AXA plans to cede broader Group risk to ILS investors: Hendrick, AXA XL CEO

As global insurance and reinsurance group AXA increases its use of insurance-linked securities (ILS) capacity, the firm will aim to broaden the range of risks that it cedes to investors to include much more than just risks from the legacy XL Catlin portfolio.

As we explained recently, AXA plans to further enhance and increase its insurance-linked securities (ILS) capacity as part of its mission to de-risk and control its catastrophe exposure across the group.

Speaking at AXA’s investor day presentations last year, AXA XL CEO Greg Hendrick gave further insights into the ILS expansion strategy that the re/insurer expects to follow over the coming years.

We’re already seeing signs that this is being acted on as well, as evidenced by strong asset growth at ILS fund manager New Ocean Capital Management, as we reveal below.

Part of the plan will involve using ILS and third-party capital to support risks from across the broader AXA Group portfolios, rather than just the AXA XL segment of the business, which suggests the re/insurer can greatly expand its use of third-party capital if it wants to.

Hendrick explained the strategy for using ILS at AXA, “If we aren’t making our return, we will find sources of capital that will take that return that may be lower than our threshold, particularly lately alternative capital around our catastrophe exposures, but it could be other reinsurers as well.”

The commitment to leveraging the capital markets remains strong at the firm, after the integration of XL Catlin into the broader AXA Group and now the re/insurer is seeking to identify the opportunities that allow it to leverage third-party capital alongside its own, to add efficiency across its business.

“We continue to remain very committed to using alternative capital,” Hendrick said, adding “As you’ll have just seen, just a few weeks ago, we brought in the remainder of New Ocean, our ILS manager, which will now be aligned with us.”

There is now around $1 billion of third-party capital under management at New Ocean Capital Management, according to the latest data in our ILS Fund Managers Directory, and the company clearly sees opportunities to grow this figure further as well.

This has increased significantly over the course of 2018, possibly a reflection of the increased access to risk the ILS investment manager now has through the broader AXA Group.

Part of that growth will mean expanding the remit of the ILS activities that were within AXA XL only, to find synergies across the broader AXA Group to transfer or share its risk with ILS investors.

Hendrick said New Ocean will now be, “Focused solely on how we distribute AXA XL risk today and over time AXA Group risk to the ILS community directly from us to the investors.”

He explained this as a continuation of the process of “trying to match the right risk with the right capital” at the re/insurer.

Hendrick also said during a recent press briefing that AXA XL intends to continue sponsoring catastrophe bonds, as the firm finds the tail protection they provide comes at a lower price point and enables them to transfer their peak exposures to ILS investors in an efficient manner.

“I see New Ocean growing,” he also said. “I see us over time potentially issuing further cat bonds and I see us continuing to use collateralized aggregate as well.”

“Our intention though is to clearly grow, whether it’s through New Ocean or other vehicles, access directly to investors to cede AXA XL and as we get that up to scale and running to apply it more broadly to all of AXA Group.”

Hendrick said that leveraging third-party capital and ILS structures will “help across the entire risk of the group,” adding that the firm is, “Very excited about the ILS opportunity and look forward to seeing it build in the years ahead.”

AXA XL had been expanding its use of ILS. Now the broader AXA Group is likely to also leverage more third-party capital as a tool to help it manage its exposures, share risks with investors and earn the resulting fee income as well.