AXA XL has established a new Class 3A reinsurer in Bermuda called Seaview Re Ltd., we’ve learned, with the vehicle taking a quota share of the firms U.S. risks, including property catastrophe, and set to act as a capital efficiency play.
Seaview Re Ltd. was registered by AXA XL back in February and received a license as a Class 3A reinsurance company from the Bermuda Monetary Authority (BMA).
It’s an internal reinsurance vehicle, designed to add efficiency across the AXA XL business, by taking on some risk from the firm and reducing reinsurance costs at the same time.
Seaview Re is a subsidiary of a Delaware domiciled holding company named Seaview Re Holdings Inc. and this vehicle was capitalised to the tune of $475 million through an asset transfer from another internal AXA XL vehicle, Switzerland domiciled Catlin Re.
Following the capitalisation of Seaview, the AXA XL U.S. pool of companies ceded some of their risk to the new internal reinsurer, by way of a 30% whole account quota share was placed for 2019 between them and Seaview Re Ltd.
The formation of Seaview Re has meant that AXA XL’s Risk Appetite Framework (RAF) is under review, as the internal reinsurer, while adding efficiency, means that the overall way the firm shapes its portfolios of risk has changed and its exposure increased.
With the formation of Seaview Re and the greater internal retention of risk as a result, it seems that AXA XL will have a slightly higher risk profile, leading to the revision of the RAF, we understand.
Seaview Re is expected to drive higher underwriting profits, as AXA XL retains more risk internally, likely using less open market reinsurance as a result.
So, while this does mean a higher risk profile for the firm, the benefits, in terms of efficiency, lower costs and higher margin from the business ceded to Seaview Re will outweigh this, we believe.
In fact, AXA XL expects to increase its technical result we understand, thanks to the inclusion of Seaview Re, which will also have the effect of reducing target capital for the firm.
“The expected insurance-technical result for underwriting year 2019 is USD 163m (2018: USD 67m) on a discounted basis. The increase compared to last year is mainly driven by Seaview Re, a newly formed subsidiary of Catlin Re that writes a 30% whole account quota share with XL Re America (pool),” a filing from the company explains.
So, while underwriting risk is up, the expected extraction of profit from this risk ceded to Seaview Re is likely to be significant, while with reinsurance costs also down, due to the retention of this quota share, the benefits to AXA XL are clear.
What’s not as clear, at this stage, is exactly what AXA XL’s long-term strategy with Seaview Re Ltd. is.
The main strategy seems to be the result of an appetite to better manage some areas of its book using this new reinsurance vehicle, while reducing costs and extracting more value (profit/margin) out of some of the risk premiums it underwrites.
Hence, Seaview Re is an internal reinsurance mechanism, designed to support the capital efficiency of the broader AXA XL group.
We understand that there isn’t a hybrid investment strategy associated with Seaview Re, so it’s not a total-return reinsurer, and no third-party capital is involved so far.
Of course, the Seaview Re platform adds flexibility and AXA XL could elect to bring third-party investors into it in future, or add extra elasticity to its capital by the adoption of a total-return approach.
But even if it doesn’t, the vehicle will enhance its profit and add capital efficiency, by extracting more of the risk premium profits from this U.S. property and catastrophe business that has been ceded to it.