One vision – AXA’s Asia strategy

Earlier this year, AXA unveiled a new strategy for its asian entities under the name of One AXA Asia. The five-year plan, announced in June, laid out the insurer’s growth expectations – overall annual underlying earnings average growth of 10%-12% in Asia between 2016-2020 for its life and non-life business.

When it comes to commercial lines, such as property and casualty, AXA wants to reach an average growth rate of 3%-5% in annual revenue worldwide.

To achieve this aim, AXA’s Asian business will play a critical part. AXA has a wide footprint in the region, including several AXA General Insurance (GI) and AXA Corporate Solutions (CS) branches in the region. But in order to maximise business opportunities, the insurer has reorganised these branches as part of its new One AXA Asia strategy.

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“AXA CS teams in the APAC region are based in four countries – Hong Kong, Singapore, China and Australia,” explains Etienne Champion, recently appointed chief executive of AXA CS, APAC.

“Markets are very flexible and the business flows are complex in the region, so we need to adapt to each situation and spread our presence. As One AXA Asia we can catch the opportunities wherever they appear, be it in one of our APAC branches, or London or Dubai, or in a branch of our sister company AXA GI.

“We made the diagnosis that we were not taking full advantage of the GI entities in the region. They are out in the field every day.

“Our first mission was to communicate with the market and to explain this move internally and externally to the brokers,” says Mr Champion. “It has been well received because all international insurers face the same issues.”

Singapore and Hong Kong

For risks located or headquartered in countries where there is no local AXA entity developing commercial lines (South Korea, Japan, Taiwan or Vietnam for example), AXA CS Hong Kong and Singapore will be the designated points of entry through those two reinsurance wholesale markets.

For those geographies where an AXA entity is operating locally in commercial lines, the recently launched One AXA Asia operating model will apply. “It aims at better leveraging AXA’s strengths and best practices in the region by bringing the right risks to the right AXA resources, whichever channel it takes,” says Mr Champion.

In this new organisation, AXA CS Singapore and Hong Kong will be in charge for the whole Asia region of underwriting the volatile or ‘special’ risks (powergen, midstream and downstream petrochemicals, semiconductors, pulp and paper) for all lines of business non-marine for these occupancies.

AXA GI entities will be facing their respective national markets and rely on AXA CS to quote those special risks. If ever the same risk is presented to several AXA entities, priority to the direct local GI entity will be given.

Marine cargo and marine hull are written by both AXA CS and AXA GI entities in the region. But a team of three marine regional practice leaders allocate the business to the right resources depending on the volatility of the business. Typically in marine cargo, AXA CS would write business for project cargo, trading and commodities, high tech and automotive and heavy machinery.

Australia and China

For large and corporate risks placed in China and Australia, AXA CS teams address all market requests, be it via direct insurance, reinsurance, property and casualty (P&C) or marine.

“Initially, our Australian office was created to service global programmes from Europe. In addition, we now provide the whole product range to the domestic Australian market for clients headquartered in Australia and New Zealand. Here we have launched construction, property and liability lines, with a team of local underwriters and a prevention engineer. We are also hiring claims specialists,” says Mr Champion.

AXA’s foray into the Chinese market was accelerated in April 2013, when it entered into an agreement with Tian Piang Auto Insurance Company shareholders to acquire 50% of the company. The group’s existing Chinese P&C operations, which came through its acquisition of the Winterthur Group from Credit Suisse in 2006, were integrated within the new joint venture.

“When the Tian Ping deal was completed in 2014, we merged with the former Winterthur commercial business. A dedicated corporate business unit is now operating within AXA Tian Ping, servicing not only European business in China but actively developing local Chinese business in P&C and marine,” says Mr Champion.

International programmes and captives

Almost 95% of AXA CS premiums come from global programmes. “AXA CS was among the first companies in the 1990s to sell international programmes to European corporate clients,” says Mr Champion. “After two decades of experience in this field, it has become one of our core [areas of] expertise. We lead 1,700 programmes and our network of fronters hosts close to 10,000 local policies.

“Programmes are currently less developed in Asia than in Europe within large corporates. However, an increasing number of Asian clients are waking up to the benefits of such tools, especially if they want to reach a high level of corporate risk management. Those clients also understand the economies of scale they can achieve with international programmes,” says Mr Champion.

Exactly the same can be said of captives, says Mr Champion. “The potential for captives in Asia is huge but currently demand is limited – there are only around 150 registered in the entire region.”

Hong Kong has been keen to develop its captive market for some time and, as reported in Commercial Risk Asia July/August issue, has created a regulatory environment to try and spark the growth, particularly for Chinese companies expanding to international markets. But for now, Hong Kong still only has a few registered captives and is facing competition in this field from a series of tax-friendly zones located in mainland China.

Mr Champion said Singapore has been more successful in attracting captive business and has about 75 registered entities across the region, of which about half are owned by Australian and New Zealand-based companies. There are more than 30 captives based in Labuan.

“Insurance prices are on a low trend currently and have been for years. Therefore interest in captives, in the short term at least, could be limited. But as international programmes grow in this region, so captives will grow because it is not just about optimising prices. Combining a captive with an inter-national programme is the best way to collect information on risks and to actively manage them. Therefore more inter-national programmes should lead to more captives,” he says.

The growth of international programmes will come eventually, as an increasing number of globally-focused Asian corporates seek the efficiency that comes with a centralised risk management and transfer, says Mr Champion.

“There are huge Asian groups that still buy insurance on a plant-by-plant basis, whereby the local manager asks his local broker to sort out the coverage with no reference to the centre. I know of one huge company with more than $100bn annual turnover that has as many insurance buyers as it has plants, with hundreds across China. This will certainly not continue very long. I honestly think that such companies will quite quickly rationalise the way they approach insurance,” he adds.

“The rapidly evolving Asian liability market will also spark interest in the international programme concept,” says Mr Champion. “Companies will suffer liability claims that they did not expect in countries that they thought were less exposed. That is where international programmes make sense to reach a higher level of mutualisation.”

Parametric insurance

Parametric insurance is another area where AXA CS is looking to enlarge its product range and also change some of the perceptions about insurance among corporates.

“Parametric insurance is really on the rise in Asia, as well as elsewhere,” says Mr Champion. “We are already seeing interest in the concept in China, India, Indonesia and Australia.”

Much of the interest in parametric insurance is being driven by the huge investments being made in renewable energy, most notably in China where earlier this year more than 250 factories in Shanghai were shut down for the entire month of August, ahead of the G20 meeting in September in neighbouring Hangzhou.

In environmental insurance, South Korea is developing a new law for biodiversity that will drive environmental liability rules and regulations (see Commercial Risk Asia October). “Asia was always seen as a no-man’s land for environmental insurance but I think the introduction of mandatory insurance and the ‘polluter pays’ principle will be a major change,” says Mr Champion.

South Korea may well have been influenced by the European Union Directive on environmental insurance and Mr Champion is hopeful that other Asian countries will follow suit. Although, in reality, some Asian countries have bigger challenges than environmental liability – from a lack of electricity to clean water.

Weather risk is something that faces all Asian countries though and it has become another driver for parametric insurance. “The bottom line is three out of four companies are frequently impacted by the weather,” says Mr Champion.

AXA CS reports that, according to the Intergovernmental Panel on Climate Change, it is almost certain that in coming years there will be more temperature extremes, as well as extreme precipitation events. The frequency of such extremes is expected to be multiplied by five in the next 40 years.

As a result, the economic consequences can be as dramatic as those caused by natural disaster, says Mr Champion. “Companies need to defend themselves against events that could have longer-term consequences on their businesses. Weather coverage provides protection against losses in revenues, increased costs and production damage that could happen anywhere in a firm’s value chain.”

AXA CS offers customised solutions to protect business in a three-step approach. First it analyses the weather sensitivity of the company, then it builds an insurance solution to tackle that exposure and third, it offers a payment trigger that is based on certified weather reports, providing certainty and speed of payment that traditional indemnity products cannot offer.

“All those products are not to be considered as off-the-shelf coverage. It needs to be developed case by case to fully bring their added value,” says Mr Champion.

Interestingly, the insurer has recently entered a public-private partnership with the World Bank Group’s Global Index Insurance Facility to boost insurance coverage and capacity and to improve safety in emerging markets, notably in Asia, Africa and Latin America.

Mr Champion says this is an example of how the insurance market is beginning to respond to customer needs and challenging established structures and the way of doing business to innovate.