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LONDON-French insurer AXA-UAP Group and French bank Banque Paribas have formed a joint venture to provide alternative risk financing products to large European companies with complex risks.
AXA Paribas Alternative Risk Finance, the Paris-based company, is owned equally by the two partners and will bring the combined expertise of AXA-UAP and Paribas to a number of areas.
These include: risk analysis of the client's balance sheet; devising the appropriate risk products or packages for the client's needs in collaboration with the underwriters of AXA Global Risks when insurance capacity is limited or unavailable; and conception and implementation of products using Banque Paribas' access to the capital markets.
Marc Romano is chief executive officer of the new company.
He previously headed large corporate risks at UAP and carried out the strategic studies leading to the creation of AXA Paribas Alternative Risk Finance.
Mr. Romano said AXA-UAP and Paribas had been looking at ways of working together since the end of 1996. They decided on a permanent joint venture with a dedicated team combining work previously done by AXA Global Risks and Paribas' derivatives department, rather than merely working together on a case-by-case basis.
Services of the new company will center on consulting as well as research and marketing of structured products that combine both insurance and financial contracts.
The range of products offered includes:
Cash-flow management products. The joint venture will offer finite risk and financial insurance products with a duration of several years, including both a risk transfer dimension and a proposal for financing the part of the risk the client retains.
According to Richard Turrin, head of risk advisory in New York for Banque Paribas, clients can choose how much risk they wish to transfer to AXA-UAP within the limitations of what is available in the market.
According to Mr. Turrin, clients would be assisted in financing retentions "through every conceivable financing mechanism available to a major bank."
Two-stage products combining a financial risk-such as interest rates or commodities, Mr. Turrin said-with an insurance risk.
An example would be a currency exposure protection on the deductible of the contract expressed in U.S. dollars for a French firm. When the contract is initiated the deductible is determined in dollars taking account of the dollar/franc exchange rate at that time. A policy offering currency exposure protection would protect the client if exchange rates were to move adversely by the time a claim occurred.
Capacity products. These enable the capacities required by the client to be bought directly on the financial market, such as in the form of lending securities on which the coupon is related to the client's loss experience or a product comprising a share issue option exercisable in the event of a catastrophic loss.
The joint venture is the result of studies AXA Global Risks and the UAP Group undertook last year that showed large companies are moving away from traditional insurance in favor of products with a strong financial component. As a result, companies intending to provide solutions must combine both financial and insurance knowledge, Mr. Romano said during a press conference in London.
While the alternative risk financing market already is mature in the United States, it still is emerging in the United Kingdom, France and Germany, where 83% of Europe's large industrial risks are concentrated.
In Europe, 40% of the total premium volume paid by the 1,000 largest companies could be addressed by alternative risk financing, Mr. Romano estimated.
The services of AXA Paribas Alternative Risk Finance will be marketed through brokers, and Mr. Romano says there already is a substantial market in the client lists of the joint venture's two parent companies.
AXA Paribas Alternative Risk Finance so far has no clients of its own, but "we have some prospects," Mr. Romano said.
While the venture initially will target European-based companies, it later will extend its marketing efforts to U.S. and Japanese companies, Mr. Romano added.