According to analysts that met with the senior management of AXA Group recently in London, the company has continued to utilise increasing amounts of third-party reinsurance capital to support its natural catastrophe exposures.
Ever since the acquisition of XL Catlin, through which AXA acquired a broad reinsurance portfolio, deep expertise in underwriting specialty and catastrophe lines, as well as the established third-party capital abilities of the firm, the global re/insurer has been re-organising itself around some of its capital market abilities.
Major global insurance and reinsurance firms use of and work in managing or leveraging third-party capital sources alongside their own balance-sheets appears to be accelerating of late.
New data points have emerged on use of third-party capital, while at the same time major companies are stating their intentions to increasingly seek to align themselves with third-party investors in insurance-linked securities (ILS).
AXA XL itself recently re-organised its reinsurance operations leadership, seeking to simplify its structure around key markets and its developing strategy.
Unsurprisingly, use of third-party capital and insurance-linked securities (ILS) is a feature of this, with the announcement revealing an intention to more closely align and integrate alternative reinsurance capital operations with its outwards reinsurance operations, use of hedging capacity and partnership capital.
AXA XL has a well-established alternative capital practice, as well as its majority-owned insurance-linked securities (ILS) asset management affiliate, New Ocean Capital.
Ceding natural catastrophe business to these units looks set to increase, as AXA as a group looks to optimise its underwriting and retention of catastrophe risk.
The latest data point to emerge comes from analysts at Deutsche Bank, who met the AXA Group CEO and CFO recently at a roadshow, where they learned that at the June renewals of Florida reinsurance business AXA ceded roughly 30% of the risk written by AXA XL onto third-party sources of capital.
It’s likely this is an increase on previous years, when XL itself would have retained a bit more of the risk given its business model, but since the acquisition AXA has expressed a desire to become very focused on optimising how risk is retained versus ceded.
By leveraging its deep alternative capital expertise and facilities, AXA can optimise its retention, while feeding investor appetite and earning fee income at the same time.
AXA wasn’t the only major to use my third-party capital to support its Florida writings this year, as many of the global reinsurers and other multi-line players ceded more risk to ILS vehicles, including Swiss Re as we explained recently here.
AXA’s focus is on limited excessive natural catastrophe losses and third-party capital is the ideal way to do that, while still providing the product offering its clients want and maintaining its presence in key underwriting markets like Florida.
AXA had previously said that it would enhance and increase its insurance-linked securities (ILS) capacity as part of the mission to de-risk and control its catastrophe exposure across the group in 2019. It’s clear this strategy is being implemented.