AXIS cedes more reinsurance premiums to third-party capital partners in Q4

For the first quarter in a while, Bermuda-headquartered re/insurer AXIS Capital has ceded more in the way of reinsurance premiums to third-party capital investors, year-on-year, while the company also reported higher catastrophe losses, despite its pull-back from that line of business.

AXIS Capital reported its fourth-quarter 2022 results, which you can read about in detail over on our sister publication Reinsurance News.

As our readers will know, AXIS Capital has adjusted its reinsurance strategy, pulling-back from property reinsurance, while the part of its Strategic Capital Partner business where it cedes risk to third-party investors using insurance-linked securities (ILS) style arrangements has evolved to encompass an increasingly broad range of risks.

As a result of this, AXIS is reducing volatility within its reinsurance business, while maintaining channels to partner with third-party investors on a growing range of risks and perils.

This can still include catastrophe exposure, as while AXIS has withdrawn from property reinsurance, it still picks up catastrophe risk through other reinsurance and also primary insurance lines. But the mandate of the AXIS ILS division, where third-party capital arrangements are managed, is to broaden the scope and partner on longer-tailed or specialty lines as well.

In Q4 2022, AXIS Capital has reported $64 million of pre-tax catastrophe and weather-related losses, net of reinsurance, which is an increase on the prior year’s $54 million.

The main driver of these catastrophe and weather losses was winter storm Elliott in the United States, which drove $32 million of the quarterly catastrophe loss burden for AXIS.

The quarterly bill was split $33 million to AXIS’ insurance division, $31 million to the reinsurance side of the business.

The upshot was a combined ratio of 90% for Q4 2022, roughly on par with the prior year’s 89.5%.

For full-year 2022, AXIS’ combined ratio was 88.5%, slightly better than 2021’s 88.7%, with catastrophe and weather loss of $403 million for 2022, down from 2021’s $443 million.

Albert Benchimol, President and CEO of AXIS Capital, commented on the results, “This was a strong quarter to cap a milestone year for AXIS, one in which we emerged as a leading specialty underwriter that is well-positioned to drive consistent, profitable growth in our chosen markets. This was evidenced in our fourth quarter and full year results which speak to the work that we’ve done in prior years to transform our business, enabling us to grow in profitable specialty markets, reduce our exposure to catastrophes, and create a more agile and responsive operating infrastructure.

“During a year where the industry was again negatively impacted by heavy catastrophe activity, the Russia-Ukraine War, and financial and social inflation, we improved our combined ratio by 1.7 points to 95.8%, continuing a multi-year improvement in our core performance. Moreover, during the year, we continued to advance the positive momentum in our results, generating record premium production, a lower expense ratio, and increased underwriting income.

“Our specialty insurance business continued to deliver stellar performance, producing improvement across virtually all metrics in the quarter and the year, and we advanced our leadership position in specialty markets that are expected to remain attractive in 2023 and beyond. In addition, during the year and quarter, we took critical steps forward to focus AXIS Re as a specialist reinsurer and had a good 1.1 renewal period which speaks to the strength of our customer relationships and the value that we bring to the market. Stepping back, as we look to the future, we believe AXIS is exceedingly well-positioned to compete in a market where there is consistent and rising demand for specialty coverage.

“Finally, I would like to extend a heartfelt thank you to our colleagues, customers, shareholders, analysts, and our board of directors. In a few short months, after having served as President and CEO of AXIS for eleven years, I will transition the role to Vince Tizzio. I couldn’t be more proud of what our team has accomplished nor more excited for the path that we’re on. Moreover, in Vince, we have an excellent leader with a strong vision for the future and the dynamism and tenacity to make it happen. We look to the year ahead with confidence as we begin an exciting new chapter for AXIS.”

In AXIS’s Strategic Capital Partners business, reinsurance premiums ceded to so-called “other strategic capital partners” grouping, which is where third-party and insurance-linked securities (ILS) style investors are accounted for by AXIS, increased year-on-year to $38.26 million in Q4 2022, up from $31.157 million a year earlier.

This is the first quarter where these premiums ceded have increased for a while, perhaps reflecting the evolution of the AXIS ILS strategy and new opportunities to cede risk to third-party investors being developed.

Over the full-year 2022, reinsurance premiums ceded to third-party investors reached $440.198 million, down on 2021’s almost $525 million.

But, the reversal in Q4 could bode well for AXIS and it will be interesting to see how the Q1 2023 figures come out, when the company may have found more underwriting opportunities attractive to share with investors, given the hardening of reinsurance pricing.

Fee income earned through AXIS’ Strategic Capital Partners reinsurance relationships was depressed in Q4 2022 though, which could reflect some sharing of losses via existing arrangements that might have been exposed to the quarters catastrophe and severe weather loss burden.

Fee income was just $12.119 million for Q4 2022, down from $27.192 million a year earlier.

For the full-year, 2022 saw almost $52.7 million of fee income earned by AXIS from the Strategic Capital Partners business, down from almost $73.2 million in 2021.

As AXIS’ strategy continues to adjust, property reinsurance runs-off and its ILS strategy continues to evolve, it is understandable the flows of third-party capital fees change over time.