AXA XL’s withdrawal from London D&O market leaves ‘large hole’ in capacity

AXA XL’s decision to become the latest insurer to withdraw from London’s directors and officers (D&O) market will leave a capacity gap and add further pressure in a key market for many large corporates. AXA XL recently announced it is pulling out of the London market for management liability and financial institutions business. The company will no longer write these lines at Lloyd’s or in the London company market, but will continue to offer cover in other markets. It continues to write cyber, professional indemnity and M&A insurance in London. The insurer’s decision to withdraw from London as part of an ongoing review of underperforming business suggests other lines of business may yet face a similar fate. Although AXA XL did not give details, the withdrawal is thought to amount to a significant reduction in its capacity for financial lines and D&O. In a statement, the firm said: “Following a strategic review and in light of our ongoing concerns around the level of claims, pricing and profitability, we intend to cease underwriting management liability and financial institutions business in the London market. Our financial lines business in the Americas, APAC and Europe remains unaffected.” According to Nicky Stokes, head of management liability and financial institutions at broker New Dawn Risk, the withdrawal leaves a sizeable hole in London’s D&O and financial institutions markets. “AXA is one of the major players in this space, so it is significant. It will leave a large hole in available capacity that is much needed in the current environment,” she told CRE. But she made clear that AXA isn’t the only major insurer to have withdrawn from the market in the past 12 months, which has made placing larger towers of risk much tougher. “Withdrawals, coupled with reduction in capacity deployment, as well as a number of markets not writing any new business for the balance of 2020, have made life very challenging for brokers and clients, as well as putting a lot of pressure on the few markets still in play. Those markets also now have the ability to charge higher rates for their capacity – which obviously has an even more severe impact on an already very hard market environment,” she said. London is an important market for financial institutions and D&O, particularly for large-tower risks looking for more capacity and unique or harder-to-place risks. However, in the hardening market, some insurers have retreated to their core appetite and do not want to write the “tricky or highly exposed accounts” underwritten in London, explained Ms Stokes. As a consequence, the D&O and financial institutions markets in London are hardening. There are now fewer available options for buyers, while line sizes and deployed capacity have reduced. Cover has also become more restrictive to correct the past soft market cycle that saw cover broaden year on year, said Ms Stokes. Given market conditions, some buyers are opting to buy smaller towers, with a view to increasing them when markets open up again or new capacity comes in. Companies can also restructure programmes, bringing in higher retentions, co-insurance options, captives, reduced abc cover and top-up with ‘a-only’ cover, explained Ms Stokes. There is, however, some light at the end of the tunnel for buyers. “London has been in corrective mode for the past 24 months, but there is hope that a levelling off of rate increases is in sight – although this may take another 12 months to come through,” Ms Stokes said. The market has also attracted a few new entrants, which do not have the legacy issues that plague incumbent insurers. “They will be able to rate risks correctly for the current environment from the get-go, which will put them in a much better position. And they will be accepted because their capacity is needed,” said Ms Stokes.

AXA XL’s withdrawal from London D&O market leaves ‘large hole’ in capacity

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