Rates, inflation, and capacity: AXA XL Re prepares for European renewals

“It’s been another active year in Europe in terms of catastrophes, and reserves were not sufficient by year-end, leading to a significant increase in rates,” said Bertrand Romagne, chief executive officer International, Reinsurance at AXA XL Re.

There have been several significant cat events. “In 2024, there was flooding in southern Germany and flooding events in Eastern Europe, which was unusual in the context of recent history,” Romagne said.

“Globally, not many markets have been unaffected this year. I don’t think anyone is expecting to see rate decreases coming.”

The impact of inflation and rising construction costs on pricing play heavily on Romagne’s mind, and he observed: “We are back into a more normal situation. Interest rates and construction cost increases aren’t as dramatic as two years ago, but there’s still some delay in seeing the effects.

“The industry will probably still see the impact of the dramatic increases experienced in recent years in loss evaluations. 

“While we’re returning to a more acceptable level of inflation, we must acknowledge that even slight increases can accumulate significantly over time,” he added. 

Romagne highlighted the importance of considering all of these factors in pricing decisions. “European property rates do not reflect the reality of what the risk has become. There has been underpricing for too long and we need to reassess in order to ensure we are there for our clients in the future.”

He noted that clients were looking to buy more capacity, which would further influence market dynamics.

“We need more capital to support this demand and to reward that capital accordingly,” he added.

Romagne discussed climate change and its integration into pricing decisions. 

“To what extent are we incorporating the latest climate change models?” Romagne asked. “

He acknowledged the increasing severity of events, saying: “We are seeing more extreme events than before, such as the extreme hail loss in Italy and severe flooding in Dubai.

“We often find ourselves reacting to losses instead of being ahead of the game, proposing products and pricing based on anticipated risks, not just historical data,” he said.

He mentioned AXA XL’s collaboration with the Cambridge Centre for Risk Studies to examine risk mitigation in the face of climate change as part of the firm’s efforts to address the risk.

“We’re adjusting our pricing models to anticipate climate change, but it’s still not an exact science,” he added. 

Huge capacity potential

In terms of capacity in the European cat market, Romagne remarked on the increased demand. 

“This will absorb the additional capacity we’ve seen, including from new participants and traditional reinsurers restoring their capacity. 

“But I don’t foresee the market being oversupplied,” Romagne explained. 

“Overall, I believe the market will function well, without the issues we feared in previous years. It should be fine by the end of the renewal season.

“The market will adjust, and I believe we’ll have enough capacity to meet demand, but with the correct terms” he added.

Romagne touched on the need for balance in AXA XL Re’s insurance portfolio. 

“I don’t think anyone is expecting to see rate decreases.”

“For us, it’s about balancing the different lines of business. We’ve worked in recent years to rebalance our portfolio. 

“While cat cover is still an important product for our clients, it needs to be balanced with other lines of business such as casualty, credit and surety, to name a few.

“AXA XL Re has a strong security position with a double A-minus rating, which we must protect,” Romagne pointed out.

He concluded with a hopeful outlook for future discussions, saying: “I look forward to discussions in Baden-Baden with clients. 

“I hope the focus won’t just be on pricing but also on needs and how we can help our clients develop their business.. 

Bertrand Romagne is the chief executive officer, International, Reinsurance, AXA XL Re. He can be contacted at: bertrand.romagne@axaxl.com 

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