AXA XL grows New Ocean ILS assets to $1bn, buys more protection at 1/1

AXA XL purchased more catastrophe protection at the January 2019 renewals and also continued to increase its use of alternative reinsurance capital, which was evidenced by in-house ILS fund manager New Ocean’s assets under management reaching $1 billion.

AXA Group reported its highest earnings ever, on an underlying basis, rising 6% to EUR 6.2 billion the company said today.

But impacts from catastrophe events were felt, particularly in the AXA XL division where its reinsurance and commercial property and casualty insurance is underwritten and the business it acquired with XL Group is housed.

The California wildfires and hurricane Michael dented earnings somewhat, but did not stop the group reaching its new high.

“AXA delivered another year of strong operating performance with a 6% increase in underlying earnings, to its highest ever reported level, even with a reduced ownership of AXA Equitable Holdings, Inc. and an unusually severe fourth quarter in terms of natural catastrophes,” Thomas Buberl, Chief Executive Officer of AXA explained.

Higher natural catastrophe losses in the AXA XL division did dent earnings slightly, but were not sufficient to slow the year-on-year growth the AXA Group achieved.

These higher catastrophe losses drove up the current year combined ratio to 99.1%, with the AXA XL business driving an increase here. Excluding the XL Group business the all-year combined ratio comes down to 94.9%.

So that reflects the volatility now acquired through the acquisition of XL, which is something AXA will be keen to moderate as it can and this bodes well for continued cessions to sources of reinsurance and retrocessional capital, including to the capital markets.

Hence, it’s not surprising to learn that AXA XL acquired more catastrophe protection at the January 2019 renewals, to better protect itself to volatility in the results of this unit.

Commenting on progress at AXA XL since the acquisition,Greg Hendrick, CEO of the division said, “We have achieved measurable rate increases in 2018 and the outlook for 2019 looks to be as favorable. We are progressing fast on integration and the delivery of associated synergies, and are already experiencing revenue lift. Our financials were impacted by two significant Nat Cat events in the US in the fourth quarter. At January 1st, 2019, we refined and added to our catastrophe protections and are in alignment with the Group’s risk appetite.”

Part of AXA XL’s mission to align itself on risk appetite with the broader AXA Group will have involved the use of alternative capital.

On this Hendricks said, “We continue to make use of substantial alternative capital, including growth in AUM at New Ocean, our in-house ILS fund manager.”

We can reveal that ILS assets under management at the ILS fund manager New Ocean Capital Management have reached $1 billion as of the start of 2019, as shown by the latest updates to our ILS Fund Manager Directory data.

With New Ocean now at $1 billion of ILS assets under management as of January 2019, it represents sold growth of 67% since the start of 2018 when the ILS fund manager had just $600 million under its management.

Of course New Ocean is not the only route to alternative reinsurance capital that AXA XL has, as it uses a range of structures to directly bring investor capital into its business model.

The use of alternative capital continues to be a key lever in managing catastrophe risk for AXA XL and with the wider AXA Group expected to also benefit from ceding some risks to ILS capital in future as well, it seems likely the AuM growth at New Ocean will continue and that the capital markets will become an increasingly important trading partner and source of reinsurance protection for the group.