...had Q3 shareholder equity of $7.3bn.
Any deal would likely see a valuation of more than $8bn placed on PartnerRe, which had Q3 shareholder equity of $7.3bn.
This publication also linked French mutual insurer Covea, the only likely cash buyer of a major reinsurance franchise at the moment, with a bid for the Bermuda (re)insurer.
We will watch the manoeuvres as they unfold, but here are a few early observations.
Deal blocks - Covea is in a superficially strong position, with $10bn+ of available cash and no shareholders to satisfy about the wisdom of a massive diversifying move into reinsurance. CEO Thierry Derez has a relationship with Exor chief John Elkann – with Derez a director at French carmaker Renault, the firm with which Elkann’s Fiat Chrysler struck a merger deal last year. Acquiring PartnerRe bears obvious similarities to Covea’s failed EUR8.2bn ($9.0bn) move on Scor.
However, Covea and Derez are still locked in acrimonious and damaging litigation relating to Scor’s allegations that the bid for the company was informed by confidential board papers the Covea CEO received as a member of the reinsurer’s board.
The French case – a criminal action – goes to trial in May, and success in pushing through an $8bn+ transnational M&A deal with that fracas ongoing would be heroic to say the least.
PartnerRe in play – If the transaction with Covea does not come to fruition, PartnerRe is very much in play, having (quietly) signalled a willingness to sell or to accept the junior role in a merger deal.
This creates a variety of possibilities for match-making, and you can be sure PartnerRe is being sized up by a variety of businesses right now.
Many believe that Swiss Re has unfinished business with PartnerRe, the Bermudian reinsurer it founded after Hurricane Andrew. It would like a deal to bring it back to the mothership - although revenue dis-synergies would be problematical.
Scor has long been mooted as a merger partner for PartnerRe, and Aspen - which has Apollo’s huge financial resources behind it - is also said to be selectively interested in consolidation opportunities within Bermuda.
The next-most likely cohort of names includes RenaissanceRe – which is two reinsurer consolidations down already – and Axis, which could try to revive the deal originally crashed by Exor back in 2015
Alleghany/TransRe and Everest Re seem like long shots, with Alleghany unlikely to want additional concentration in reinsurance and Everest signalling that insurance is its strategic growth priority.
The global insurers like Allianz and Zurich - as well as the Japanese big three - are reluctant to take on significant exposure to reinsurance owing to its volatility and underperformance. AIG has a strong platform it could roll PartnerRe into, but the addition of so much additional volatility would run counter to its strategy.
It is somewhat left-field, but venture capital firm Softbank - which has a $100bn fund - is also said by some to have retained an interest in reinsurance following its failed attempt to buy into Swiss Re in 2018.
M&A spike – The received wisdom in some quarters has been that we are going to see a period of relatively low M&A due to upward rating momentum, prior multiple expansion and uncertainty around balance sheets given the emerging casualty crisis in the US.
But in fact, it seems increasingly clear that a period of elevated M&A is coming to Bermuda over the next 12 months, with four or five transactions possible.
Some of this M&A (Greenlight Re, Third Point Re) will be driven by the challenges faced by the total return cohort, and some by the specific issues Sirius faces as a result of its majority owner’s financial stress.
Elsewhere, it will be driven by the industrial logic of scale in a marketplace where underwriting returns remain low, retro expensive, yields weak and rate gains anaemic (Hannover Re said +2.3 percent yesterday).
In such an environment, cost and capital synergies - along with a client value proposition enhanced by scale and increased breadth of capabilities - is likely to seem highly attractive to boards.
Legacy acquirers may have a part to play or the lead part to play in some of the deals.
As ever, personnel issues will remain a problem, but the likelihood is that the configuration and ownership of (re)insurers on the island will look somewhat different come the end of the year.
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