Axa XL's U.K. and Lloyd's business is now looking to expand after making heavy cuts in an effort to return to profitability.
"We are done with the remediation now," Sean McGovern, head of that U.K. and Lloyd's segment, told S&P Global Market Intelligence. "The portfolio is where we want it to be. We are now back in growth mode."
Paring back
Axa XL is Axa SA's reinsurance and large commercial insurance operation, which was formed through the 2018 acquisition of XL Group. The U.K. and Lloyd's division writes specialty London market business inside and outside Lloyd's of London, as well as U.K. retail property and casualty. Specialty accounts for 80% of the division's book. McGovern was named permanent CEO of AXA XL's U.K. and Lloyd's business in July 2020, having joined Axa XL predecessor company XL Catlin in 2016 as chief compliance officer.
Speaking at U.K. risk manager trade body Airmic's annual conference, McGovern said his division failed to produce underwriting profit for many years and that it "needed to win back the faith" of the parent company. The unit began "significant work" starting in mid-2020 to restore profitability, which included cutbacks, exits and sales of businesses. The effects of the work were clear in Axa XL's Lloyd's business in 2020, where gross written premium fell by 20.2% to £1.71 billion, according to S&P Global Market Intelligence data.
The most visible element of the remedial work was the decision to exit management liability and financial institutions business in the U.K. and Lloyd's; that move resulted in a €156 million hit to the Axa group's net income in 2020. While rates have been rising rapidly in financial lines generally, McGovern said the company did not want to rely on price increases to fix what he saw as a problem with the portfolio's makeup.
"Rate was not going to save that portfolio," he said.
Looking to grow
With the remedial work done, McGovern expects his division to return to profitability in 2021 as the U.K. and Lloyd's business performed "extremely strongly" in the first half of the year.
"My expectation is that strong performance will continue through to the end of 2021," McGovern said.
Looking ahead to 2022, McGovern sees opportunities in specialty and property casualty lines. Axa XL acts as lead underwriter on 70% of the London market specialty business it writes, McGovern noted. Submissions into the London market are likely to continue to rise, and given its role as a lead underwriter in that market, Axa XL should be in a good spot to access new business, he added.
McGovern also sees prospects for growth in U.K. property and casualty retail business. The company is aiming to offer risk managers risk consulting services alongside insurance cover and access to insurance products provided by the wider Axa group that Axa XL itself does not write, such as health insurance.
Future at Lloyd's
Axa XL has been repairing its U.K. and Lloyd's portfolio as Lloyd's continues its crackdown on serially unprofitable syndicates and business. Syndicate 2003, the bulk of Axa XL's Lloyd's business, reported a combined ratio of 133.8% in 2020 and last reported a combined ratio below 100% in 2016. McGovern said Axa XL is committed to a "meaningful presence" at Lloyd's.
McGovern acknowledged that the Lloyd's business has been underperforming "for too long," but pledged that would change.
