Cedants look beyond capacity in current reinsurance market

Property cat capacity might be plentiful, but casualty tells a different story as cedants become more selective about the reinsurers they choose, AXA XL Reinsurance CEO Renaud Guidée tells Monte Carlo Today.

Key points:
Property cat capacity remains plentiful
Casualty placements remain challenging
Cedants increasingly scrutinise security

“There’s not one single market in reinsurance, and the market is actually pretty fragmented.”

Cedants are becoming more selective about the reinsurers behind their protection as contrasting conditions emerge across different parts of the market, according to AXA XL Reinsurance CEO Renaud Guidée.

While property catastrophe capacity remains plentiful, some cedants are still struggling to complete casualty placements – evidence, Guidée said, that there is no single reinsurance market.

“To me, there’s not one single market in reinsurance, and the market is actually pretty fragmented,” he told Monte Carlo Today. “What I have noted is that lately, several cedants are struggling to complete their placements in casualty. So it tells you that the picture can be pretty contrasted.”

At the same time, buyers are looking more closely at who is providing their capacity. “They really discriminate and select between the reinsurers available to them,” Guidée said.

Demand for protection is also growing as weather events, geopolitics, macroeconomic volatility and technological change add to the risks facing businesses.“Precisely because the world is more risky, people want more protection,” he said.

Discipline over drastic change

AXA XL Reinsurance will remain guided by client demand while preserving diversification across its portfolio, Guidée said.“We are very happy with the current balance of our book,” he said. “There’s no drastic rebalancing to be expected. It’s more a sense of continuity and stability that we can provide to our clients.”

That does not remove the need to make choices about where to deploy capacity. Guidée pointed to underwriting judgment, client relationships and portfolio management as critical to identifying attractive business.

“There’s not one single answer, or a magic wand which would be pointing towards a gold mine where you could write every business. You obviously have to exercise a great deal of scrutiny,” he said.

More than capacity

That scrutiny increasingly runs both ways. Guidée said established relationships can give reinsurers a deeper understanding of a cedant’s business, while allowing both sides to identify issues that might not become apparent during a placement.

“With those clients with whom we have a true strategic partnership that we have been able to develop over time, we can mutually reinforce our respective strengths by unlocking some roadblocks, by unveiling some blind spots,” he said.

Financial security is another factor as cedants differentiate between reinsurers. Guidée pointed to AXA XL’s financial strength as part of the security clients are buying alongside capacity.He tied that directly to the fundamental promise behind reinsurance. “When the whole world is crumbling, when everything falls apart, we will keep standing and keep fulfilling our promises to our clients,” he said.

New risks test underwriting

The same emphasis on understanding the underlying risk is becoming increasingly important as exposures change.Guidée pointed to AXA XL’s research with the Cambridge Centre for Risk Studies on wildfire risk. The work has examined not only the role of the environment but also growing property exposure as development extends into areas close to forests and the wildland-urban interface.

“It’s a mix of hazard and also exposure,” he said, adding that the research helps AXA XL work with clients to understand their risk profiles better.

Data centres pose a different challenge because the industry has less underwriting experience to draw on.“Everybody is learning by doing,” Guidée said.

AXA XL Reinsurance prefers to work with insurers providing 100% coverage for an individual data-centre asset or campus rather than shared and layered programmes, allowing it greater visibility over the underlying exposure.“Shared and layered programmes create a bit more obfuscation,” Guidée said, making risk aggregation and monitoring “more challenging”.

For Guidée, that makes understanding the risk – and the counterparties behind it – increasingly important as the market evolves. With capacity plentiful in some areas but constrained in others, both cedants and reinsurers are becoming more deliberate about where and with whom they do business.

Renaud Guidée is the chief executive officer of AXA XL Reinsurance. 

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