AXA XL aims to expand its casualty reinsurance business and meet its growing client needs “where the rates are adequate and the structure makes sense”, Marcus Gonzales, head of casualty global & international markets, head of London, reinsurance, AXA XL, told Monte Carlo Today.

“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, so a “good footprint”. The company is able to tap into that local expertise for its clients’ US exposure to social inflation, he said.

“They are asking for some validation as to whether 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 in certain claims which, historically, would have been pretty much cut and dried and gone to settlement, the plaintiff’s bar now want to take them to jury,” Gonzales said. This is where the so-called “nuclear” verdicts arise.

“If you couple that with an anti-corporate sentiment, then it’s quite a tricky situation. 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 based in Europe or Asia, but the fact that they have a US element means they are potentially exposed to US-style social inflation because, for example, they have operations in North America. That’s where they would need to rely on our expertise,” he said.

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

“The rules are tighter than exist in the US but, nonetheless, they’re introducing a bit of the 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 expect wages to be running above the consumer price index (CPI) but CPI is increasing at such a pace that we probably 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.”

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 to be confirmed what that discount rate may look like in 2024,” Gonzales said.

“That’s because we don’t know where either 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 much more exposed, and those limits have come down substantially, especially in lines such as commercial D&O, but we see the same in general liability.

“I would say the clients who invested to some extent in IT, to produce the data to allow underwriters and reinsurance underwriters to differentiate between them, will come out ahead,” he concluded.