A new reinsurance vehicle launched by AXA XL is set to add capital efficiency to the company, as a type of internal reinsurance vehicle that will take certain segments of U.S. risk off its main balance-sheet and likely lower reinsurance or retrocession costs as a result.
Our sister publication Reinsurance News was first to uncover the existence of Seaview Re Ltd. on Friday of last week.
Seaview Re Ltd. is a Bermuda domiciled Class 3A reinsurer, established to be used as an internal reinsurance vehicle for AXA XL, taking U.S. risk to begin with.
In addition, there is a U.S. domiciled holding company, Seaview Re Holdings Inc., which is domiciled in Delaware.
AXA XL has capitalised Seaview Re with a $475 million asset transfer from Swiss domiciled Catlin Re, another of its reinsurance vehicles.
The company then ceded a chunk of its U.S. risk into Seaview Re, by way of a 30% whole-account quota share with the AXA XL U.S. pool of companies, which includes property catastrophe risks we understand.
It seems the strategy with Seaview Re is to utilise the vehicle as a platform in which certain U.S. exposures can be contained and managed, with the ultimate goal likely being two-fold. To extract more of the risk premium profit from these underwritten risks, while at the same time benefitting from reinsurance and retrocession efficiencies and the resulting lower costs.
Numerous large re/insurers have internal reinsurance strategies, of varying sorts, with hybrid vehicles, total-return strategies and third-party capital all playing a role.
Seaview Re currently isn’t embracing either a total-return, or more aggressive, investment strategy, nor is it utilising third-party capital at this stage. But never say never, as it’s likely AXA XL’s strategy with its internal reinsurance arrangements will adapt over time as the group gets to grips with a different risk profile since the acquisition of XL Catlin by AXA was completed.
Of course AXA XL already has third-party capital vehicles in play, backed by major institutions such as pension funds. At some point in the future it could elect to capitalise some of this risk using external funding, or Seaview Re could serve as a vehicle that passes risk onto the third-party capital strategies and ILS funds, we’d imagine.
For now, the vehicle seems to be a pure capital efficiency play, enabling AXA XL to retain more of the profitable risk premiums it underwrites, extract more margin through reduced costs and better manage it catastrophe exposure and overall insurance and reinsurance books.
As our sister publication reported, AXA XL stands to benefit through a rising technical result, given the greater retention of risk from the quota share transferred to Seaview Re.
In the past, AXA XL has done similar by transferring risk from its London market operations and Latin American businesses to Catlin Re. But with Seaview Re the focus appears to be U.S. risk, including wind and quake, we understand.
Ever since the acquisition of XL by AXA, the company has been adjusting its operations to match its new risk appetite, which the ILS funds and third-party capital vehicles have also been instrumental in, helping to shift risk, while Seaview Re looks set to help the company make its own capital and capacity go further, becoming even more efficient in the process.
Hybrid and internal reinsurance vehicles are becoming increasingly complex and sophisticated as well, hence the benefits are increasing and it’s likely AXA XL will find new ways to put these vehicles to even more effective use in years to come.
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