NEW YORK/LONDON, Jul 11 (Reuters) – One of the world’s largest insurers is considering winding up its real estate reinsurance business in a bid to reduce its exposure to natural disasters such as hurricanes, according to three people familiar with the matter.
French insurer AXA SA (AXAF.PA) is discussing strategic options for its XL Re unit, including a possible private sale or listing, said the people, who spoke on condition of anonymity.
The talks, described by the sources as tentative in nature and which will ultimately not lead to a transaction, come two years after the company reportedly attracted interest from French mutual insurer Covea.
AXA declined to comment.
Reinsurers assume some of the risks that primary insurers underwrite in exchange for compensation. The rewards of providing natural disaster cover can be high, but so are the losses.
Events like last year’s Hurricane Ian – the third most severe storm in US history – have prompted some reinsurers to pull out of the industry, especially as climate change makes it more difficult to assess risk.
But those that are still open for business have been able to dramatically increase the rates they charge for their services.
U.S. real estate reinsurance prices rose as much as 50% on a key July 1 renewal date, broker Gallagher Re said in a recent report.
AXA has been seeking 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 falling by almost a third last year to $3.2 billion, according to AXA’s 2022 accounts. The Bermuda-based unit had a book value of about $2 billion at the end of December.
The high pricing environment, along with a recent wave of industry deals, could provide AXA with the necessary tailwind to exit the company altogether.
In May, American International Group (AIG.N) agreed to sell its Validus Re reinsurance arm for approximately $3 billion, or approximately 1.4 times the book value of the unit.
Meanwhile, both Skyward Specialty (SKWD.O) and Fidelis Insurance Holdings (FIHL.N) have completed initial public offerings (IPOs) in New York since the beginning of the year.
Sources told Reuters last month that Hamilton Insurance Group was also considering strategic options.
Reporting by David French in New York and Pablo Mayo Cerqueiro in London; Additional reporting by Amy-Jo Crowley and Carolyn Cohn in London, Echo Wang in New York and Silvia Aloisi in Paris; Edited by John O’Donnell and Conor Humphries
Our standards: The Thomson Reuters Principles of Trust.