Axa XL’s Veyry predicts Asia off-shore wind to see ‘exponential growth’

July 20 2021 by InsuranceAsia News Staff
Xavier Veyry Axa XL

InsuranceAsia News recently caught up with Xavier Veyry, Axa XL’s chief executive for APAC & Europe, to discuss a number of issues including post-pandemic developments in the global supply chain.

Other topics explored included the future of the contingency market as the Olympics get underway and whether the region has enough capacity to meet the demand for onshore and offshore renewable power generation.

IAN: How has the marine cargo insurance market responded to Asia’s burgeoning post-Covid economic recovery?

World trade’s recovery from the Covid-19 crisis hit a record high in the first quarter of 2021, increasing by 10% year-over-year and 4% quarter-over-quarter, according to UNCTAD’s Global Trade Update released on 19th May.

The impressive rebound in Q1 2021 continued to be driven by the strong export performance of East Asian economies, whose early success in pandemic mitigation allowed them to rebound faster and to capitalize on booming global demand for Covid-19 related products. The value of global trade in goods and services is forecast to reach $6.6 trillion in Q2 2021, equivalent to a year-over-year increase of about 31% relative to the lowest point of 2020 and of about 3% relative to the pre-pandemic levels of 2019.

The positive outlook is largely dependent on reducing pandemic restrictions, a persisting positive trend in commodity prices, overall restraints from trade protectionist policies and supportive macroeconomic and fiscal conditions, as mentioned in the UNCTAD report. Due to the above points, marine cargo insurance is seeing increased insurable trade turnovers.

I would be remiss if I did not mention that the pandemic has introduced a substantial uncertainty into the operations of many global supply chains, providing incentives to shift production closer to consumers. The development of regional trade agreements (e.g. RCEP and AFCFTA) and ongoing trade tensions between major economies could introduce changes in production patterns of global supply chains. This may have some impact on maritime trade in mid to long term. At Axa XL, we have a strong regional presence in Asia and monitor these trends to work closely with our clients and their brokers to understand impacts to their business and exposure to risk.

IAN: Now that the Summer Olympics are going ahead, what are the long-lasting effects of the pandemic on the contingency market in Asia?

Communicable disease (CD) exclusion is a very common clause at present. Aside from major events (e.g.: Soccer World Cups and Olympics) there are very few risks globally that continue to include communicable disease (CD) coverage with an event date beyond 2021. The return of events in 2021 has been significantly delayed by the continuation of the pandemic.

The communicable diseases exclusions within policies which the insurance market continues to impose also has resulted in a delay in purchasing cover. Event organizers are looking for near certainty that government-imposed restrictions will not be affecting the event date before any form of commitment to buy.

The good news is that the vaccination roll-out is seeing confidence return. In the UK and USA for example, events are now being held with near to full capacity attendance. As a consequence, Axa XL has bound more events in June 2021 than for the preceding nine months. The rating and contract environment has improved following a number of consecutive years of decline and weakening.

The Olympics being held in Tokyo later this month will only fuel more optimism for the Asia region and worldwide in general as we face up to the realisation that globally, we will need to live with the virus rather than wait or indeed hope it will be eradicated.

 IAN: Given the push for green energy across the region, is there enough capacity to meet the demand for insurance for onshore and offshore renewable power generation?

APAC is made up of nearly 50 different countries, ranging from developed countries to developing countries. Considering the population density there is still a shortage of power and other critical infrastructure compared to Europe and North America. The pace of transition to green energy varies from country to country and includes factors like cost, grid stability, and geographic space.

For example, solar farms take up an enormous amount of land and some countries would need to give up farmland for such power generation. If we consider from a risk perspective, most onshore green energy options have in general sufficient insurance capacity as the insured values are usually lower than traditional thermal power generation. Of course, nat cat exposures can pose challenges for insured and insurers in this region and therefore capacity can be challenged for this exposure.

Concerning offshore wind, we expect exponential growth in this area over the next 10 years. Being located primarily in Asia with significant nat cat exposure, limited experience, and ongoing innovation in design, we see that this segment will require global capacity for supply to meet demand.

The standard nat cat modelling that the insurance industry uses, does not model offshore exposures. So, the industry is quickly trying to come to grips with how best to model and manage such exposures. At Axa XL we work across the group including with Axa Climate to consider this aspect to provide client solutions.

IAN: As Hong Kong and Singapore prepare to pass regulations governing SPACs, what is the expected impact on the D&O insurance market?

SPACs, or special purpose acquisition companies, have raised more than $100 billion in Q12021 compared to $83 billion last year and more than all that they have raised in their 30-year history, according to Wall Street Journal. These entities have no commercial operations of their own and are created by investors to buy operating companies they consider promising.

In recent years, SPACs have been active in the sectors of electric vehicles, green technology, consumer-oriented technology, communications, and retail. As with all booms, the popularity of SPACs has attracted regulatory scrutiny. The US Securities and Exchange Commission recently left things open to interpretation on whether SPACs are IPOs in disguise and if they should be granted safe harbor in making financial projections.

The protection from legal liability SPACs have in making financial projections raises significant investor protection questions. The D&O market is already conservative but with increased regulatory scrutiny on these vehicles, conservatism seems justified.  Whilst deductibles are generally sufficient to handle a one-off regulatory investigation, multiple investigations may erode these faster, leading to a hardening of terms or primary layers being tough to complete.

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