate that Allianz has the funds to finance a potential transaction without coming to the equity markets, on initial glances, it is not immediately obvious how a potential deal would meet the company’s assumed hurdle rates and would clearly change its risk profile.

“The rationale for why Allianz could be keen on this asset is simple – XL would offer Allianz exposure to the US market- a market, where despite being the largest non-life underwriter globally, it remains underweight. However, Allianz does not have a particularly strong track record in this market, and according to our US colleagues, XL too has been very volatile in recent years – i.e. this is not necessarily the right fit for them.”

Cohen adds that it is widely expected that Allianz will look for an M&A deal though, but “it is not intuitively obvious on initial glances that this would necessarily be the right deal to do.”

Kai Pan at Morgan Stanley said that a deal could support XL’s valuation, but noted that both companies declined to comment so there is no certainty anything is being concocted at this stage.

Meyer Shields of KBW said that whether any XL deal goes ahead, or the Swiss Re / SoftBank investment, the news is bound to heighten interest in M&A and also boost re/insurer share prices.

Finally, another publisher (Reinsurance Magazine) said this morning that it has heard from sources that Swiss Re could be taking a look at XL Group as well, as market rumours suggest that there are many conversations ongoing which could potentially result in M&A discussions.

The Bloomberg report suggests that others may be speaking to XL as well.

It’s not that unusual that companies are talking, the emergence of a deal is not assured but all this news is certain to spur on the M&A rumour mill.

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