Few people in the world think more about risk than Thomas Buberl.
Since becoming CEO of
(ticker: CS.France) in 2016, the 50-year-old German executive has led the Paris-based insurer through a difficult transformation. He drew the company away from its roots in life insurance and built a diversified global business. AXA is the one of the world’s largest insurance companies, the largest insurer of companies’ physical assets, and the manager of roughly $920 billion in financial assets.
Buberl has run the business through moments of significant global turmoil. Russia’s invasion of Ukraine cost AXA 300 million euros ($325 million), and yet it remained profitable. Buberl has staked out aggressive positions on climate issues, including divesting the company from coal.
His view of the world is shaped in part by the company’s annual Future Risks report, a formerly internal document that AXA began publishing externally in 2018. The report’s tenth edition describes a “world in ‘polycrisis,’ where risks are now interconnected.” Experts surveyed for the report ranked climate change as the world’s No. 1 risk, followed by cybersecurity, geopolitical instability, artificial intelligence and big data, and energy issues.
Buberl spoke to Barron’s about those risks in New York in mid-November. An edited version of the conversation follows.
Barron’s: What have you learned about the world from your Future Risks report?
Thomas Buberl: The fact that we are confronted with many risks is nothing new. We have had this report now for 10 years. The risks are, I’d say, the same, but maybe in a different order. What is new is the sequence of the risks’ realization. So, traditionally, you had a crisis, six months of heated issues, then stop, and then quiet again. Then, after 12 months, the next issue came in. It was a very different amplitude of risks. Now, you have many of them happening together or straight after.
I think the impact of risk is higher, and second, the interdependencies of these risks is much higher.
You say the world is in a “polycrisis.” Some people use that term to mean climate is amplifying all of the other crises. Do you agree?
Certainly, yes. If you peel it back to where are the drivers, the originator risks versus the derived risks, I think one is clearly climate. That’s because climate has an issue of destruction, an issue of health, an issue around social fragmentation. But when you look, for example, at technological risk, this is similar to climate. It’s more of an originating risk.
I think what nobody has done yet is to look at what are the hierarchies or the decision trees of these risks. Which risks are influencing what? How do they drive one another?
Where it all comes together is the question of what it does to the social fabric.
What is happening to the social fabric?
You certainly have much more social fragmentation. And I don’t mean only in the democratic states in the U.S. and Europe. It is that, but if you go into Africa and look at the question of climate risk, it will lead to a lot of migration. This whole question now around how the energy crisis, the food crisis, will lead to a lot more poverty. I would guess that what these markets have lost in the past 10 to 20 months is probably everything they have gained in terms of prosperity in the past 10 to 20 years.
When you look at the Middle East, you’ve got some states that are much better positioned than others. If you look at Saudi Arabia, Qatar, the United Arab Emirates, versus Egypt, Libya, and so on—very, very different. If you go into China and look at the social fabric in Beijing or Shanghai versus the social fabric in a Tier 3 city, where you have 20% unemployment, where basic child medicine is missing—this fabric issue is everywhere.
Are markets adequately pricing this level of interconnected risks?
No, no. It seems like markets just have understood what the interest-rate risk is or isn’t, or the valuation of fixed-income assets, real estate assets, and equity assets. How do you expect that this difficult equation—which I also wouldn’t be able to price—is figured into the markets?
But if you look at climate risk, Al Gore had this great phrase. Climate risk was a disturbing phenomenon that has turned now into a destructive reality. Like 10 to 20 years ago, you heard about Hurricane Katrina, but in Europe, we were far away from it. Today, because the frequency of the secondary perils, as we call them—wildfires, floods, drought, and so on—has increased so much, this has become a disturbing and destructive reality for all of us.
But we still haven’t figured out what this could really mean for us. We measure the direct destruction of a hurricane, a flood, a drought. But what happens after a drought, when you look at what happens to buildings and so on, we don’t really know that yet. What happens to the health of people? These are things we don’t yet understand.
So, for example, on the social fabric question, at some point we need to think about what is the new social contract. If we don’t know what the issue is, we also can’t propose what a new social contract is. Again, I’m not pretending I would have the answer.
That seems like a big issue for a CEO to address.
We are very much dependent on the social contract. I mean, our business model is based on a social contract. If you go back to where insurance started, you had small villages. Ten people put some money in the middle of the table, and then if one of the 10 people was feeling sick, the piggy bank in the middle served to help that person. That is what I would call a social contract. I have a vital interest in it because my business is based on it.
For us, this mess around us is a great business opportunity.
Geopolitics is high on this year’s list of risks. Should we be expecting more companies to take hits from events like Russia’s invasion of Ukraine or Hamas’ attack on Israel?
The geopolitical situation has become more difficult. It is leading to wars that we understand in, let’s say, a classical sense, but also, I would say, to hybrid wars [new forms of conflict that aren’t necessarily armed attacks]. We aren’t yet alert enough on the hybrid wars. The migration crisis we see in Europe, for me, that is a hybrid war. If you look at cyberattacks, those are a hybrid war. War probably today needs a new definition.
What would reduce those risks?
For me, this very sad event of the war in Ukraine has been a wake-up call that we need to stop our naiveté of believing that the world has been living according to the democratic standards of the U.S. and Europe, and that, if that’s the case, there is a dividend of peace from democracy and we don’t need to invest any more in our military strengths. If you look at who was the biggest investor in military goods over the past 10 years, it was certainly not Europe and the U.S. It was probably more Russia, China, North Korea, and Iran.
AXA is divesting from coal. Why not go all the way and divest from fossil fuels entirely?
This journey, it isn’t zero-one. Pragmatically transitioning is the right way. We have taken the following stance: In industries where it’s clear that there is full pollution and there is an alternative, we get out. So, coal is the case. When you look at gas, for example, it’s labeled as a transition energy. So, on this one, we need to limit ourselves.
When you look today, what are we still financing or insuring on gas or even on new oil exploration? We are probably talking about 5% of what we used to do. So very, very little. And if you look at our asset base, how much is still in there, we’re talking about small amounts.
Activists argue that by working at all with fossil-fuel companies, particularly oil companies, you’re giving them social license to continue to effectively pump forever. Do you have any sympathy for that kind of position?
No, I don’t have any sympathy for the position of saying we are to stop all fossil energy now and only do green. Because let’s be honest, we don’t have it. There has to be a clear and controlled journey with a clear transition plan. Second, we need to move away from writing eternal lists of intentions to delivering on what we say and measuring it out.
I think that’s where it’s also justified to attack. You have to then think, what are the vectors of transition? And I always find it difficult to imagine how an oil company can transition their core business. No oil company has really done it yet.
You led AXA through a huge process of reorienting the business to avoid the financial market risk in life insurance. How are you feeling about it now?
This was a very tough process. At the end of the day, we had the majority of our portfolio in life insurance. And in the face of low interest rates, it’s difficult to sustain a life insurer.
It’s also a market that doesn’t have a lot of growth. When you look at where is the growth, it is in areas in which you have large risks evolving, which is clearly in the area of companies. If you look at cyber risk, climate transition risk, and supply-chain risk, it is all in the remit of companies.
So, we shifted the business essentially from 80% life insurance to 20% life insurance.
It was a tough journey. I mean, shifting many, many billions of revenue from one side to the next creates nervousness in the market. You take on a significant transformation risk because you don’t know whether it works out.
But yeah, I feel good about it. But I also still feel very humbled about it, because I know that many things in the journey could have gone wrong.
Is that the end of transformation for AXA?
Once you get a bit of appetite for it, it’s difficult to slow the appetite down. No, I mean, look, we would probably not embark on the same journey again, because it would make no sense. But we have now a platform that is working very well, but it also has a tremendous opportunity for growth. And so, in the next phase, we are really going to grow this platform even more.
Write to Matt Peterson at [email protected]