(BFM Bourse) – The insurer would evaluate its strategic options on this reinsurance activity, reports Reuters, citing sources familiar with the matter. Which would include a separate sale or quote.
Will Axa cut ties with its reinsurance business, that is to say, to simplify, “insurance for insurers”? The CAC 40 group is, according to information from Reuters, in the process of evaluating its strategic options for XL Re (the “re” meaning “reinsurance” therefore reinsurance). According to three sources familiar with the matter surveyed by the agency, these options would include a possible sale or a separate listing on the market.
These discussions are taking place two years after press reports which had reported an approach by the mutualist group Covéa (MAAF, MMA, GMF) with a view to potentially buying this company. According to the Argus of the insurance, these discussions had not succeeded, for lack of agreement on the price.
Contacted by Reuters, the company did not comment. A spokesperson for the company was also not immediately available to respond to a request for comment from BFM Bourse.
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Reduced exposure to low heat
Axa XL Re was integrated by Axa in 2018, when the French company bought XL Group, for more than 12 billion euros at the time. If this operation had the virtue of accelerating the group’s strategy to strengthen its business damage insurance, the market did not really appreciate the acquisition, given its high amount.
The reinsurance part, which roughly constituted a third of XL Group’s income, had also raised eyebrows for some research departments, because this business increases the volatility of results due to its dependence on natural disasters, which increase with global warming. .
Axa XL was then for several years a recurring source of disappointment in the company’s results. The insurer nevertheless reduced its exposure to reinsurance and natural disasters in several waves. For example, last year, the group reduced this exposure to natural disasters by 40% by repositioning its reinsurance portfolio during contract renewals in the first quarter. This decision resulted in a 27% drop in all of Axa XL Re’s revenues for the 2022 financial year.
Thus the turnover of AXA XL Re represented only 3.2 billion euros last year, to be compared with total revenues for the insurer of nearly 100 billion euros. In 2019, Axa XL Re’s revenues still stood at 4.5 billion euros.
The market appreciates the rumor
On the Paris Stock Exchange, the Axa share rose by 3.6% around 4:30 p.m., signing one of the strongest increases in the CAC 40, following this press information.
“This reflection (reported by Reuters, editor’s note) would be part of the continuity of the group’s reduction of risks linked to natural disasters. This exposure annoyed market operators because it creates volatility with risks that are difficult to predict and model. However, investors like to have visibility and smooth results to invest in large groups like Axa”, deciphers a market intermediary.
“Reducing this exposure even further could, seen from the market, reduce the cost of equity on Axa (a rate of return required on shares and which then divides the expected profits to value a listed company, editor’s note)”, adds- he.
While the risks of reinsurance activities linked to catastrophes are indeed difficult to predict, the pricing environment is logically favorable due to these uncertainties. According to a Gallagher Re report quoted by Reuters, the prices of damage reinsurance linked to natural disasters in the United States rose by up to 50% on July 1, the renewal date for contracts.
Julien Marion – ©2023 BFM Bourse
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