AXA XL to grow casualty reinsurance

AXA XL aims to expand its casualty reinsurance business and meet its growing client needs “where the rates are adequate or the structures makes sense”, Marcus Gonzales, head of casualty reinsurance global & international markets at AXA XL, said in an interview at RVS 2022 in Monte Carlo.

“Ultimately, we’re in the business of providing solutions, particularly from the long tail perspective, that are sustainable because they need to go the stretch with our client base,” Gonzales said.

AXA XL has 900 clients in 100 different countries, and so a “very broad footprint” with local people who speak the local language and understand the local jurisdiction.

The company is able to tap into that local expertise for their clients’ US exposure to social inflation, he said.

“They are asking for some validation as to whether or not their views on how to address social inflation are correct, and a lot of that sits around active case management; in other words, getting in front of these claims quite quickly.

“What we see right now is that certain claims which, historically, would have been pretty much cut and dried and gone to settlement, the plaintiff’s bar now want to take to jury,” he said.

Some in the reinsurance industry are taking the view that this is where the so-called ‘nuclear verdicts’ arise.

“If you couple that with an anti-corporate settlement, then it’s quite a tricky situation. And so I think, to some extent, there’s a need for sharing collective expertise on which cases one should try to settle.”

Historically this has been more of a US concern, he noted, but in a globalised economy many international insurers have US operations.

“They might be a Europe or Asia-based company, but the fact that they have a US element means they are potentially exposed to a jury trial because, for example, they have factories in North America. And that’s where they would need to rely on our expertise,” he said.

Class actions

On where social inflation is heading, Gonzales noted new legislation that has been introduced recently in Europe that allows for class actions.

“They are tighter than exists in the US but, nonetheless, they’re introducing a bit of this collective action exposure that would have been more a US phenomenon in the past.”

Similarly, economic inflation is a bigger issue in the UK than it currently is in the US.

“Typically, we would say that wages are down and the consumer price index (CPI) is increasing at such a pace that we probably all would collectively agree that our wages aren’t tracking the CPI.

“An increase of 22 percent is probably a stretch, but we would expect at some point that wages will start picking up, and wages are more directly correlated to casualty claims than CPI is. That will play out over time and it’s something we’re watching quite intently at the moment.”

Other legal developments internationally AXA XL is keeping an eye on include a discount rate change review in the UK coming up in 2024.

“This happens every four years but because of the economic environment, inflation and interest rates, it’s anyone’s guess what that discount rate may look like in 2024,” Gonzales said.

“That’s because we don’t know where either one of those will be in the middle of next year. So, again, that’s another topic of conversation with our clients, to bounce ideas and look at the collective expertise.”

AXA XL is discussing original coverage with its clients as litigation “moves in a different direction”, on how are they amending the original policy language and how they are using their limits deployed, he said.

“About five or six years ago, the limits deployed by most clients were quite substantial. When social inflation happened, they were that much more exposed, and those limits have come down substantially, commercial to specialty, but we also see the same in general liability.

“I would say the clients who probably invested to some extent in IT, to produce the data to allow underwriters and reinsurance underwriters to differentiate among them, all those have come out ahead.”