Axa Re Offer Mirrors Consolidation Moves by European Insurers

April 10, 2006

French insurer Axa SA said Friday it received a binding offer for its reinsurance business from a consortium of private-equity firms led by Stone Point Capital.

The deal calls for the consortium — which also includes Vestar Capital Partners and ABN Amro — to pay 120 million euros ($147 million) above the net assets of Axa Re. The Paris-based company said it is in exclusive talks with the consortium, and could take a 5 percent to 10 percent stake in the spun-off business as part of the transaction. It said it will respond to the offer after consulting with workers’ councils.

Axa has been in the midst of a strategic review over the future of its reinsurance business, which covers insurance companies against risks. The insurer would sell the business to Paris Re, a company set up by the consortium.

The bid comes amid signs of broader consolidation of European insurers and just weeks after Britain’s Prudential PLC rejected an unsolicited takeover offer from rival Aviva. There had also been speculation Axa was close to a deal to sell Axa Re to rival French reinsurer Scor SA, according to analysts.

Axa also said that underwriting and claims for 2006 and prior years would continue to be managed by Axa, and it would guarantee the reserves pertaining to losses incurred on or before Dec. 31, 2005.

A spokesman for Stone Point Capital, which is based in Greenwich, Conn., could not be immediately reached. The private-equity firm serves as the manager of the Trident Funds, which have raised more than $3 billion in capital to make investments in he insurance, employee benefits and financial services industries.

Blair Stewart, an analyst with Merrill Lynch in London, told clients in a report that the deal price was “uninspiring” but called Axa’s strategy “sound.” He maintained a “Buy” recommendation on the stock.

“Although we believe the price is disappointing, the expected release of capital and reduction in earnings volatility are both positive and there is no change to our Buy rating,” he said. “The Axa Re business was small, but unloved by investors.”

JPMorgan Securities analyst Nicholas Byrne called the deal a “small positive” for Axa, adding that it’s a good way for the insurer to shed one of its more volatile businesses. Reinsurers are often on the hook when insurance companies are hit with massive claims, such as after a major hurricane or earthquake.

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