The transaction is the first personal auto reinsurance transaction backed by alternative capital that AXA XL has completed in Bermuda, helping long-time MGA partner Bluefire to reduce its exposure in a capital efficient manner.
AXA XL Reinsurance in Bermuda and Bluefire have collaborated since 2014 and this partnership was strengthened in 2019 when Bluefire consolidated its own insurance carriers and moved all of their reinsurance buying to a portfolio basis.
This recent collateralised reinsurance arrangement is the first time that Bluefire has assumed a risk taking position on its own underwriting business.
It’s also the first personal auto transaction backed by alternative capital that AXA XL has completed in Bermuda.
To effect the deal, we understand that Texas based managing general agency (MGA) Bluefire Insurance ceded some of its personal auto risk to a panel of reinsurance carriers led by AXA XL.
The MGA, we’re told through its own Class 2 Bermuda domiciled reinsurer Bluefire Re, has assumed around 5% of the overall risk in this arrangement, using an alternative capital structure.
Bluefire Re is then set to assume another 10% of the risk from AXA XL through a retrocession agreement as well, we understand.
As a result, the transaction makes sense in a number of ways, all related to capital efficiency.
Bluefire gets the benefits of a collateralised reinsurance arrangement backed by efficient third-party capital, thanks to the expertise of AXA XL’s Reinsurance division.
At the same time, it gets to retain some of the risk premium from the book of business through the transactions that see it reinsuring its own portfolio of personal auto as well.
AXA XL sources a new class of business for its third-party capital investors through this arrangement, as the first deal to take on personal auto insurance risks on a collateralised basis.
We also assume the arrangement with Bluefire taking on some of the risk itself likely means the MGA has helped to segregate some of the longer-tail components of the portfolio away from the third-party capital investors that will prefer a shorter-tailed exposure (although we cannot confirm that).
“Bluefire has a diverse and stable book of business with significant scale that is delivering consistent and predictable returns to our reinsurance partners,” Jamie Pooley, Head of Strategy at Bluefire Insurance explained.
“We have been exploring ways to reinsure our own business for some time but casualty quota share reinsurance agreements have an exposure duration which presents capital efficiency challenges. Once we explained our intent to take risk with the team at AXA XL, we collaborated to design a bespoke structure that met both parties’ objectives. We are delighted to have expanded and further aligned our relationship with AXA XL while creating a capital efficient mechanism that captures the results we are producing,” Pooley added.
“AXA XL Reinsurance is pleased to partner with Bluefire on this transaction,” commented Paul Simons, Head of Property, Global Markets and Head of Bermuda Reinsurance at AXA XL.
“As a leading global reinsurer with experience in both the traditional and alternative capital markets, we offer customized, innovative solutions across a broad product offering. While most of our alternative capital solutions have been in the property catastrophe space, this transaction demonstrates our willingness and ability to provide alternative offerings in casualty and other lines of business,” Simons said.