Bermuda reinsurers Axis Capital, PartnerRe in $11 billion merger

Reinsurers are being squeezed by price competition and subdued demand from insurers for their products and consolidation in various forms is expected for companies that lack either global reach or a specialized focus.

The combination of the two Bermuda-based companies may displace France's Scor as the world's fifth largest property and casualty reinsurer. It will have gross premiums topping $10 billion, PartnerRe said in a statement.

"This is not a sale; we're not buying them, they're not buying us," Axis Capital Chief Executive Albert A. Benchimol, who will be CEO of the new company, told a conference call with investors.

"We are both contributing our operations, our potential and our tangible book value," Benchimol said.

The deal is the latest in a series of moves by reinsurance firms to seek greater heft by expanding product lines or geographical reach, with some looking to branch more into insurance and curb exposure to the tough reinsurance market.

Earlier this month, XL Group Plc said it would buy underwriter Catlin Group Ltd for about 2.79 billion pounds ($4.2 billion), increasing the Dublin-based insurer's share of business written in the Lloyd's of London market to nearly 10 percent.

Analysts have frequently flagged a number of small-to-medium sized players among the global Top 40 reinsurers as potentially taking part in consolidation, including Everest Re , Arch Capital , Endurance and Aspen .

Reinsurers help insurers pay large damage claims, in exchange for part of the profit.

Partner Re's shares rose 0.6 percent by 1630, while Axis Capital's shares rose 4.9 percent.

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PartnerRe was the world's 10th largest reinsurer and Axis was ranked No. 22 by reinsurance premiums in 2013, according to data compiled by credit rating agency Moody's.

Benchimol said the merger would improve diversification and prospects for growth, including through acquisitions.

"We have overlapping offices in most key insurance centers and major markets," Benchimol said, without giving specifics on office closures or job losses.

The merger would achieve pre-tax cost savings of at least $200 million in the first 18 months and improve earnings per share for the shareholders of both companies, PartnerRe said.

"It's all about achieving scale in an industry where demand is declining and pricing is reducing," Canaccord Genuity analyst Ben Cohen said. "Scor has been active in M&A and may look to respond to consolidation in the market."

Partner Re has a market capitalization of about $5.6 billion, while Axis Capital's market cap is about $5 billion, according to Thomson Reuters data.

PartnerRe shareholders will get 2.18 shares of the combined company's common shares for each PartnerRe share. Axis Capital shareholders will get one share for each Axis share they own.

The terms mean PartnerRe shareholders will own 51.6 percent of the merged company and Axis holders 48.4 percent, the statement said.

Asked in the call whether anything would prevent a third party bidder from entering the process, Benchimol said: "I'm not going to go into hypotheticals."

The deal is expected to close in the second half of 2015.

($1 = 0.6663 pounds)

(Reporting by Luc Cohen in New York and Jonathan Gould in Frankfurt; editing by Jeffrey Benkoe and David Clarke)

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