France’s AXA Group has launched its second securitization of motor insurance risks based on individual motor policies underwritten by its German, Belgian, Italian and Spanish operations. AXA launched its first motor securitization for its French exposures in 2005 (See IJ web site Nov. 8, 2005.
The €450 million ($604 million) securitization is designed to transfer to the financial markets “the deviation above a certain level of the cost of claims on the underlying liabilities,” said the bulletin. It covers over 6 million of individual motor contracts underwritten through multi-distribution channels, representing around €2.6 billion ($3.5 billion) in 2006 premiums. AXA broke down the coverage percentages for the four countries as follows: Belgium 18 percent, Germany 30 percent, Italy 21 percent and Spain 31 percent.
AXA noted the success of its French securitization, and indicated that the goal for the second one “goes one step further by combining individual motor portfolios from four countries into a global portfolio providing diversification of risks.”
It also indicated that the notes have generally been rated in the “BBB” range, and that the attachment points have been decreased by 30 to 41 percent “in comparison with the individual portfolios. This translates into approximately 3.5 percent of capital to be required to cover risk on this type of portfolio at the ‘BB’ level.”
Commenting on the broader picture concerning the use of securitizations, AXA indicated that “insurance-linked securities (ILS) are an effective alternative to the reinsurance market, even for diversified liabilities, while eliminating counterparty risk. In addition, the growing ability to transfer risks to financial markets should contribute to put the insurance industry on a level playing field with banks.”
CFO Denis Duverne commented: “This new transaction further demonstrates AXA’s permanent search for innovation, which is a key driver of our Ambition 2012 program. Through this pan-European securitization, AXA intends to crystallize the economic benefits of mutualization and diversification and to anticipate the expected evolution of the regulatory environment (Solvency II), which will take into account the retained risks.”
He also expressed confidence that the “market for ILS will continue to develop, as they are an efficient risk and capital management tool for the insurance industry, as well as a new attractive asset class for investors.”
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