Age of post cat ‘payback’ over

The concept of ‘payback’ in the aftermath of heavy catastrophe losses has now gone for good, and reinsurers must adjust accordingly, Charles Cooper, chief executive of reinsurance for XL Group, told Monte Carlo Today.

“The reinsurance business model has changed as a result and companies must adjust,” Cooper said.

“First, it means that reinsurers must charge an appropriate rate all the time; second, catastrophe business has been subsidising other lines of business for a long time. If the margins are no longer there, the rates on all lines of business must adjust to reflect this.”

He also stressed that he does not spend too much time worrying about rates. “The price is what the price is,” he said.

“Everyone always postures around this but market dynamics will play. We are in the height of the hurricane season—the largest capital driver in the business. It is far too early to speculate.”

Asked about the potential implications of XL’s being acquired by AXA, Cooper said he was positive about the opportunities it would being and highlighted that it represented just another chapter in the history of a reinsurance group that has been very much built on acquisitions.

“We are a product of M&A and this is just the next step for us,” he said. “AXA will also mean many opportunities for the group; there is a larger balance sheet but also great expertise across the board.”

One area of expertise he highlighted was AXA’s capabilities in parametric insurance: AXA Global Parametrics was launched in 2017. One of XL’s biggest drivers is around closing the protection gap globally and Cooper sees synergies between this goal and AXA’s expertise in this regard.

“There is no doubt that closing this gap is a big challenge; there are a lot of different stakeholders and the lack of quality data can be an issue. But it is not an impossible challenge and we see many opportunities in this sphere,” he said.

He admitted that some clients have asked about the implications of the AXA deal but he stressed that XL’s reinsurance operations have been connected to a large insurance group for many years anyway.

“We have had some questions about confidentially and the segregation of data from the insurance side, but we were doing that anyway,” he said. “We have completely separate systems; that is critical to us. So I see only positives as a result of the deal.”