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AXA looks to address AXA XL volatility with additional reinsurance

20th February 2020 - Author: Luke Gallin

In an effort to minimise earnings volatility within its commercial insurance and reinsurance arm, AXA XL, French insurer AXA has purchased some additional reinsurance covers.

axa-logoThe global insurer and reinsurer today announced its results for 2019, reporting a higher net income and elevated total revenues within AXA XL.

However, while AXA XL’s revenues increased to €18.7 billion for the year, the division saw its combined ratio come in at 101.5%, so in unprofitable territory.

As part of its earnings release, AXA noted earnings volatility at AXA XL and said that in order to reduce this in 2020, further steps have been taken. This includes reducing its exposure to property catastrophe business, line-sizing in casualty, and also additional reinsurance covers.

Specifically, and as detailed in the firm’s full year earnings presentation, which accompanied its earnings release, AXA reveals that in 2020, it added a 15% gross quota share cover on all of its property business.

AXA’s 2020 Group natural catastrophe reinsurance program is comprised of three components, as was the case last year when the firm announced its first integrated reinsurance program.

The first element provides the firm with per-occurrence protection against EU windstorm events, which for 2020 offers €2.9 billion of protection that attaches at €500 million. Last year, this segment of the program offered €2.65 billion of protection excess $750 million, so AXA has lowered the retention here at raised the limit.

The other parts of the per-occurrence component of AXA’s 2020 nat cat reinsurance program remain unchanged, with North American hurricane and earthquake protection of €1 billion that attaches at €750 million for both perils, and a layer that covers other perils, which attaches at €350 million while the limit purchased is unclear.

The reinsurance part of its program is comprised of alternative reinsurance capital and catastrophe bonds, and, according to our sister site Artemis’ extensive insurance-linked securities (ILS) Deal Directory, AXA has more than USD 1.35 billion of catastrophe bonds outstanding since its takeover of XL, as these deals were originally sponsored by XL Insurance.

The final part of the company’s 2020 reinsurance program has also been amended, with a change in both retention and capacity when compared with the 2019 program.

This layer of Group aggregate cover provides a lower level of total limit for 2020 of €1.25 billion, compared with €1.75 billion in 2019, while the retention has moved down from €1.45 billion to €1.4 billion for 2020.

As well as additional reinsurance protection, AXA also provides some details on AXA XL’s change in natural catastrophe exposure for 2020. Overall, the firm has noted a further reduction in property cat business in 2020 of 10%.

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