Axa could reduce cat reinsurance exposure further if price is wrong – CFO

Axa SA's reinsurance arm may make further cuts to its catastrophe exposure if it does not see the necessary price rises for catastrophe cover at upcoming renewals, group CFO Alban de Mailly Nesle said.

Axa XL Reinsurance Ltd., part of the group's Axa XL reinsurance and large commercial insurance division, has reduced its catastrophe exposure by 40% since the French insurer acquired XL Group in 2018, the CFO said on a call for the company's third-quarter trading update.

"We still believe that cats are not adequately priced in the reinsurance market, and if we don't see a significant increase in prices, we can reduce further our exposure at XL Re," de Mailly Nesle said.

The group as a whole also wants to keep its catastrophe exposure at least flat with the reinsurance and retrocession cover it buys. Prices for both are rising in response to catastrophe losses. De Mailly Nesle said if the group was not able to buy more protection because of the price, it would reduce its catastrophe exposure.

The industry is approaching a key renewal data on Jan. 1, when roughly half of the world's reinsurance renews every year.

The insurance industry suffered a string of natural catastrophe losses in the third quarter, with the most severe hits coming from Hurricane Ida in the U.S. and heavy flooding in Germany and some neighboring European countries in July. Axa announced with its trading update that it expected Hurricane Ida to cost Axa XL €400 million, before tax and net of reinsurance.

De Mailly Nesle said the group's claims estimate for the European floods, which it gave when it announced its half-year earnings, still held despite industrywide upward revision of loss estimates across the industry. This is because the reinsurance protection for the group's primary insurance exposures in Europe kicks in at €350 million, which Axa's claims bill was "clearly above."

De Mailly Nesle said losses from the flooding had increased "slightly" on the reinsurance business, which does not benefit from that cover, but that the overall estimate remained unchanged.

The CFO also revealed that Axa was €50 million away from the trigger point for its group-wide aggregate catastrophe cover. The cover includes a €50 million deductible, so the group would need to suffer €100 million of further catastrophe claims to receive a payout under the cover.

Despite the catastrophe losses, Axa believes a €1.2 billion profit at the Axa XL division for 2021 is still achievable, based on the assumption that the division does not suffer a major catastrophe loss or several large catastrophe losses in the fourth quarter, according to de Mailly Nesle.