Property cat exit as part of specialist reinsurance focus will not damage relationships: Axis

Axis Capital’s exit from property reinsurance business will not negatively impact existing relationships, with more than three-quarters of the $2.1bn premium in force coming from customers where property cat makes up less than 10 percent of the relationship, according to president and CEO Albert Benchimol.

The company announced in June that it would be exiting the business, with this publication reporting at the time that Axis would be giving up a $706mn-premium portfolio, which had been scaled down by 31 percent since peaking at just over $1bn in 2019.

The strategic decision was based on issues of scale and resources, Axis said.

Speaking to this publication at this year’s Rendez-Vous, Ann Haugh, CEO of Axis Re, explained the difficulty of finding the right intersection between a comfortable level of volatility and sufficient investment and resources to be good at the business.

Benchimol added that since the majority of the firm’s relationships are not dependent on property cat, they will inevitably grow over time as Axis oversees a disciplined reduction of its cat exposure.

Commenting on the decision to exit the property reinsurance business, Benchimol said: “As soon as you position yourself as a specialty company, you realise you’re not going to be everything to everyone. But the secret of success for a specialty company is, where you do play, to be very good at what you do.”

Going forward, Axis said it expects the smaller, niche reinsurance book to produce a combined ratio in the low to mid-90s, consistent with specialty and casualty reinsurance peers.

“On a relative basis, reinsurers will do better than they did in the last several years,” Benchimol said.

“Reinsurance needs to catch up and start to get returns that match the level of risk it is taking and the contribution it is making to the risk transfer chain.”

The launch of Axis Wholesale last week further demonstrated Axis’ commitment to repositioning as a specialist reinsurer, with Benchimol describing the move as an investment in the “very bright future” of E&S.

The repositioning of Axis as a specialist reinsurer comes after the company posted $7.7bn in total GWP for 2021 – of which only around 37 percent was made up of the reinsurance segment.

Although Benchimol said this proportion is likely to continue, he advised that capital allocators should not target specific ranges, instead following opportunities as they arise.

In its investor presentation for the second quarter of 2022, Axis reported that the reinsurance segment has seen 5.3 points of underlying loss ratio improvement since year-end 2017.

The company said this was attributable to disciplined underwriting and portfolio management, as well as continued pricing momentum in the quarter across many lines.

Speaking to The Insurer, Haugh noted “disciplined growth” in Axis’ underwriting performance, supported by “smart underwriting around choosing the lines of business that are going to drive the right return on capital”.

The key question, Haugh said, is whether rate improvements are sufficient in offsetting the headwinds in the market.

It is expected that macroeconomic dynamics – such as social and financial inflation, the Russia-Ukraine conflict and the lingering impact of the Covid-19 pandemic – will drive further price improvements for the rest of 2022 and beyond.

Benchimol added that current geopolitical events validate the industry’s social purpose of stability.

Risk awareness and adjusting portfolios for lines of business that are appropriate to grow is fundamental, but the most important measure is to adjust reserves according to these trends.

Optimism should not be allowed to influence a company’s reserving strategy, Benchimol warned.

Turning to conversations around ESG, Benchimol identified that the ESG agenda presents significant growth opportunities – but (re)insurance is behind other industries with respect to diversity, equity and inclusion efforts.

Haugh emphasised the need for data and transparency to ensure firms have an aligned commitment on ESG principles with their clients.

“Getting to know what the portfolio looks like enables us to get comfortable on what they’re standing for in those policies and embedding that in their underwriting,” she concluded.