AXA Securitizes Auto Insurance

November 8, 2005

France’s AXA group announced that it has launched a securitization transaction of part of its French individual motor insurance portfolio. AXA indicated the move would transfer to the financial markets “the deviation of the cost of claims above a certain level, in relation to AXA France IARD’s motor insurance portfolio, which is characterized by high claims frequency and low claims severity.”

“Once again, AXA demonstrates its capacity to innovate”, commented CEO Henri de Castries. “This transaction which, hopefully, will be the first in a long series, will enable insurance companies to benefit from capital management tools and techniques similar to those that have been available to banks for a long time.”

AXA’s timing of its announcement could have been better, given the ongoing riots in France where over 4000 vehicles have been burned. But tapping the financial markets through securitiztions is one of those things that everyone says should happen, but it never does.

Swiss Re’s CEO John Coomber pointed out at the International Insurance Society’s Conference in London in 2004 that while bankers had moved some $2.5 trillion worth of risk into the capital markets, insurers had placed only around $2.5 billion there, mainly in alternative risk transfers. Global capital markets total, around $6.5 trillion, and Coomber’s clear suggestion was that the industry hasn’t taken advantage of this in managing its risks.

AXA’s initiative is therefore perhaps a point of departure and an example for other insurers to explore the advantages of transferring risks, especially in commoditized lines such as automobile and homeowners, to the capital markets.

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