Axa chief defends criticised €12.4bn XL Group buyout as "strategic decision"

THE Chief Executive of Axa has spoken out defending the decision to spend €12.4bn (£10.9m) on the buyout of XL Group.

The French insurers share price dropped by almost €5bn to €56bn when the deal was announced on 5 March, and while it has now levelled out, it has remained at this lower level. Analysts and investors have doubts over whether the price paid was too high, and whether Axa have bitten off more than they can chew.

But speaking to the Financial Times today, Thomas Buberl said that while he understood the disappointment among investors, that the move was in line with Axa’s strategy to expand its property and casualty insurance business. The insurer had previously indicated they were looking at smaller deals, but Mr Buberl said: “When your ideal hits the reality, you sometimes have to take a strategic decision.”

Part of the disappointment felt by investors was in that they expected the insurer to fund smaller acquisitions and share buy-backs. But in the interview Mr Buberl said that he had “always positioned share buybacks as the last option”.

He has now vowed to prove those doubters wrong and said that the benefits to Axa’s commercial insurance and reinsurance lines through the deal, particularly in the US, during a time of evolving insurance markets, would prove the decision correct. The deal for the Bermudan insurer was said by Mr Buberl to be not expensive when compared with the valuations of rival companies.

“Talking people around is difficult,” he said. “You need to prove people around. It’s probably 12-18 months … When we spoke about this deal, it was clear that the market would not react positively.”

“Many risks will move from an individual, frequency-based risk to a commercial, more severity-based risk,” he added. “Take autonomous vehicles. Today, a car [insurance] contract is your personal contract … Tomorrow, it will be a manufacturer’s product liability, maybe focused on cyber risks.”

The interview also revealed that Mr Buberl plans to fund the deal through the proceeds from the planned US listing. However, should the listing run into difficulty, an alternative funding source could be found without resorting to a capital increase.

“I can sell companies, it is in my control whether I sell four companies this year or one,” he said. “I can decide how I run a life business, with more or with less capital. There are degrees of freedom that investors or analysts might not see.”