New opportunities for growth across Africa as the latest specialty venture gets underway

The new specialty venture between Axa and Chaucer in Africa will see capacity immediately double for leading risks previously underwritten by the Lloyd’s insurer – and a commitment to grow capabilities further.

Speaking to Commercial Risk Africa, Johan Slabbert, Chaucer’s CEO, explained exactly how the two firms will work together to deliver benefits for clients and develop business during the next few years and beyond.

Axa announced in April it is entering the African specialty insurance market via a partnership with Lloyd’s insurer Chaucer. The new venture is named Axa Africa Specialty Risk.

Axa has created a new Lloyd’s Special Purpose Syndicate – 6130 – to initially enable it to share business with Chaucer’s Syndicate 1084 under the Africa Specialty Risk brand. In time, Axa will work with Chaucer to establish its own fully fledged Lloyd’s operation to write specialty risks in Africa.

The two firms believe they are perfectly set to deliver for clients here and now, with an eye on ongoing future collaboration.

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Win-win

This new venture is a “win-win” for Axa, Chaucer, Lloyd’s and, importantly, buyers, said Mr Slabbert.

“It will provide extra capacity for insured’s risks. Our overall capacity has been doubled on the basis that Axa has matched our risk appetite. We can write double the amount of business with Axa alongside us. Over time, that capacity will increase,” he told CRA.

Multinationals with large insurable assets are the big target for Axa Africa Specialty Risks, along with large, indigenous companies, particularly those in South Africa. Axa Africa Specialty Risk will cover political risk and trade credit, energy, political violence and terrorism, property, construction, liability, marine and aviation.

Presenting at the Unison broker network conference last month, the firm gave details on the specific risks it will cover and maximum line sizes in key areas.

Energy is Chaucer’s number one expertise, so will be a big focus for Axa Africa Specialty Risks. The firm will cover upstream, construction and liability, midstream and downstream, renewable and engineering energy risks.

Maximum energy line sizes on offer are:

• Energy upstream: $250m
• Energy downstream: $50m
• Energy midstream: $100m
• Energy renewables: $100m
• Energy construction: $250m
• Construction: $100m
• Operational power: $60m

The new insurer will cover a range of property risks, including the mining sector, with limits up to $50m. The firm also gave details of its political violence and terrorism cover. It includes protection against global war; terrorism and political violence for non-marine assets; war and strikes; construction project worldwide; third-party liability; energy-specific liability; and event cancellation. The maximum line size is $60m.

Its aviation insurance covers airline hull and liability, airport liability and products, with a maximum line size of $100m.

“With instability and terrorism, any account that is vulnerable to political scenarios will be a big focus. So we are talking trade credit, confiscation and those types of risk. We are an energy-led syndicate. Where there is renewable energy being delivered, be that wind or solar, we will get involved. Construction and engineering also, and political risk and terrorism. That is the original suite. We will eventually move on to marine and aviation,” said Mr Slabbert.

Continental reach

He explained that Axa Africa Specialty Risks will operate across pretty much the whole continent, building on Axa’s and Chaucer’s footprints.

Axa already owns seven insurance companies across Africa and is present in eight countries, including Morocco, Ivory Coast and several in east Africa.

“They form the basis of where we are starting,” said Mr Slabbert. “Axa’s country managers now have all of this capability sitting behind them and just need to refer it and we will take care of it. Axa will also be placing business development managers in countries where they don’t own companies.”

Axa also has a 7% stake in Africa Re, which delivers further opportunities for its new specialty risks venture.

“Africa Re is very well run, has a lot of capital and Axa now has a board seat, so we have access to the biggest reinsurer on the continent and we can write business on the back of that,” said Mr Slabbert.

He explained how the partnership between Axa and Chaucer will benefit both firms and their clients. Mr Slabbert revealed that the end goal is to see Axa set up independently at Lloyd’s and then share business with Chaucer on a co-(re)insurance basis.

Ms Slabbert said there are four pillars to the arrangement between Axa and Chaucer.

“At Chaucer, we have a lot of knowledge and experience with African specialty business. We have the biggest African portfolio at Lloyd’s. We focus on political risk and energy in particular. So we will combine our underwriting with Axa’s marketing capability and establishment of a coverholder in Mauritius, combined with Lloyd’s licensing and a new established special purpose syndicate capitalised by Axa,” he said.

“In francophone Africa, Axa already has a footprint to allow for direct access to big risks, particularly in the energy market. They are in the process of hiring some business development people across the continent. So their brand, their distribution, our underwriting capability. Commercial banks that finance many of these infrastructure and energy development projects will also be part of our distribution channel,” Mr Slabbert added.

Operational arrangements

From an operational perspective, business will be sourced by either Axa’s distribution channel or Chaucer’s existing arrangements. The specialty business will be funnelled through Axa’s coverholder in Mauritius back to Chaucer to underwrite. At the same time, Chaucer will continue with its existing relationships in the African continent and write bigger line size, in excess of its appetite. These risks will be passed on to the special purpose syndicate by means of a reinsurance agreement.

“Chaucer will write what it used to underwrite but take larger risks and give it to the syndicate. Axa will produce new business and Chaucer will underwrite and then share it 50/50,” said Mr Slabbert.

There are three phases to the arrangement between Axa and Chaucer, explained Mr Slabbert.

The first phase sees Axa establish a special purpose syndicate – 6130 – for a period of about three to four years, explained the Chaucer CEO.

A special purpose syndicate can only write a single reinsurance contract for its host. For Axa 6130, Chaucer 1084 is the host. In this phase, Axa will not be able to write any other risks other than those unwritten by Chaucer.

Once Axa has sufficient capabilities to write accounts on its own – following training and advice from Chaucer – 6130 will convert to a full-blown syndicate, said Mr Slabbert.

“The second phase is the standalone syndicate. Axa can write third-party risks and continue reinsuring business from Chaucer, coming from its coverholder and the business we write. Chaucer will remain the managing agent. So to an extent, we will still have influence over their underwriting activities but they will have a standalone syndicate and they are not bound to a single reinsurance contract,” he told CRA.

The last and ultimate phase will see Axa establish a managing agent. This will then give it the complete suite of managing agent, syndicate and capital provider.

“In that phase, which is seven or eight years down the track, we will continue in a co-(re)insurance capacity. So we will both produce risks, we both put stamps down and share the risks. So it is truly a long-term arrangement,” said Mr Slabbert.