Weekly Wrapup: XL's digital initiatives caught AXA's eye

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The Weekly Wrapup is an analysis of the week's insurance tech news from the editors of Digital Insurance.

There are lots of reasons why AXA entered into an agreement to buy XL Catlin for $15.3 billion this week. AXA cited a desire to become more focused on the P&C insurance risk market rather than the life insurance market, especially in the U.S.; the company put its life operations up for an IPO late last year.

But there are lots of companies that could help AXA in the transition. What made XL stand out was its focus on digital innovation. The combined company will be "known for solving complex risks enabled by the best talent in the industry with leading data and analytics, digital operations and lower cost of capital," according to a slide presentation accompanying a conference call.

"XL Group [is] a leader in the P&C commercial lines and specialty, focused on large and mid-market players with an innovative and dynamic culture," AXA CEO Thomas Buberl said. " The rationale behind this decision was not based on cost savings, but this is really about a vision for growth."

This isn't a unique development in the industry. More insurers are looking to partner up with digitally innovative companies as they explore the M&A market, according to a new study from Conning, "Global Insurer Mergers & Acquisitions in 2017: Repositioning to Face the Future."

"Technology, already seen as a driver, also will spur M&A, as insurers seek to gain competitive advantage by acquiring insurers and insurtech firms with advanced capabilities, rather than develop technology in-house," Conning writes. "This trend creates insurers with sharper focus and is likely to continue and strengthen beyond 2018 as insurers avail themselves of richer data and analytics to provide products and services in line with customers’ rising expectations."

In acquiring XL, AXA gains access to two key innovation platforms: XL Accelerate, which is focused on innovation and insurtech; and XL Innovate, which makes direct investments in emerging companies. AXA also has a strategic venture fund, but Buberl notes that they are focused on two separate areas. That means that the buy will give it access to new markets, in addition to increased data, to help spur combined innovations. And, because of the complementary nature of the lines of business, AXA will be able to retain the XL staff who are pushing the innovative culture at the acquisition target.

"We were each good at different things, but had similar approaches to customer service, similar cultures, and a similar focus on innovation," said XL CEO Mike McGavick, who will serve as an advisor to Buberl in the combined company. "When you add that all together and realize that the actual overlaps are not that large, so the impact on XL and AXA people will be less that it might be ordinarily in such an advanced integration, this is incredibly exciting for all of us.

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M&A Insurtech AXA XL Catlin