Mon 08/13/2018 15:26 PM
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Event Driven Takeaways
 
  • Even though France-based AXA Group’s planned purchase of Bermuda-based insurer XL Group may raise CFIUS concerns, it is likely the deal will not be blocked because of national security issues, according to CFIUS practitioners familiar with the matter.
  • According to one practitioner, the involvement of XL Catlin in insurance related to terrorism, active shooting and satellite launch activities may be a focus of CFIUS review.
  • While past insurance transactions involving Chinese buyers like MoneyGram/Ant Financial and Genworth/China Oceanwide faced lengthier reviews before CFIUS, AXA will likely be deemed less risky due to its French ownership and pre-existing U.S. businesses.

While France-based AXA Group’s planned buyout of Bermuda-based XL Group could raise several CFIUS issues, the deal is expected to receive approval from the panel, according to CFIUS practitioners familiar with the matter.

A person briefed on the transaction previously told Event Driven that the CFIUS review of the deal relates to “where one of the subsidiaries is domiciled” and the “type of business” conducted by that subsidiary. Delaware will hold a public hearing on Aug. 16 to consider the transaction, and Louisiana will conduct a hearing on Aug. 23.

There are several areas of business that could catch the attention of CFIUS, including insurance offerings related to cybersecurity, terrorism, and active assailants. Earlier this year, an XL Catlin employee said in a company press release there had been increasing interest in specialized coverage relating to terrorism and active attacks. Commenting on potential CFIUS issues, an industry specialist noted that insurance companies typically build models to estimate the magnitude of destruction based on the type and intensity of attack.

Outside of these areas, it is possible that CFIUS is reviewing XL Catlin’s insurance - up to $45 million per program - for space operations including “launch, in-orbit, and associated coverages for satellites, launch vehicles, and other space payloads, as well as pre-launch and liability coverages.” The subsidiary’s customers include makers, owners and operators of spacecraft and launch vehicles, as well as non-profit organizations engaged in space exploration.

According to a CFIUS practitioner familiar with the matter, XL’s involvement in these areas could be problematic.

“There are two areas of concern here: the insuring of satellites and launches, as well as risk assessment,” said the practitioner, who noted that France is a “big competitor” to the U.S. in the industry. “If you’re thinking of going into satellite launch and you’re doing risk assessment, there’s a lot of sensitive information that goes into the risk analysis.” Such risk analysis involves technical, legal and financial information regarding satellite launch, which may pose a national security threat in the wrong hands.

While AXA is not controlled by the French government, CFIUS will look to see whether XL insures or conducts risk analysis in relation to any information or assets that are controlled under the U.S.’s International Traffic in Arms Regulations, or ITAR, as well as Export Administration Regulations, or EAR. Items controlled under ITAR have strictly U.S. defense relevance, while those controlled under EAR have dual defense and commercial uses.

CFIUS will look into any items insured by XL that could fall under either of these regulations, according to the CFIUS practitioner. If CFIUS does in fact find issues, they “could be mitigated, either by throwing some outside directors on it or getting up some firewall,” said the practitioner. “Of course, the devil will be in the details.”

While CFIUS has for the most part allowed past deals involving insurance businesses, the panel three years ago retroactively forced China’s Fosun International to divest Wright & Co., a professional liability coverage business acquired as part of the company’s deal for Ironshore Inc. in 2015. The Wright business served U.S. government employees, including law enforcement and national security officers, such as those working for the Central Intelligence Agency.

Event Driven’s past coverage of this transaction can be found HERE.

--Matt Tracy and Ryan Lynch
 
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