Agriculture reinsurance: Axis Re’s technical edge in a complex market
Axis Re’s Simon Marks discusses the company's proprietary modelling capabilities and integrated underwriting approach to agriculture reinsurance, and how these technical investments are reshaping risk assessment in an increasingly complex market.
Agriculture reinsurance is considered a specialty line of business. What makes it so distinct from other reinsurance classes like property cat?
Agriculture reinsurance is a highly specialised field requiring deep technical knowledge. Unlike property cat, where vendor models are well-established, agriculture has more limited model availability and faces greater pricing uncertainty due to limited data or historic data which has little current relevance.
Agricultural exposures aren't static – farming practices, technologies and crop types change over time. Crops also have different and specific vulnerability periods during their growth cycles, making risk assessment more complex than for traditional, more static property exposures.
What are the primary challenges from a modelling perspective in agriculture reinsurance?
The agriculture landscape can change rapidly – a government policy shift can transform a minor market into a major one overnight and commodity price volatility significantly impacts exposure values. Climate change introduces new risks requiring farmers and insurers to adapt and innovate.
Consequently, historical performance can often lack credibility as a basis for pricing decisions. This necessitates alternative pricing approaches using data sourced from outside of what’s provided in submissions.
How does Axis Re approach these challenges?
We've invested heavily in developing proprietary models for key territories, leveraging government-published data sets and our own analytical capabilities. For example, where reliable yield data exists, we develop synthetic loss histories to create forward-looking, exposure-based insights that account for today's market conditions. In addition to more insightful pricing, this gives transparency to our view of risk, allows us to manage risk accumulations, and enables more constructive conversations with cedants.
Vendor models continue to have their place in regions where in-house modelling isn’t feasible, but they require a meaningful investment in validation and calibration.
How integrated are the pricing and underwriting functions at Axis Re?
At Axis Re, our pricing and underwriting functions are fully integrated – an approach that addresses agriculture's technical complexity. Our team combines actuarial expertise with deep agricultural knowledge, ensuring both quantitative rigour and practical understanding inform our decisions. Having a fully integrated team is crucial for handling the evolving nature of agricultural risks, enabling more informed pricing decisions and faster response times.
How does Axis Re manage accumulation risk compared to property cat?
While both face systemic events, agricultural peak accumulations stem from different perils such as frost, drought and price declines, rather than typically wind or earthquake.
Having exposure models for peak regions allow us to calculate and manage peak accumulations as common exposures (regional, price and product) are allowed for and modelled consistently. Having these accumulations in real time is particularly crucial during peak renewal seasons, allowing us to deploy our capacity optimally.
With the trends you're seeing in 2024, how do you anticipate the market evolving in 2025?
We're closely monitoring commodity prices, geopolitical developments and climate trends such as the anticipated transition back to La Niña, which can rapidly change market conditions. With commodity prices now well off their peaks we anticipate a certain amount of pressure on the market.
Our focus remains on leveraging robust analytics to stay ahead of the evolving and emerging risks. We continue enhancing our models while maintaining our disciplined approach to risk selection and pricing uncertainty management. Our specialised market understanding and commitment to technical excellence enables us to collaborate strategically with our partners, offering insights as well as capacity.
Simon Marks, head of agriculture pricing at Axis Re