Covéa/PartnerRe: cover position
This should be a fuss-free deal, but regulatory approval could complicate matters
No fuss, no blabla. So goes a slogan used by French insurance mutual Covéa. It should be able to take the same straightforward approach to acquisitions. It has plenty of cash and no shareholders to answer to. That should help Exor, holding company of Italy’s billionaire Agnelli family, to strike a good deal. News that it is in talks to sell PartnerRe, the Bermuda insurer for $9bn in cash, sent shares up 6 per cent on Monday.
This is not a transaction that Exor has to do. It is already expecting a big dividend from its holding in FCA, which will soon merge with rival carmaker PSA. Exor will end up with an acquisitions war chest of $12bn-13bn, which boss John Elkann will probably use to diversify away from its industrial business. With asset prices high, finding targets may take time.
But the mooted price for PartnerRe looks more than reasonable: at about 1.3 times last June’s book value, it is roughly a fifth higher than the multiple of rivals Swiss Re or Scor. Exor would chalk up a 30 per cent gain on the $6.9bn paid in 2016, on top of $660m of dividends paid last year.
Regulatory approval could complicate matters. Covéa’s failed attempt to buy Paris-based reinsurer Scor in 2018 led to multiple lawsuits. Even so, Covéa has reason to push for a deal: it would reduce its reliance on the French market. Given the failure of its Scor bid, there are few other targets for its surplus cash.
A bigger question is whether reinsurance looks attractive at this stage in the cycle. Shares of reinsurers have rallied since midway through last year. The hope is that reinsurance rates are hardening. There is less capital chasing this business, as a result of the losses endured in the natural disasters of 2017 and 2018. That optimism may be premature. There is no end in sight to ultra-low interest rates, which enhance the appeal of reinsurance returns. A stampede of capital back into the market would make a disposal by Exor look well timed.