Thomas Buberl

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0:32Thomas Bubelle is the CEO of Axa, one of the world's largest insurance companies. I recently had a chance to sit down with him to talk about the risks facing global insurers, particularly relating to war and climate change. Explain to people who aren't familiar with life insurance or health insurance or any kind of insurance, what is the main business? It's to underwrite what the risk is, make a profit, presumably on the premiums you charge, and then take those premiums and invest it and do well on the investment as well. Is that right? Yes, and plus we have to pay claims as well. So we receive at the beginning of the year a premium.

1:05We invest the premium. And then when the claim happens, we obviously have to then pay it out. And all of that should be managed in a way that we protect well the number of people that we insure and also make a profit. So on the premium that you charge, the underwriting risk is very complicated. You have to assess what the risk is. that somebody will live or die or get an illness or a property will be damaged. Do you try to make money on the underwriting or do you just try to break even on that? No, we have to make money on the underwriting because obviously there is capital that needs to be put behind that business.

1:39And also we have shareholders that want to return. So what we basically look at, we have a lot of historic data that we can use to price a building and then make sure that over the duration of a contract, we make sufficient money to remunerate our shareholders and get remuneration for the risk. What type of return do you try to get on your investments? And do you have thousands of people to invest the money? And who does the investing? So what we do is we are not speculators. We very much look at what are our liabilities. And so we invest in terms of duration exactly in the same way that we would expect the liabilities to come.

2:16And we mostly hold our assets to maturity. And therefore, it really depends what the liability looks like. This determines the return you need. And the longer the liability, the higher the return. Now, Warren Buffett famously bought some life insurance, or I guess reinsurance companies years ago, bought General Re. And he takes the premiums and he invested, and he's obviously a very good investor. Is that a model you use, which is to go get really good investors that you give money to and tell them they get a higher rate of return than you would normally get if you're doing it yourself? Yes, I mean, we obviously need to split our assets across many, many asset managers to make sure that we have a high degree of diversification.

2:56We have a fourth area of business, which is the investment management. So we have AXA Investment Managers that has around 700 billion of assets, and we obviously invest a lot through them. But we certainly also do a lot with external asset managers to make sure that we play the market, but also optimize the return. So in an era when we have high inflation, high interest rates, what kind of rate of return do you need to get to kind of be comfortable? Do you need to get a 7%, 8%, 9%, 10 % rate of return, or much higher than that to feel that you're doing a good job investing the money that you have from the premiums?

3:33So again, it depends on the liability profile. We always look what is the duration of the liability relative to how we need to invest. But it's obviously clear now that in an environment like this, we need to get much higher return than we used to in a zero interest rate environment. And therefore, the insurer is a very slow moving investor. So we reinvest around 10 % of our balance sheet every year. So it is not that when market changes, we immediately change everything to change the return pattern. So if I wanted to go in the insurance business myself, would you recommend that I go into life insurance, automobile insurance, health insurance, property and casualty?

4:16Which is the best business to go in of those four? I would say the property and casualty insurance for commercial business and the health insurance. Why? Because those are the two businesses that are growing the most. On the property and casualty for companies, you've got all the new risks, supply chain risk, cyber risk, climate transition risk. And on the health side, the question around more longevity, but higher health costs, and how can you help people to live a better life? Those are the two areas I would recommend to you. The biggest risk in property and casualty, is that now climate change or climate kind of things that are changing the way that the earth deals with weather and things like that?

4:56Yeah, so absolutely. When you look at natural catastrophes, the number of events has significantly increased. and not only the very big events like hurricanes, but also what we call secondary perils, so wildfires, floodings, and drought. And this leads to the fact that you have far more events and therefore a much higher cost of all of the natural catastrophes. How do you really assess the risk of climate change? Because how can you possibly know whether there's going to be a hurricane or a flood? It's just based on the past or the projection of the future. How do you do that? So essentially we use data from the past.

5:30But as you say, since the dynamic has changed, we need to also look forward. And what we do a lot, we work a lot with scientists who understand what the warming of the earth and climate change will mean for the question of taking risk. And secondly, we take much less risk than we used to take because we have to be careful. So let's suppose there are a lot of hurricanes. Is that good for property and casualty insurers or not? Good because people say, well, there's going to be more hurricanes. I should buy more insurance or not good because you've got to pay a lot of claims. It depends. I would say it's good because it creates the awareness to do more prevention.

6:06What we see today is that, as I said earlier, there is more events. It becomes more and more difficult to ensure. And therefore, we work a lot with our customers around preventions. And so if you look at the large hurricanes, Hurricane Katrina and Hurricane Irma, for example, they're about 15 years apart. Costs have actually come down over time despite inflation. So prevention does work. Let's talk about another type of insurance, which is life insurance. Are you better off if people live a long time so they don't claim their life insurance? Or are you better off if they die sooner? It always depends.

6:42So dying sooner is mostly better because if people live longer, you have the longevity risk and you never know how long people live. But that really depends country by country. We have certainly made the choice of being relatively cautious around life insurance. We used to be 80 % in life insurance in our whole portfolio. We are now 20 % in life insurance because life insurance is very much financial risk, which is not diversifying. And secondly, it is very much linked to a high degree of regulation, which makes the business very, very difficult. Let's talk about health insurance, a third type of insurance.

7:24So there's a lot of obesity going on in the Western world, a lot of drug abuse in the Western world. Do you take that into account when you sell health insurance? Yes, obviously. I mean, you have to give your BMI, which is then the proxy around the question, how obese are you or not? But even, for example, this area, we are at the beginning of quite a big revolution. If you look at all the new drugs like Ozempic and others, they could change the pattern of obesity significantly going forward, which is actually an exciting journey to go on. So the United States has a complicated health care program.

7:59I don't know how it works in Europe, But is our program in the United States, some call it Obamacare, Affordable Care Act, is that program better or worse for health insurers than whatever you have in Europe? Both have the same issue, which is the demographic issue. If you look, for example, in the U.S., I think about 10, 15 years ago, about 20 percent of the federal budgets and fiscal budgets were related to welfare. Today, we are at 39 % due to the fact that people are getting older. You see exactly the same pattern in Europe. So the question around public or more public-type health system will come on the table, and new solutions will be needed.

8:42Now, maybe unfairly, but insurance companies have a reputation for saying, well, we'll sell you insurance, but when the claim comes, they say, well, maybe it's not as much damage as you claim, and they take a long time to pay out. Is that a fair portrayal of the way some insurance companies are? And how do you deal with that image? So when I joined the insurance industry in 2005, this image was already there. And I would say at the time it was also justified to a certain degree because we were not enough engaged to work really for the broader society. We were still very bureaucratic. If you fast forward now, almost 20 years forward, this is not the case anymore.

9:23We are extremely engaged in society, take the topic around climate change, take the topic around social inclusion, and we have significantly changed the whole customer service. So most of it today is very digital and it's much easier, both in the administration and the claims management. So let's talk about your background for a moment. Where are you from originally? Where were you born? I was born in Germany. Where did you go to school? So I went to school near Dusseldorf in Germany and did all my childhood in Germany. And you were a German speaker, I assume. Yes, I am. Did you speak French as well as a young?

10:00I learned French in school. It was my third language. So I did Latin, English, and then French. And at the time, I didn't know how valuable it would be that I learned French. Now, in the United States, you often hear people saying, I want my little boy to grow up to be an investor. They wanted to be a doctor, a lawyer. You never hear people saying, I want my little boy to grow up to be an insurance person. So how did you grow up to be an insurance person? Did your parents tell you to be in the insurance world? No, not at all. So when I studied, so after I finished my studies, I wasn't really ready to decide in which industry I went.

10:36And so I went into consulting to prolong a little bit the journey and test certain industries. And so during that consulting time, I did amazing projects. Some were in insurance, other were in women's underwear, other were in IT distribution. So I saw very different sectors. And I really liked the insurance sector at the time because I saw exactly what you mentioned earlier, that there is an industry that is deeply rooted in society because we are basically promoting and ensuring social cohesion, yet the industry was not recognized for it. It was that question around a very bureaucratic industry.

11:15And at the time, I wanted to make a difference and wanted to go in there. So right before you joined AXA, you were working where? I worked for Boston Consulting. Okay. Then went to Winterthur Insurance, which was bought by AXA. So the second signature I had to give was the NDA of the AXA deal. Then I went and ran Zurich Insurance in Switzerland. and then went back to AXA to run Germany for AXA. You've been the CEO since 2016. Yep. And the stock is up about 60 % since that time? I think it's a little more. I started at 16 euros, and today it closed at 31. Okay, and the market capitalization is up almost an equivalent amount?

12:00Yeah, exactly. We are about$71 billion. Now, France is a wonderful country, and they have a lot of great companies. Usually, they're headed by people that are born in France. So how did a German get to be the head of a French major company? You have to ask my board of directors. No. Essentially, I mean, the board ran a process. They first looked at external candidates. They then looked at internal candidates. We, I think, if I remember correctly, were seven internal candidates. And then over time, the process took three years. They eliminated, and we were just, at the end of the day, two left.

12:36one French person and me. And then the board looked at essentially three criteria, which was very much away from nationality. One was track record within AXA. The other one was what is the value set of the person. And the third one, what is the capacity of the person to reinvent him or herself. So in many cases, the large French companies, the largest ones, are run by French people, typically men, who have gone to these so-called elite parish schools, but you didn't go to one of those schools. Does that mean you're an outsider a bit in the French business establishment, or you've been able to work your way in?

13:13I've been able to work my way in, but that needed two things. One, the curiosity of the French CEOs in me, but also my ability to then fully dive into it. And so what I did, for example, with my rudimentary French knowledge that I had from school and studying. I only spoke French the whole day to make sure that this would work, and I integrated myself wherever I could. This point around the university is actually a very good one, because in France, you compare the very good schools with the less good schools. I was neutral because I came from a university that nobody knew, so I wasn't placeable in the hierarchy of universities.

13:56When you're conducting business in the AXA headquarters, Do you speak French or do you speak English or German or what? I speak no German. And obviously, whenever there is a person in the room that cannot speak French, we only speak English. But I still do as many of my meetings as I can in French if it's possible. And your business is a global business. What is the biggest place where you have the most people? Is that France or Europe or United States? It's Europe. So essentially, we have about 20 % of the business in France, 40 % of the business in Europe, 20 % in the U.S., and then 20 % Asia.

14:35And any interest in growing your business by making an acquisition or doing something like that? Yeah, I mean, we have done quite a few acquisitions. As I said earlier, I started with 80 % life insurance, and we are now at 20 % life insurance, having kept the same revenue, which meant that we had to do a lot of transactions. So, for example, the company you mentioned earlier, Equitable, we IPO'd in the U.S. We bought AXA XL in the U.S. So, we did transactions probably in the area of about 30 billion euro. Now, as the CEO of a company, do the insurance people come to you and say, we have a big risk here, we're going to underwrite, or do they leave you out of the underwriting business?

15:15It always depends on what size of risk you talk. Normally, they are doing their own business, So we have a clear grid of competence for underwriting and about 99 percent of all risks is done in the entities. And so it should be. But, yeah, there are some risks that come to me where I have to take a decision. So let's suppose I'm in business school and I say I want to go in the business world. Why would I want to go into the insurance world? So interestingly, we actually get quite a few young people today in the business. And when you ask them, why are they in the business? The number one reason they always say is the purpose of insurance.

15:54Because insurance companies do protect individuals, but they also help society to develop. And so that's the number one driver why people are there. Second, we have a lot of people that have analytical backgrounds, so people that love data. And obviously our industry is data rich. with the revolution and wave of AI coming, we now have the ability to also analyze unstructured data, which would broaden this much more. And so those are the two areas why you have a lot of talent actually coming to our industry. This is the Bloomberg Businessweek Minute brought to you by Amazon Business. I'm Carol Masser.

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18:32Why don't you go into government? You might be a cabinet officer or something. Do you have any interest in that? Or in France, you can't quite do it that way. So obviously, in our job, you have a lot of links into politics, because, you know, when you touch social security systems, when you touch the question around natural catastrophes, when you're the biggest insurer of satellites, then you always have ties into government. And But obviously, part of my job is also then to be in that sphere and help where I can. Does it entice me to switch over to a political career? The answer is no. So today, do you have any aspirations to do something beyond what you're doing?

19:13You're not going to go into government, you said, go into philanthropy at some point? No. I mean, look, I've been in my job for eight years. I have a lot of fun in the job. And there is also still a lot to be done. So I will continue on my journey. I will not be seduced by politics. And when you think about philanthropy, we do a lot of philanthropy also in AXA. We, for example, go running for money that we then donate to charitable institutions. We do a lot as well on the art side and helping artists and helping restoration of art in France and otherwise. So you can do a lot while being a company CEO.

19:51Okay, let's talk about the economy. The United States has a situation where we have reasonably good growth in 2023, over 3%. Europe has not grown quite as well. Why do you think the United States seems to be pulling away from the European and Chinese economies in terms of our growth? Is it something about the American business environment that the United States has recovered from COVID maybe better than Europe did or China did? So I think there's a couple of factors. Number one is fiscal stimulus. the fiscal stimulus in the U.S. was much higher than it was in Europe. And obviously, fiscal stimulus leads to more demand.

20:28Secondly, there is a lot of on-shoring happening or re-shoring happening from somewhere else into the U.S., which is obviously something that creates growth as well. And then, thirdly, when you look at your demography, this is much healthier than what we have in Europe. Recently, we've had high interest rates and high inflation. I assume you've got through that reasonably well. But now we are going to go into an era where interest rates are probably going to come down and inflation seems to be coming down. How are you going to reposition your company and deal with that different economic consequence?

21:01Obviously, these changes produce a high volatility of the economic environment. And certainly we spoke earlier about the geopolitical environment. So in a highly volatile and highly unpredictable environment, it is important to take a strategy of low risk. And so essentially what we have said, we have built now a platform that is working very well. We are the biggest insurer now of enterprises across the world. We are one of the biggest in Europe. We want to make sure that we scale up this business more in the next phase. Do you worry about Russia-Ukraine as a potential insurance risk? I mean, we worry a lot about these risks because, A, these risks do create claims.

21:43And so the Russia-Ukraine situation did create a lot of claims on the political risk side, on the marine side, on the aviation side. And so for us, it's important to look out for them and certainly see where the next crisis come from. Because even if the Ukraine-Russia crisis was to be resolved, I'm sure the next crisis is coming. Look at what is happening in the Red Sea now, which again has massive implications around maritime transport, war cover for maritime transport, supply chain risk, and so on. So I project myself in a world now in which we see many, many more of these crises happening, and we need to deal with it.

22:25How has technology changed the insurance business, and how do you expect AI will really change the insurance business? So I would say it's three phases. Number one, technology has changed our industry. So in order to handle large data sets, to do analysis, to also simplify the customer service and also the customer expertise. So that I would say is done. We now have AI coming in, where I said earlier, making sure that we use the unstructured data that we have. And a lot of our data is unstructured, is really beneficiary to really understand risk more. And then I think there is a third element I mentioned earlier, the topic around prevention.

23:04This is very much happening today through digital services. Example, when we look at how to analyze the risk of a property relative to climate risk. We use a lot of satellite data or if we want to ensure marine transport and see where is the danger of theft and damage the highest, we use satellite data. So all of this has a technological component that will increase much more. Now, you look like you're in pretty good shape. Are you an athlete? I mean, you have to be, if you're the head of an insurance company, you can't be very overweight. It doesn't look good, I assume. So you're underweight or you're certainly trim.

23:43Do you run a lot or you exercise a lot? What do you do? So, yeah, I do run every morning. I do five kilometers every morning. And I'm a very passionate horse rider. And in order for the horse to support you, you can't have too many kilos. But isn't that like dangerous because you're an insurance company CEO The horse could stumble and you could fall and the horse could fall on you ever had that problem I've fallen many times I wear obviously a helmet and wear a vest like you know the motorbiker vest when you fall it blows up and so far Apart from a broken finger nothing. Okay. Well, that's another sport I probably won't beat if I told your insurance people that I was gonna be doing horse jumping They probably wouldn't give me a life insurance.

24:22Yes They would if you do it if you don't do it professionally they would What's the greatest pleasure of running AXA or running a large multinational like that? What is the great fun of it? So first of all, it's great to work with so many motivated people. Yes, you say it's difficult to get good people, but we have good people and it's a pleasure to work with them. Secondly, an insurer looks into every industry. So from satellites to crocodile farms to travel insurance. So it's a very broad view. And certainly, it is really a place where you can do good for society. So what I mentioned earlier around our approach on climate change and investing in a different manner and underwriting in a different manner, you can see the change you can make on society.

25:07So on the whole, the message you want to give people is Axis is the best insurance company that they should use and insurance is doing a useful thing for society. Is that your? Exactly. Perfect summary. And no regrets about not going into investment banking, private equity, government. You're happy with what you're doing. I'm very happy with what I'm doing. And since I don't know what the other things are about, I will stay where I am. Thanks for listening. To hear more of my interviews, you can subscribe and download my podcast on Spotify, Apple, or wherever you listen.