French insurance group Covéa and EXOR, the investor of the family holding company Agnelli, have entered into a cooperation agreement on reinsurance-related investments in the future, finding a way to address the failed sale of PartnerRe .
Covéa will inject 750 million euros of capital into ad hoc reinsurance vehicles managed by PartnerRe, which will see the French company benefit from a share of the returns and profits of the portfolios, while the reinsurer PartnerRe will benefit from a capital increase that can be put to work in the current context of a tightening market.
As a reminder, EXOR had agreed to sell PartnerRe outright to Covea for $ 9 billion, but the price was the subject of renegotiations which failed during the Covid-19 pandemic and the agreement was therefore canceled.
Covéa had wanted to renegotiate the price following the Covid-19 pandemic, it seems, but EXOR stuck to the original sale price and said it would not accept anything lower given that PartnerRe is not expected to experience a significant impact on the impacts. of the coronavirus.
It was reported by the Italian press that withdrawing from the acquisition would have seen Covea face a penalty of up to $ 175 million, although this has never been confirmed.
But now the parties have found a constructive way forward, a way that allows Covea to harness the returns from PartnerRe’s reinsurance business, while EXOR receives capital backing to develop PartnerRe. , as well as additional investment commitments from the French insurer.
EXOR NV announced last night that it had entered into an agreement with Covéa Coopérations SA, under which the French insurance group will invest a total of 1.5 billion euros with Exor, half of which will be directed towards ad hoc reinsurance vehicles managed by PartnerRe.
750 million euros will be allocated to investment opportunities where Covea will sit alongside EXOR, which will help the Italian investment group to grow at a time when capital liquidity was perhaps less abundant.
On the reinsurance investment agreement, Covea will allocate the remaining 750 million euros to a number of ad hoc insurance vehicles managed by PartnerRe.
Reinsurance related investments will have a three to five year lock-up period and will be invested in property catastrophe contracts and other short-term reinsurance contracts.
The first investment of 500 million euros in special insurance vehicles (SPV) will be made on January 1, 2021, to coincide with the reinsurance renewals of January 2021, with an additional investment of 250 million euros to be made before renewals of January 1, 2024.
This gives PartnerRe a significant new chunk of short-term reinsurance capacity, which it can leverage to be more expansive in the next renewal season.
The reinsurer is already partnering with third party investors through its Insurance Related Securities (ILS) operations, which include its own Lorenz Re sidecar and dedicated investor structures such as the one recently announced with the Dutch pension investor PGGM, the so-called Huygens relationship. .
At the same time, Covéa benefits from access to the diversified source of returns, catastrophe reinsurance and other short-term reinsurance lines, which should be relatively decorrelated with its largely European insurance portfolio.
The deal and the way we work together in the future shows that investors can get into large reinsurance companies without buying equity, even if that was their original goal, with the end result being a way to experiment with them. returns from the reinsurance business without any of the overhead costs of the business that would have resulted from a full acquisition.
John Elkann, Chairman and CEO of Exor, declared: “Having decided to definitely pursue our project of building one of the world’s leading independent reinsurers, we are now more than delighted to have been able to conclude with Covéa this constructive cooperation extending also to other areas of our activity.
Covéa said the cooperation would see the parties “jointly seizing investment opportunities in the context of a rapidly changing economy”.
The French insurer declared that it “intends to make the first investments in the field of reinsurance now, and with regard to the investment component from 2021”.
For PartnerRe, the reinsurer has now significantly strengthened the liability reinsurance assets under its management, while gaining a source of capacity to accelerate its expansion and take advantage of tariffs during future renewals.