Bermuda headquartered insurance and reinsurance firm AXIS Capital lowered its catastrophe premiums written considerably in the first-quarter of 2022, as rumours of a sale of the reinsurance division have emerged.
At the same time, there is further evidence of growing use of third-party capital and increasing fee income being earned from it, in AXIS’ results.
It was reported yesterday by the Insurance Insider and now commented on by a range of analysts, that AXIS Capital is preparing to sell its roughly $3 billion reinsurance unit, AXIS Re.
So far the company hasn’t commented on the news, but as its underwriting book has shifted significantly in recent years, the fact it is strategically considering the future of its reinsurance unit is not at all surprising.
We’d previously explained how AXIS Capital has been reducing its catastrophe exposures, managing down its catastrophe probable maximum losses (PML’s) through portfolio pruning and use of third-party capital.
At the same time, the company continues to leverage a range of third-party capital structures to help it manage risks in both its insurance and reinsurance books, an area of the business that has continued to deliver fee income in the first-quarter.
The catastrophe pruning continued in Q1 2022, with CEO Albert Benchimol revealing a 45% reduction in catastrophe lines premium during the quarter.
AXIS reported a 7.5% improvement in its combined ratio to 91.4% for Q1, driving annualised return on average common equity (ROACE) of 12.0% and annualised operating ROACE of 15.3%.
Albert Benchimol, President and CEO of AXIS Capital, commented on the results, “This quarter we continued to deliver strong progress along virtually all key metrics to deliver a combined ratio of 91.4%. We continued to grow the most profitable areas of our business, improve the overall quality of our book, and lower our net cat exposure – all while providing great service to our customers.
“Our Insurance segment again recorded 20% premium growth on the back of double-digit rate increases, and record first quarter new business as we continued to expand our presence in attractive markets, with a focus on delivering value to our partners in the E&S, Wholesale and Specialty channels.
“Within our Reinsurance segment, the team continued to make good progress in strengthening our portfolio while reducing our footprint in Catastrophe, highlighted by a 45% reduction in catastrophe lines premium.
“We’re excited by the positive momentum that we continue to see throughout our business. Our focus is to build on it – and drive sustained profitable growth, further enhance our efficiency, and ultimately achieve our goal of becoming a top quintile performer.”
Reinsurance sector consolidation is an entirely plausible strategy right now, as underwriters struggle to control volatility and larger, more diverse books of business appear less likely to suffer when major catastrophes strike.
While AXIS has been optimising its reinsurance exposure, its book remains relatively small, perhaps making a sale of it and a strategic re-focusing on its insurance business seem attractive at this time.
Overall, AXIS grew its insurance books premiums by 20% in the first-quarter of 2022, while shrinking its reinsurance book by 9%, perhaps telling about where its strategic focus lies.
Interestingly though, catastrophe and weather losses for Q1 were actually higher in the AXIS insurance book, than in reinsurance for the company.
AXIS continued to realise fee income from its third-party capital partnerships, seemingly having a good first quarter start to the year for this area of its business.
While 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, fell again in the last quarter to $208.6 million, down from $243 million in the prior year, the fee income earned rose.
AXIS reported $17.6 million of fee income from its strategic capital partners activities in Q1 2022, up from $12.3 million in the previous year.
It remains to be seen how AXIS would utilise third-party capital within its business should a sale of its reinsurance unit be announced.