What themes does Axis Re see in the field of credit and surety reinsurance?
Within the credit and surety reinsurance industry, industry conversations are dominated by growing complexity and uncertainty – a short list of concerns includes the Russian invasion and resulting sanctions, rising inflation and price hikes. central bank interest rates to correct the trend, and emerging market borrowers increasingly vulnerable .
First, credit and political risk claims from Ukraine and Russia are slowly coming to market. Notional exposure estimates — not claims — start in the single-digit billions. While events are still unfolding, it is possible to imagine a worst-case scenario.
Second, we are also seeing the unraveling of a decades-long low inflation environment, which could lead to a recession in the US and more likely in Europe. This situation is not helped by the changing priorities of the Chinese government, which seems to have reduced economic growth in pursuit of political priorities.
Finally, sovereign borrowers and hard-currency emerging-market corporations are struggling to service hard-currency debt (and rising oil and food import costs) due to depreciating incomes. in local currency, at a time when global growth expectations are reduced. Sri Lanka, Lebanon and Russia have already defaulted on their sovereign debt.
What do you think will be the main talking points ahead of 1.1 in the global credit and surety reinsurance space?
Inflation due to both supply and demand, rising interest rates, a strong dollar and emerging market default expectations, supply chain disruptions and lagging resilience dealing with near-term energy challenges are just some of the challenges likely to dominate discussions ahead of 1.1. The preparation and management of all these conditions will be at the center of the discussions.
What opportunities do you see Axis Re facing in the global credit and surety space?
While we recognize the short-term headwinds, the credit cycle and future instability are inevitable and should be managed with caution, not feared.
Safely, we are planning major investments in infrastructure globally to support economic growth and jobs. We also expect green energy infrastructure to play a key role in European plans to reduce/avoid future dependency.
We are excited about the range of opportunities for Axis Re, and are committed to making global credit one of our four focus areas in reinsurance. We have established a new global credit team that brings together credit, surety and mortgage expertise allowing for an enhanced product offering supporting our existing customers and the flexibility to expand our customer base (e.g. an appetite increased for structured credit and political risk insurance).
Axis Re has recently identified credit as one of its main areas of focus, in addition to A&H, casualties and specialties. Why?
Axis Re has recently shifted its focus to specialty lines of reinsurance with a commitment to A&H, P&C, Credit and Specialty, and is focused on disciplined growth with our partners in each of these areas. We bring deep credit expertise and have established a dedicated global team, which includes surety and mortgage.