Hendrick needs to ensure AXA-XL deal delivers goods for customers and shareholders

News that AXA plans to buy XL Group for a massive $15.3bn came as a surprise to most in the market, not least as the move came so soon after XL made a big step forward itself through the acquisition of Catlin in 2015.

There were rumours that XL may be a target. It was reported in early February that Allianz could be tempted into a deal. But such rumblings are very easy to create and usually lead to nothing.

In this case, however, the rumour appears to have been true. The European risk and insurance management community has another big story to digest and work out.

So what does this mean?

First, the figures.

The financial press and analyst community have obviously focused on the price of the deal, and the huge 33% premium that AXA is set to pay.

AXA’s share price slumped as the Paris-based insurance group announced the deal and XL’s catapulted to a record high. One Allianz insider reportedly told one of the news agencies, ‘”good luck to them”, and AXA’s CEO Thomas Buberl clearly has a job on his hands to explain to investors why he and his management team think XL is worth so much.

European risk managers and brokers will not focus on the price, however, but rather on what the deal means for them – the customers.

The big question is quite simple: will a combination of AXA Corporate Solutions and XL deliver a carrier that is better equipped to meet buyers’ increasingly complex and global risk transfer requirements?

Not surprisingly, given the price that AXA has offered for XL, Mr Buberl did not say much about the benefits for corporate customers from this deal.

He and his advisers will have been aware of the likely reaction to the value placed on XL, so he focused on explaining the financial benefits, synergies, potential for efficiencies and so on.

He also stressed that AXA’s shift in emphasis from life and savings business – the acquisition will be funded in large part by an IPO of AXA’s US life and annuity business – to P&C and health reduces the group’s overall exposure to financial risk, noting that the life and annuity business has become very challenging in today’s economic environment.

It was left to Mike McGavick, XL’s highly impressive CEO, to focus on the potential value for customers.

Mr McGavick’s note cleverly read as if AXA’s acquisition of XL is actually the other way around, and delivers a huge bonus for XL’s shareholders in the process.

Mr McGavick said the deal aims to combine XL Catlin’s operations with AXA Corporate Solutions, forming AXA’s new global P&C insurance and reinsurance division.

“Importantly, in this new structure, it is the XL Catlin platform that will champion all complex commercial and specialty P&C products, reinsurance and alternative capital efforts,” he wrote.

“I wanted to reach out directly and express our excitement at the prospect of being able to serve your business from an even better position. We believe clients and brokers of both XL Catlin and AXA will benefit significantly from this compelling strategic transaction. For example, as part of the AXA family, XL Catlin customers will benefit from accelerated delivery of even more innovative operational and analytical skills,” added Mr McGavick.

“We have highly complementary portfolios, and together we will be able to offer market-leading underwriting capabilities globally, across a diverse range of risks and covering the complete corporate spectrum – from SMEs to large corporates. We intend to be nothing short of the most innovative (re)insurer in the corporate marketplace, meeting our clients’ most challenging risk needs, supported by a robust combined balance sheet,” he said.

Now this may sound like clever management speak to assure XL staff and shareholders that they are the winners in this deal. But the fact that Greg Hendrick, currently president and COO at XL Group, will join AXA Group’s management committee and lead the new P&C business going forward, suggests that Mr McGavick may have actually pulled this one off.

If he has, and the new, bigger and better-capitalised combination of XL and AXA Corporate Solutions will be seamlessly transformed over time using the XL model, this could indeed be good news for Europe’s risk managers.

The worst result for risk managers from this latest deal would be a confused period of in-fighting between AXA Corporate Solutions and XL staff over who keeps their jobs, who is in charge of the new operation and how the cost savings are going to be delivered.

The announcement of Mr Hendrick’s immediate appointment as the boss of the new operation suggests that Mr Buberl and his team are more than aware of this danger, and have acted swiftly to lay the foundation for as painless a merger as possible.

Risk managers and brokers will have to hope that Mr Hendrick is given the time and space to carry out as swift and painless an integration as possible, leading to minimum disruption for the clients and brokers of both companies. Good luck Mr Hendrick!