French risk managers see selective correction rather than knee-jerk market hardening: AXA CS

French corporate risk managers did not suffer a dramatic market hardening across the board at year-end renewals as a result of the string of huge catastrophes in 2017, according to Matthieu Caillat, CEO for France at AXA Corporate Solutions. But Mr Caillat added that underwriting became more selective and negotiations were tougher at year end, particularly in property lines and some specialty markets. He also pointed out that the full effects of the catastrophes and scale of losses remain largely unknown, not least in the key area of business interruption. The shift to a more selective underwriting approach, and thus gradual rate firming from leading insurers, could take a few more months at least to filter through, Mr Caillat told Commercial Risk Europe in the run up to this year’s annual AMRAE conference. “The news was good from the 1 January renewals, which remain a significant renewal for the French market. The renewal performed better for insurers,” said Mr Caillat. “We are definitely seeing a reaction to the major US events in the second half of last year. This does not mean that we are seeing increases across the board. It is more specific by line of business. The impact is stronger in property lines and particularly catastrophe-exposed accounts, which is not surprising,” he continued. “We are also seeing a hardening in some niche markets, such as marine cargo including static exposure – in particular for the automotive industry. But this is a developing situation and will take some time to become clearer. We do not know the total losses for business interruption, so the impact for customers will take some time to be clarified. The reinsurance market has tightened clearly and the impact is felt faster in facultative business. But the treaty market is being affected too as big losses have been suffered and the effect is being felt in the primary markets,” explained Mr Caillat. In the past, significant losses such as those experienced in the US and Caribbean during the second half of 2017 would have led to a serious reduction in reinsurance and then primary capacity as balance sheets took a hit. But in today’s market this no longer occurs because there appears an unlimited supply of capital in the still relatively low interest rate environment, while barriers to entry have been removed. There has been significant consolidation in the insurance market over recent times and some leading players have withdrawn from certain lines. But the specialty market remains highly active. Japanese and Chinese insurers, in particular, have been very keen to expand their European and international operations. Then, there is the continued influx of alternative capacity. This has all led to ongoing stable capacity, which can be a little confusing for the market as it tries to work out where the cycle, if it still exists, heads next. “The situation with capacity remains a paradox,” commented Mr Caillat. “We see more or less the same capacity as some players withdraw from segments and then we see new players coming in. There are changes in interest rates but they are too small so far to have a significant impact on the market. There have been losses on catastrophe bonds for the first time for some players, but we see no withdrawal of capacity yet. What I can say for sure is that there is more disciplined underwriting at the primary level as individual companies – such as AXA – seek to deliver adequate returns to shareholders in this tough market. So, I can’t talk of a significant reduction in capacity because of the recent catastrophic events, but there will be a cumulative effect as individual companies act,” he explained. AXA Corporate Solutions has taken corrective action where necessary in France as elsewhere. But this will not severely impact volume because it has also experienced a good flow of new business and always acts with partnerships in mind, said Mr Caillat. “We have not published the full 2017 numbers yet, but it will be a very good year, a record year for new business at AXA Corporate Solutions in France. We also had to take some corrective action and ask for price increases for some accounts as part of our individual client account philosophy. You have to be very careful about the level of price offered and make sure it is sustainable. You need to offer a sustainable solution that is part of the partnership, especially in light of such natural catastrophes,” he said. One potential market disruptor is, of course, Brexit. If the European Union takes a very hard line with the UK, it is possible that the London market will find its ability to serve the mainland European market limited. Surely this could have an impact on the market, reducing competition and capacity on offer? Mr Caillat is not convinced that this will be the case. “I am not 100% sure about the impact on the French market, for example. It will clearly be harder for London-based insurers to access the continental European market post-Brexit. But London is still very much an international market, so the effect should not be so dramatic. There is a great deal of uncertainty about what will actually happen, but most companies have already organised something to cover most cases,” he said.

French risk managers see selective correction rather than knee-jerk market hardening: AXA CS

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