Axa XL will make greater use of alternative capital: Hendrick

The new enlarged Axa group will look to scale up the alternative capital capabilities it took on in the XL acquisition and match more insurance risk from across the group to that capital, XL president Greg Hendrick has said.

In an interview with The Insurance Insider at the Monte Carlo Rendez-Vous, the executive said even before the Axa takeover, XL was an extensive user of alternative capital, particularly for property cat risk.

Before the acquisition, XL held one of the largest cat bonds outstanding, made great use of collateralised reinsurance and also was actively growing its New Ocean asset management arm, Hendrick explained.

“We will, as part of the Axa group, seek to move [the use of alternative capital] forward and have those capabilities brought to bear on all of the Axa group, not just Axa XL,” he continued.

“Thomas [Buberl] and I very much share a vision that this is the future of the marketplace and XL Re and alternative capital will be the two main drivers behind how well this goes.”

Hendrick said he believed the market has “changed forever”, particularly for property cat reinsurance.

“Property cat today is no longer just a sell-and-hold [on your own balance sheet] model, it is a sell and move to the right source of capital model,” he said.

“If you assume a similar risk margin to what is available [for property cat] this year, then we will continue to make that move to match more of that cat risk with alternative capital [rather] than retain it on our balance sheet.”

Hendrick said it is imperative that the market condenses the value chain so that costs no longer absorb 40 percent of premiums. That means bringing alternative capital closer to various forms of risk, he added.

“We are very passionate about shrinking that chain down in the most appropriate way we can, to get more of that premium to go to the loss for the customer, rather than for expense.”

On the imminent close of the deal, Hendrick will become CEO of Axa XL.

The division will comprise XL’s insurance and reinsurance businesses, as well as Axa Corporate Solutions and Axa’s fine-art business.

The executive reiterated that Axa XL is “firmly committed” to the reinsurance market, despite this publication’s earlier revelation that Axa had explored a spin-off of XL Re before the $15bn acquisition.

“It’s a core part of our franchise, its $5bn out of our $15bn of gross written premium,” Hendrick said.

The reinsurance business allows Axa XL to have exposure to markets and risk it does not access on a direct basis, such as US homeowners’ and mortgage risk, he explained.