A renewed battle for ownership of Bermuda’s PartnerRe could be in the offing now that its owner has confirmed discussions with Covéa.
Exor, the holding company of Italy’s Agnelli family, said last weekend that it was considering an all-cash acquisition from the French mutual insurer. It might seem at first glance that closing a deal should be easy enough with an apparently willing seller and a cash-rich bidder. Also, as a mutual, Covéa is not hampered by the need for shareholder approval and can move quickly.
However, the deal faces some significant hurdles in practice that could open the door to rival bids. For one thing, Covéa and chief executive Thierry Derez are still embroiled in civil and criminal proceedings following Covéa’s failed €8.2 billion (US$9 billion) bid to buy Scor in 2018. Derez is due in court later this year, facing charges that he abused his position as a member of Scor’s board to help prepare Covéa’s takeover bid.
The debacle has also drawn criticism from the French insurance regulator, with local media claiming the ACPR sent a letter to Covéa in December “inviting” the company to improve its governance.
Against this backdrop, regulatory approval for the acquisition is far from a done deal, as Exor confirmed in its statement regarding the talks: “These discussions are ongoing and there is no certainty that they will result in a transaction,” it said.
ValuationThe other issue is price. The Agnellis paid US$6.9 billion for PartnerRe in 2015 and in Exor’s latest financial report say the company now has a fair value of US$8.34 billion, with analysts claiming that Covéa might need to pay as much as US$10 billion.
That would represent a 20% premium over the fair value and a 64% premium over PartnerRe’s tangible book value of US$6.1 billion, as reported in its third-quarter 2019 financial statement. For comparison, Swiss Re trades at a 30% premium to its tangible book value while Munich Re trades at a 47% premium.
While that might make US$10 billion seem like a hefty price tag, it is worth remembering that Axa paid double XL Catlin’s tangible book value in 2018 — and that French-Bermudian deal bears some obvious similarities to this one.
Any deal would also see Covéa significantly expand into Asia. In 2018 11% of PartnerRe’s US$6.3 billion gross written premiums were written across Asia Pacific – where it has a particularly strong presence in Australia, Japan and New Zealand. The reinsurer has 65 people based in Singapore and Hong Kong and is headed up in Asia by Singapore-based chief executive James Beedle.
Exor is likely to prefer Covéa’s cash bid, but if its takeover attempt hits the rocks other potential suitors might include Axis Capital, which was a rival bidder for PartnerRe back in 2015. Other Bermudian reinsurers have been rumoured as potential buyers, but few are big enough to get a deal done for a company the size of PartnerRe, which is one of the island’s biggest reinsurance players.
RenaissanceRe is a similar size and could be a candidate, and Aspen, while considerably smaller, is backed by deep-pocketed asset manager Apollo.
Interest from the big reinsurance groups is also possible, perhaps even Scor, but a primary insurer such as Covéa is likely to place more value on the deal as it clearly has a strong strategic interest in becoming a (re)insurance player in its own right.
ConvergenceIndeed, the further convergence of insurance and reinsurance companies is likely to drive further interest in the Bermuda market going forward as debt financing remains cheap and reinsurers’ shareholder returns continue to disappoint. However, the number of potential targets is dwindling and valuations may rise as scarcity starts to become a factor.
It remains to be seen if Covéa will close this deal, but it probably won’t be the last.

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