AXA weighs offloading $2 billion reinsurance arm to cut disaster risk – sources

By David French and Pablo Mayo Cerqueiro

NEW YORK/LONDON (Reuters) -One of the world’s top insurers is mulling offloading its property reinsurance business in a bid to cut its exposure to natural disasters like hurricanes, according to three people familiar with the matter.

French insurer AXA SA (EPA:) has been discussing strategic options for its XL Re unit, including a possible private sale or stock market listing, said the people, who spoke on condition of anonymity.

The discussions, described by the sources as preliminary in nature and which may not ultimately lead to a transaction, come two years after the business was reported to have attracted interest from French mutual insurer Covea.

AXA declined to comment.

Reinsurers take on some of the risks that primary insurers underwrite in exchange for compensation. The rewards for providing cover for natural catastrophes can be high, but so can the losses.

Events such as Hurricane Ian last year – the third costliest storm in U.S. history – have prompted some reinsurers to stop this line of business, particularly as climate change makes it harder to evaluate risks.

But those still open for business have been able to dramatically increase the rates they charge for their services.

Prices for U.S. property catastrophe reinsurance rose by as much as 50% at a key July 1 renewal date, broker Gallagher Re said in a recent report.

AXA has been trying to reduce the exposure of its AXA XL property and casualty (P&C) division – which houses XL Re – in an effort to make earnings more predictable.

This has caused the reinsurance business to shrink, with revenues dropping by nearly a third last year to $3.2 billion, according to AXA’s 2022 accounts. The Bermuda-based unit had a book value of around $2 billion at the end of December.

The high pricing environment, along with a recent bout of deals in the sector, could provide the necessary tailwinds for AXA to exit the business altogether.

In May, American International Group (NYSE:) agreed the sale of its reinsurance arm Validus Re for roughly $3 billion, or about 1.4 times the unit’s book value.

Meanwhile, both Skyward Specialty and Fidelis Insurance Holdings have completed initial public offerings (IPOs) in New York since the start of the year.

Sources told Reuters last month that Hamilton Insurance Group was also considering strategic options.