The market should not expect any “significant changes” to the reinsurance business of Bermudian re/insurer XL Group after the acquisition by French giant AXA is completed, according to CEO of Reinsurance Charles Cooper in a letter to the firms broker community.
XL Group is keen to impress on its brokers that they shouldn’t look on its recently announced acquisition by AXA as a sign that business will gradually diminish, dry up, or go away.
Cooper explains in the letter that the impending acquisition of XL by AXA, which is expected to be completed in the second-half of 2018, will not result in considerable changes for the reinsurance business.
He explains that, compared to the integration of Catlin and the creation of the XL Catlin brand, “The AXA plan is different in that there is very little business overlap, especially from a reinsurance standpoint.”
“The intent is to combine our operations with AXA Corporate Solutions, forming AXA’s new global P&C insurance and reinsurance division.
“With Greg Hendrick slated to head the new division and both companies having similar cultures focused on superior underwriting, innovation and highly responsive client service, we expect a smooth integration,” he continued.
The combination of XL and AXA will create a compelling opportunity for the resulting and enlarged AXA Group to pursue growth in commercial risks, reinsurance and other specialty lines of underwriting where XL has a strong business and will be able to leverage AXA’s financial strength and distribution reach.
Discussing the prospects for the merger, Cooper wrote, “The combination creates a powerful opportunity to continue the XL Catlin strategy with greater strength and a new dimension.
“I’m excited about what this all means, including that we will have the support of a bigger balance sheet to provide greater security and solutions for emerging and evolving risks. In fact, we will have one of the largest market caps of companies in our industry.”
This could provide significant growth impetus to the XL business units once consumed within the AXA giant, as the additional scale, reach and potential synergies between units may help to drive faster growth in underwriting business.
That would be a boon for the broker community, with new opportunities to work with AXA and the chance of more risk flowing in and out of its business.
Encouragingly, for the reinsurance broker audience he was writing to, Cooper said, “When the transaction closes, given that AXA does not currently operate in Reinsurance, we don’t expect any significant changes to our Reinsurance business.
“We plan to continue to provide you and our clients the superior service and innovative solutions that you have come to expect from us.”
On the retrocession side it will be interesting to see how the merger affects the appetite for protection at the XL units once within AXA.
The insurance-linked securities (ILS) market will be hoping for continuity too, especially as XL has become one of the largest sponsors of catastrophe bonds with now roughly $2 billion of outstanding cat bond risk capital.
When XL’s reinsurance business is merged into AXA’s corporate risks business, despite being the only reinsurance underwriting unit there it is possible that the need for retrocession for that specific reinsurance book could shrink, due to the diversification within a larger portfolio.
However, the need for reinsurance risk transfer will likely grow, which could mean the flow of risk out of AXA to the ILS market increases after the acquisition of XL, with the end result perhaps being equal to slightly greater volumes of capital market risk transfer sought.
The unknown though is what role XL’s own ILS operations will play, as there will be a significant opportunity to capitalise on the appetite of the capital markets at AXA after it consumes the XL business and book.
But for now the market will be pleased to hear that changes are not expected to be significant, within the reinsurance of XL at AXA and in fact in the years to come the opportunities for risk takers to work with the group are likely to increase, rather than decrease, especially as the AXA CEO has already highlighted the potential for opportunities XL’s reinsurance and ILS business will provide.