AXA XL homes in on government de-risking opportunities

Helping governments move risk off their books can provide the risk transfer industry with a big opportunity for growth but a collaborative approach is required, Charles Cooper, chief executive of reinsurance at AXA XL, told Monte Carlo Today.

He said that a growing number of initiatives have come to market with this goal, including US flood risk, US mortgage risk and UK terrorism risk on top of a number of US wind pools that have used reinsurance for many years.

As governments increasingly struggle to meet budgets and balance the books, more opportunities will emerge.

“We think this is the right thing to do for both the world and for the industry to achieve growth,” Cooper said.

“Governments are increasingly seeing the value of this, and how it can speed up recovery in the aftermath of a disaster.”

AXA XL has released a report on this issue, Government de-risking which examines the opportunity in this sector. It notes that despite the issue being talked about for decades, “it seems we’ve hardly made a dent”.

According to a 2018 Lloyd’s report on the subject, the underinsurance gap was $162.5 billion in 2018, which is only a 3 percent reduction during the past six years. Emerging economies account for 96 percent of the total global insurance protection gap, with two of the world’s most populated countries, China and India, having the largest gap in dollar terms: $76.4 billion and $27 billion, respectively, followed by Indonesia with $14.6 billion.

The private re/insurance market can provide the necessary cover to help close the protection gap, Cooper said. He believes the re/insurer is better positioned to do this now it is part of the wider AXA group, the chairman of which, Denis Duverne, chairs the Insurance Development Forum, which has closing the protection gap as its primary aim.

He said the reinsurance arm of the company was increasingly working with parts of the AXA group such as AXA Climate, which specialises in parametric solutions, to find ways of helping governments.
“The approach must be a collaborative one across the industry. No reinsurer or broker can solve this or do these very complex deals on its own,” he said.

New structure
AXA XL this week revealed changes to its reinsurance structure. From January next year, it is reducing its four reinsurance underwriting regions to three: Global Markets, which will comprise its London and Bermuda reinsurance platforms; and the North America and International regions, which will continue to focus on clients and brokers in those areas. AXA XL’s Reinsurance Claims and Operations functions will be centralised.

Cooper said that the primary aim of the changes was to make it easier for clients to access the business, and allow underwriters more time to work directly with clients.

“It is a more customer-centric structure,” he said. “The global risks business will deal with the very complex stuff and our regions will be better able to deal with clients.”

He noted that chief underwriting officer Jon Gale will have an important role to play directing business to the right place across the group.

In terms of rates, Cooper said, any changes varied by client, but overall AXA XL was seeing increases of 2 to 3 percent in aggregate. He said rates in the primary market were increasing faster, suggesting that there was no shortfall of capital, but that existing capital was simply seeking a better return.

The reinsurance business was enjoying the benefits of being part of the AXA Group, he said. As well as being able to access its expertise and global reach, it has been upgraded as result: to ‘AA-’ from ‘A+’ by S&P Global Ratings, and to ‘A+’ from ‘A’ by AM Best.

“Security remains very important to cedants so this is important,” he concluded.