Axis Capital & PartnerRe Ltd agree $11bn merger

BY Richard Summerfield

Axis Capital Holdings Ltd and PartnerRe Ltd announced on 25 January that the two firms had agreed to an $11bn merger which will reshape the reinsurance market by creating the world’s fifth largest global reinsurer.

As a result of the deal, the amalgamation of the two firms will create a speciality insurer and reinsurer with more than $7bn in combined gross premiums written and over $14bn in available capital. The firm will also have a speciality insurance arm with around $2.5bn in gross premiums.

The transaction, which is being treated as a merger of equals, has been unanimously approved by the boards of both Axis and PartnerRe, and is expected to close in the second half of 2015, pending the approval of the two company’s shareholders. In a statement announcing the deal, it was confirmed that PartnerRe and Axis Capital’s shareholders will own approximately 51.6 percent and 48.4 percent of the combined company, respectively.

The combined firm will be headquartered in Bermuda, where Axis and ParterRe are already based. The new firm will maintain a presence across five continents, including offices across 39 different locations employing around 2300. As a result of the merger, the newly combined firm expects to achieve considerable annual cost savings of around $200m in the first 18 months of operations. With duplicate offices in various locations including New York, Bermuda and Ireland, there will likely be a number of job losses, though how many are at risk has not been disclosed.

Axis’ incumbent chief executive Albert Benchimol will take up the same post with the newly combined company. PartnerRe’s chairman Jean-Paul L. Montupet will serve as non-executive chairman, while current Axis chairman Michael Butt will serve as the new company’s chairman emeritus.

In a statement, Mr Benchimol expressed his pleasure at having agreed the considerable merger. “This transformational combination will leverage the complementary strengths of both companies and create an organisation with the size and breadth to enhance product and service offerings, maximise growth opportunities, optimize portfolios, and deliver both economies of scale and capital efficiencies” said Mr Benchimol. “The combined company will have three strongly positioned businesses – a top-five global reinsurer, a $2.5bn speciality insurance underwriting business, and a highly successful and growing life, accident and health franchise – all with increased strategic flexibility.  As a top five global reinsurer with leading positions in a number of specialty lines, we will be strongly positioned to turn the challenges presented by the structural changes in the reinsurance market into opportunities.”

News: Two Big Reinsurers, PartnerRe and Axis Capital, Merge in $11 Billion Deal

Is Greece’s new PM Alexis Tsipras the man to avert further Greek tragedies?

BY Fraser Tennant

Elected earlier this week on an anti-austerity ticket, the new Greek prime minister, Alexis Tsipras, is a man who does not have problems to seek.

Prior to his appointment, Greece’s new man in charge had promised to raise the country’s minimum wage, create 300,000 new jobs, end the crippling austerity measures, and provide free food and electricity for those unable to afford it.

To tackle these, Tsipras has announced a series of measures which clearly state his intention to continue the anti-austerity pledges that saw his Syriza party triumph in this week's election.

Mr Tsipras’s demeanour during his first few days in office has been a mixture of defiance and reassurance. During his first cabinet meeting the new PM wasted little time in putting his pre-election, anti-austerity pledges into practice. He said “We are coming in to radically change the way that policies and administration are conducted in this country.”

Among a series of proposals, the new prime minister has announced plans to: (i) halt the privatisation agenda agreed under the country's bailout deal (this includes the sale of a stake in the country's largest electricity company, Public Power Corporation of Greece (PPC)); (ii) reinstate public sector employees judged to have been laid off without proper justification; and (iii) increase pension payments for retired people on low incomes.

Mr Tsipras and his team of anti-austerity ministers have already promised to negotiate with international creditors over Greece’s €240bn (£179bn/$270bn) bailout.

Naturally, the suggestion that Greece is looking to renegotiate its debt austerity package has not gone down well in the rest of Europe, especially Germany, which responded quickly to say that it had no intention of renegotiating the aid package that was agreed to help Greece pay off its massive debts. 

 “Since the beginning of the crisis, the goal has been to stabilise the whole of the Eurozone, including Greece, and that remains the goal of our work," said Steffen Siebert, a spokesman for the German government.

With Greece’s financial markets reacting with alarm to its new government’s anti-bailout agenda (the Athens Stock Exchange (ASE) lost more than 9 percent this week); the pressure is growing and the clock ticking for Mr Tsipras ahead of his first European summit in two weeks’ time.

News: Greek leftist Tsipras sworn in as PM to fight bailout terms

Optimism varies among global CEOs, but slow economic growth expected in 2015

BY Fraser Tennant

CEOs are less optimistic about the prospects for global growth than they were one year ago, according to PwC’s new Annual Global CEO Survey.

The Survey, the 18th of its kind, conducted 1322 interviews with CEOs in 77 countries during the last quarter of 2014. Its key findings include: (i) 37 percent of CEOs think that global economic growth will improve in 2015, down from 44 percent the previous year; (ii) 17 percent of CEOs believe global economic growth will decline, more than twice as many as a year ago; and (iii) 44 percent of CEOs expect economic conditions to remain constant.

Broken down regionally, CEOs in Asia Pacific were found to the most optimistic about the global economy, with 45 percent expecting improvement. In the Middle East this figure was 44 percent and in North America, 37 percent. However, only 16 percent of CEOs in Central and Eastern Europe expect economic improvement.

Despite the overall declining outlook for the global economy, CEOs are confident about the prospects for their own company - 39 percent believe their company’s revenues will grow in the next 12 months.

“The world is facing significant challenges: economically, politically and socially," said Dennis M. Nally, chairman of PricewaterhouseCoopers International. “CEOs overall remain cautious in their near-term outlook for the worldwide economy, as well as for growth prospects for their own companies.

“While some mature markets like the US appear to be rebounding, others like the Eurozone continue to struggle. CEO confidence is down notably in oil-producing nations around the world as a result of plummeting crude oil prices. Russia CEOs, for example, were the most confident in last year's survey, but are the least confident this year.

“Finding the right strategic balance to sustain growth in this changing marketplace remains a challenge.”

Other concerns highlighted by CEOs include: the availability of key skills; over-regulation; fiscal deficits and debt burdens; geopolitical uncertainty; increasing taxes; cyber threats and the lack of data security; social instability; shifting consumer patterns; and the speed of technological change.

Report: A marketplace without boundaries? Responding to disruption

Collaboration and board engagement leads to business sustainability claims new research

BY Fraser Tennant

Companies that embrace collaboration and foster board engagement have a greater chance of achieving business sustainability, according to a new global research study.

The study, carried out for a sixth consecutive year by MIT Sloan Management Review (MIT SMR), the Boston Consulting Group (BCG) and the UN Global Compact, surveyed more than 3,795 executives and managers from 113 countries about the sustainability challenges they faced.

 “While collaboration is not yet the norm, among those who are doing it, we are increasingly seeing a focus on transformational, strategic results”, said David Kiron, executive editor of MIT SMR and co-author of the study. “More than half of reported collaborations aspire to fundamentally change the market in which the business operates, so sustainability efforts are much less likely to be discrete projects and much more likely to engage a company’s entire ecosystem—from suppliers and customers to governments and academic institutions.”

The study’s key findings include: (i) 61 percent of executives whose companies participated in sustainability-related partnerships view these collaborations as quite or very successful; and (ii) 90 percent of respondents recognise the importance of sustainability collaboration but only 47 percent reported that their companies are actively collaborating.

Focusing on board engagement as a driver of sustainability success, the study found that 86 percent of respondents felt that company boards should play a significant role in driving their company’s sustainability efforts. However, just 42 percent considered their own boards to be at least moderately engaged with the sustainability agenda.

“We identified several ways to overcome the barriers to board participation," said co-author Knut Haanaes, a Geneva-based senior partner at BCG. “They include establishing a broader vision of the board as steward of all stakeholders and managers of risk versus the traditional maximising only of shareholder financial value.”

Summing up the findings of the study, co-author Georg Kell, executive director of the UN Global Compact, said: “With commercial activities and investments reaching every corner of the earth, companies increasingly face complex uncertainties and risks related to social, environmental, and governance issues. Companies are starting to see that when they provide a collective voice, share risks, and pool resources, they can deliver transformative solutions that benefit both business and society.”

Report: Joining Forces: Collaboration and Leadership for Sustainability

UK financial services “optimistic” as business takes an upward trajectory

BY Fraser Tennant

The UK financial services sector is on upward trajectory with rising business volumes being reported, according to the latest CBI/PwC Financial Services Survey.

The Survey, which draws on data from the three months to December, shows that, overall, business volumes rose at the fastest pace since the mid-1990s, with demand from UK households and corporates being underpinned by solid growth across many sectors and industries.

“The upswing in growth among financial services firms continues on a solid footing, with overall optimism, business volumes and profits up," said Rain Newton-Smith, Director of Economics at the CBI.

The Survey’s key findings show that: (i) 64 percent of financial services firms said that business volumes were up, while 7 percent said they were down, giving a balance of +57 percent - the strongest growth since December 1996 (+79 percent); (ii) 65 percent of firms expect business volumes to increase, while 6% said they will fall, giving a balance of +59 percent; and (iii) 49 percent of financial services firms said they felt more optimistic about the overall business situation compared with three months ago, while 12 percent  said they felt less optimistic, giving a balance of +37 percent.

However, it was also found that building societies were the exception. “Building societies have struggled this quarter, likely as a result of the impact of the Mortgage Market Review, constrained buyer affordability in London and the South East, and stronger competition in the mortgage lending market," confirms Mr Newton-Smith.  

Elsewhere, financial services firms reported strong income growth from fees, commissions and premiums in particular. Investment opportunities are also at a premium.

Kevin Burrowes, UK financial services leader at PwC, said “Financial services firms continue to be optimistic, but we will see them investing more to stay ahead of new entrants, deal with technology challenges, meet increasing regulatory and structural reform costs and deliver better results for customers.” 

Mr Newton-Smith added “It’s encouraging to see the majority of companies planning to increase their investment spend, especially on IT and marketing, to increase efficiency and to reach new customers as competition and technology change the nature of the sector.”

Report: CBI/PwC Financial Services Survey