AXA has moved to take on more technical risk thanks to XL deal, says CEO

Interest rates staying lower for longer and negative bond yields mean more challenges for the life re/insurance industry—but AXA’s chief executive officer says the business is more shielded from these forces since it has repositioned its portfolio in recent years.

Speaking at a briefing in Monte Carlo on Monday (September 9), AXA chief executive Thomas Buberl said the company’s move towards writing more technical risks—such as property/casualty, dependent on the skill of an underwriter—as opposed to being heavily exposed to products and risks that are dependent on movements in the financial markets such as life insurance, has helped the insurer address the issue of lower rates.

An important part of this repositioning for the insurer came in the form of its $15.3 billion acquisition of XL Group, a year ago this week. This gave it a more balanced portfolio by taking on more technical risks—including in the form of XL’s reinsurance business—which helps provide a buffer from the long-term low interest rate environment.

Buberl said low interest rates were now “a given” and any hope of increases in interest rates had been “pushed down the road”, citing one analyst’s view that the next rate hike in Europe would be in 2025.

“This is a new reality that we have to deal with,” he said.

The move towards taking exposure to technical risk, as opposed to financial risk, had been the subject of much “screaming” and criticism from analysts, he added. AXA’s share price fell by almost 10 percent when it initially bought XL, but analysts are now praising the move and the share price has more than recovered.

“By shifting the portfolio towards technical risk in a low interest rate environment, we are well positioned,” Buberl said.

He pointed to XL’s strength in reinsurance, an area in which AXA had been weak. He said the move gave the group diversification, as previously 80 percent of the company’s profits had been generated from just 10 geographies.

He said the protection gap in climate change gave an opportunity to grow in reinsurance but added: “We need the proper pricing.”