AXIS third-party capital income decreases, while disposals to investors decrease


Bermudan specialty insurance and reinsurance company AXIS Capital reported lower revenues from the use of third-party capital and insurance-related securities (ILS) in its operations, with divestments to investors having significantly decreased in the first quarter of 2020.

This was to be expected at the end of this quarter, as we reported in February, as AXIS Capital’s assets under management with ILS-style investors declined at the end of 2019, as the Activities within the management of insurance-related securities funds (ILS) are related and to private ILS. the AXIS Ventures Reinsurance Limited partnership platform has shrunk.

A significant portion of the lost ILS capital supporting AXIS quota stocks and private sidecars appears to have come from its relationship with mutual fund investor Stone Ridge Asset Management.

At one point in 2018, AXIS had some $ 657 million in investments in various segregated accounts of the collateralized reinsurance vehicle AXIS Ventures Re.

As Stone Ridge recently cut its allocations to sidecars and private quota shares, that number has dropped significantly to $ 367.2 million at the end of January of this year.

So this pullback, along with other ILS investor pullbacks that have been observed, along with some potential impacts of continued collateral trapping, all led to a decline in ILS-style investor AXIS assets, reducing commission income and also the amount of premiums that the company can also transfer to the capital of third parties.

AXIS Capital’s so-called strategic capital partners remain an important source of capital for the company, allowing the company to share its profits, reduce its probable maximum exposure to losses in peak areas, obtain a retrocession and effective reinsurance, while receiving attractive fees for its expertise in underwriting and management.

With a reduction in available third-party capital, it is perhaps not surprising that initial underwriting activity declined for AXIS Capital this quarter, reflecting how ILS investors have been a significant lever for the company.

In the publication of its first quarter 2020 results, as reported by our sister site Reinsurance NewsAXIS Capital said its gross written premiums fell 6% across the business, down 14% in its reinsurance business and 11% in insurance.

This is the first time that AXIS has significantly reduced its subscription volumes in some time, perhaps reflecting once again the importance of access to third party capital for the company in order to be able to maintain its subscription of risks of property exposed to disasters.

In total, AXIS Capital ceded 31% less premiums to its “other strategic capital partners” group, where the company records cessions and quotas to investors specializing in ILS, with $ 298 million ceded to the first. quarter 2020 compared to $ 390.9 million in the first quarter of 2019.

The company ceded a few more premiums to its third-party total return capitalized joint venture reinsurer Harrington Re, as well as other reinsurers during the period. But it is the reduction in sales to third-party capitalists of the ILS type that is the most significant this quarter.

This resulted in a decrease in fee income from strategic capital partners of approximately 21% to $ 15.68 million, from $ 19.78 million the previous year.

It is likely that the reliance on Stone Ridge as a single large investor backing its quota shares will remain reduced now, as Stone Ridge focuses more on managing private quota share funds and its own reinsurance vehicle. under the Longtail Re brand.

For AXIS, this likely means that the company will focus more on its own Aturas Re sidecar, as well as on finding new investors for the AXIS Ventures business.

Interestingly, AXIS ‘probable maximum loss (PML) for hurricane hazards in the Southeastern United States and earthquake hazards in California at return periods of 100 and 250 years have increased through the first quarter, possibly due to the withdrawal of some third-party capital that would have helped absorb such loss events for the company, as ILS investors focus on these risky regions.

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