Axa XL will start to consider ceding insurance risk to its New Ocean platform in 2020 with a view to bringing more Axa group risk on board within three years, according to Axa XL CEO Greg Hendrick.
The executive said the third-party capital fund currently only takes on Axa XL’s property catastrophe risk, but over time the intention is for New Ocean to bear a more diversified portfolio of risks and eventually be used for the benefit of the whole Axa group.
“We don’t want to put insurance risk in [New Ocean] yet. But the intention certainly is to do that,” Hendrick told The Insurance Insider. “I think we have to get through 2019 and into 2020 to let the core exposure – what I would call the cat treaty book – settle down before you start to entertain other risks.”
Investors rightly want to see what the opportunity is, the level of return and how have things settled down with prior-year development, he continued. “Over time, perhaps in a three-year window, we would bring in Axa group risk and other perils to bear on that capital.”
New Ocean now holds more than $1bn in assets under management (AuM), and Axa XL intends to keep expanding the platform, Hendrick explained.
“It’s a great opportunity for us and the Axa family unlocks a lot of conversations that we weren’t having before,” he said.
This AuM expansion has come at a time when growth in existing third-party capital funds has slowed, “but we did pick up a disproportionate share in 2019 and we have some good conversations ongoing, so we intend to pick that up and make [New Ocean] a resource for the whole group to cede risk”, Hendrick said.
Moving on to talk about the 1 January renewals, Hendrick said reinsurers could not sustain the increase in retro costs if they did not also increase rates.
He described an “inverted rate increase curve”, whereby reinsurance rate increases were lagging those of insurance and retro.
“This U-shaped curve is, in my memory, unusual,” he said. “It seems to me that it is not possible to stay in that state as a reinsurance marketplace.”
The executive said his firm would navigate this situation by reallocating capacity to the best-priced areas. As such, Axa XL’s insurance top line will grow more quickly than its reinsurance written premium, and the firm will target specialty areas such as fine art, political risk and crisis management.
Hendrick said that while Axa XL would maintain its position in property cat risk, present rate increases are not enough for the carrier to take more net cat risk. It would take “a good couple of years” of rate increases before Axa XL would reconsider this position, he added.