Homing in on government de-risking opportunities

18-10-2019

Homing in on government de-risking opportunities

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As AXA XL moves forward with a new operational structure, it is also eyeing opportunities to grow and make a wider difference. Charles Cooper discusses with Bermuda:Re+ILS the opportunities available to help close the protection gap and why life is better for XL Group with its new parent.

Helping governments move risk off their books could provide the risk transfer industry with a big opportunity for growth—but a collaborative approach is required, according to Charles Cooper, chief executive of reinsurance at AXA XL.

He says that a growing number of initiatives have come to market with this goal, including US flood risk, US mortgage risk and UK terrorism risk—on top of a number of US wind pools that have used reinsurance for many years.

As governments increasingly struggle to meet budgets and balance the books, more opportunities will emerge.

“We think this is the right thing to do, both for the world and for the industry to achieve growth,” Cooper says. “Governments are increasingly seeing the value of this, and how it can speed up recovery in the aftermath of a disaster.”

Making a difference

AXA XL has released a report on the subject, titled “Government de-risking” which examines the opportunity in this sector. It notes that despite the issue being talked about for decades, “it seems we’ve hardly made a dent”.

According to a 2018 Lloyd’s report on the subject, the underinsurance gap was $162.5 billion in 2018, which is only a 3 percent reduction during the past six years. Emerging economies account for 96 percent of the total global insurance protection gap, with two of the world’s most populated countries, China and India, having the largest gap in dollar terms—$76.4 billion and $27 billion, respectively, followed by Indonesia with $14.6 billion.

Writing in the AXA XL report, chief executive officer Greg Hendrick suggested that re/insurers had the potential to help cover this gap—especially if they realigned their values away from simply paying claims and towards a partner that helps manage risk at all levels.

“The private re/insurance market can provide the necessary cover to help close the protection gap,” Hendrick wrote. “Risk continues to increase in frequency, severity and complexity, often having the most impact on the most vulnerable. However, these groups are often those who have no access to or the means to buy insurance.

“Governments are uniquely positioned to assume and cede these risks, to protect and help rebuild the livelihoods of families impacted by disaster. Equally, governments can enhance their social and economic stability while reducing their fiscal risks through the use of effective insurance programmes for their public assets which not only provide protection for when disaster strikes, but also drive risk mitigation and general risk management practices.

“It’s clear that there’s much work to be done to close the protection gap. As we expand our ‘payer to partner’ strategy at AXA XL and the broader AXA Group, we are committed to help do just that.”

Cooper agrees that the private re/insurance market can provide the necessary cover to help close the protection gap. He believes XL Group is better positioned to do this now it is part of the wider AXA Group, the chairman of which, Denis Duverne, also chairs the Insurance Development Forum, whose primary aim is closing the protection gap.

He says the reinsurance arm of the company is increasingly working with parts of the AXA group such as AXA Climate, which specialises in parametric solutions, to find ways of helping governments.

“The approach must be a collaborative one across the industry. No reinsurer or broker can solve this or do these very complex deals on its own,” he says.

New structure

In September AXA XL revealed changes to its reinsurance structure. From January next year, it is reducing its four reinsurance underwriting regions to three. The London and Bermuda reinsurance platforms will be merged into a new region, Global Markets, while the North America and International regions will continue to focus on clients and brokers in those particular areas. AXA XL’s reinsurance claims and operations functions will be centralised.

Cooper says the primary aim of the changes is to make it easier for clients to access the business, and allow underwriters more time to work directly with clients.

“It is a more customer-centric structure,” he says. “The global risks business will deal with the very complex stuff and our regions will be better able to deal with clients.”

He notes that chief underwriting officer Jon Gale will have an important role to play directing business to the right place across the group.

In terms of rates, he says, any changes vary by client but overall AXA XL is seeing increases of 2 to 3 percent in aggregate. He says rates in the primary market are increasing more quickly, suggesting that there is no shortfall of capital, rather that existing capital is simply seeking a better return.

Cooper says the reinsurance business is enjoying the benefits of being part of the AXA Group. As well as being able to access its expertise and global reach, it has been upgraded as a result: to ‘AA-’ from ‘A+’ by S&P Global Ratings, and to ‘A+’ from ‘A’ by AM Best. “Security remains very important to cedants so this is key,” he says.

Charles Cooper is chief executive of reinsurance at AXA XL. He can be contacted at: charles.cooper@axaxl.com

AXA XL, Reinsurance, Charles Cooper, Greg Hendrick, Jon Gale, Global

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