Global insurer AXA has outlined its restructured, integrated reinsurance program for 2019, the placement of which resulted in a cost saving of almost $200 million, according to AXA Group’s Chief Risk Officer (CRO), Alban de Mailly Nesle.
The firm announced previously that it expected the placement of its 2019 integrated reinsurance program to result in cost synergies of $100 million. However, comments from the firm’s CRO during its 2018 earnings call reveal that AXA’s reinsurance cost savings for its 2019 program exceeded its target by almost 100%.
“On the $100 million synergies on reinsurance, we almost managed to get $200 million. It was slightly below at the end of the day, but only slightly below,” said Alban de Mailly Nesle.
AXA’s 2019 integrated reinsurance program is comprised of three components; a segment that protects the insurance business of AXA and XL (occurrence protection); a reinsurance segment (alternative capital and catastrophe bonds), and a Group aggregate protection component that covers all segments.
The per-occurrence element provides protection against EU windstorm events (€2.65bn of protection that attaches at €750mn), North American hurricanes and earthquakes (€1bn of protection that attaches at €750mn for both perils), and also includes per-occurrence reinsurance protection for other perils, including Turkey earthquake, Mexico earthquake and windstorm, EU and NA floods, as well as a series of other secondary perils (this layer attaches at €350mn but the limit purchased is unclear).
The firm explains that the reinsurance segment is comprised of alternative reinsurance capital and catastrophe bonds. According to data on our sister publication, Artemis, AXA has $1.425 billion in outstanding catastrophe bonds following its takeover of XL, as these deals were originally sponsored by XL Insurance.
The final part of AXA’s integrated reinsurance program for 2019 is its group aggregate cover, which provides €1.75 billion of protection above €1.45 billion.
Discussing the firm’s reinsurance program during the 2018 earnings call, Alban de Mailly Nesle provided some insight into the thinking behind its aggregate cover and how the overall program offers broad protection for the firm.
“The third component is the aggregate, and that’s an absolutely key component of our reinsurance structure, because that’s what helps us achieve the target of not to lose more than €500 million, net of tax, with a 5% probability,” he said.
The CRO continued to explain that the firm puts all the retention and excess losses above its protection into the same basket, subject to a €50 million deductible per event, for insurance and reinsurance. When the basket reaches the €1.45 billion attachment point of its aggregate component, everything above this is ceded to reinsurance, again subject to a €50 million deductible, pre new event.
“So, with that, you see that we are protected against extremely large events, or a large number of small to medium events through the aggregate. And, that’s how we achieve the deviation and the risk appetite,” said Alban de Mailly Nesle.
