AXIS Capital Holding’s chief executive officer would not comment on reports that the company is looking to sell its reinsurance unit. But a market commentary from Wells Fargo Securities said: “Where there’s smoke, there’s fire.”
During a first quarter earnings call on April 28, Albert Benchimol said he wouldn’t comment on “market rumors and speculation,” adding that AXIS Re is “well positioned to deliver very attractive returns.”
“This is a business where occasionally we get crazy rumors out there, and one of the things that we found is that the best response is to keep your head down, focus on providing value to your customers and your partners and distribution, and that works,” said Benchimol. An article about the sale was first published in the Insurance Insider.
However, a market note from Wells Fargo Securities attached “some credence to [AXIS] potentially looking to sell its reinsurance business,” despite Benchimol’s assertion of “crazy rumors” in the market.
These thoughts were contained in a section of the report with the sub-head: “Where there’s smoke, there’s fire.”
Q1 Financials
Bermuda-based AXIS Capital reported net income to common shareholders of $142 million, a combined ratio of 91.4% and an operating return on equity of 15% during the first quarter of 2022. This compares to net income of $116 million, a combined ratio of 98.9 % and a ROE of 7.1% in Q1 2021. (A combined ratio below 100% indicates an underwriting profit).
AXIS Capital has been aiming “to streamline its reinsurance exposure, especially as it has looked to curb the volatility from writing catastrophe business,” and has continued “to de-emphasize cat business during the recent 4.1 renewals,” said Wells Fargo.
AXIS did see success in that area during the first quarter.
“Quarter-over-quarter, natural catastrophe industry losses are estimated to be down about 45%,” said Chief Financial Officer Peter Vogt, during the earnings call.
He noted that AXIS’ natural catastrophe loss ratio is down nearly 80%, which “speaks to the work that we’ve been doing to reduce natural cat volatility in our book.”
The company reported pre-tax catastrophe and weather-related losses, net of reinsurance, of $60 million (insurance: $33 million and reinsurance: $27 million). This included $30 million attributable to the Russia-Ukraine war with the remaining losses of $30 million primarily attributable to Eastern Australia floods, and other weather-related events.
By comparison, AXIS said its Q1 2021 pre-tax catastrophe and weather-related losses were $110 million (insurance: $36 million and reinsurance: $74 million).
“The war loss provisions included $16 million for insurance, which was mostly attributable to terrorism and political violence covers,” Vogt said.
On the other hand, AXIS has not yet received any reinsurance notices but it has about $25 million in war covers. As a result, Vogt said it has put up about 60% of that limit, as a precautionary measure.
Another indication of the company’s effort to streamline its reinsurance were indicated by its Q1 figures for gross premiums written (GPW) and net premiums written (NPW). GPW increased by $99 million, or 4%, to $2.6 billion with an increase of $224 million, or 20%, in the insurance segment. This was partially offset by a decrease of $125 million, or 9%, in the reinsurance segment.
NPW increased by $34 million, or 2%, to $1.8 billion with an increase of $136 million, or 19%, in the insurance segment. This was partially offset by a decrease of $102 million, or 10%, in the reinsurance segment.
Rate Increases
Benchimol said the average rate increase in AXIS’ insurance book was close to 12% which represents the 18th consecutive quarter of rate increases and the eighth consecutive quarter of double-digit increases for the insurance book.
In its April 29 market research report, Wells Fargo Securities pointed out that AXIS, like other companies, is seeing slower rate momentum in its insurance book – as the average rate increase of 12% is down from more than 14% in Q4 2021. Nevertheless, the report acknowledged that “the pricing level does remain above loss trend.”
“Market conditions continue to be favorable. And while rate increases are generally off their highs of last year, they continue to extend to almost every line we write and remain, by and large, well ahead of loss cost trends,” Benchimol said.
Professional lines once again saw the strongest pricing actions with average rate increases of 24% and cyber retaining hard market prices.
“The average rate increase [for cyber] was almost 70%, but in some cases, was well in excess of 100%,” said Benchimol. On the other hand, public D&O, which represents less than 10% of the company’s overall professional lines book, was only modestly positive during the quarter.
The combination of strong price increases in prior periods, less new business opportunities, and the coming online of new capacity all led to a more competitive market, especially in the excess layers of public D&O towers,” he continued.
The company’s reinsurance business averaged rate increases of close to 9%. Accident and health (A&H) generated increases of more than 11%, while casualty and professional lines both increased by close to 9%, Benchimol added.
