AXIS third-party capital income increases in 2021, with net exceeding gross

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AXIS Capital, the globally active insurance and reinsurance company based in Bermuda, increased its managed premiums year-over-year in 2021, resulting in a corresponding increase in commission income from its activities with the so-called Strategic Capital Partners.

Yesterday, when reporting its fourth quarter and full year results, AXIS Capital revealed that it retains more net risk, which is likely a function of improving and tightening market conditions. insurance and reinsurance.

In the reinsurance segment, AXIS only increased its gross premiums written by 1.5% in the fourth quarter, but its net premiums increased by 15%, demonstrating a growing appetite to retain more exposures written.

For the full year, gross premium growth was only half a percent, but net premium growth was 2.7%.

AXIS spent considerable time reshaping its portfolio and eliminating the activities it did not want to renew. The result is that the company has not experienced significant growth on the gross side, but has been able to gradually retain more premiums as it improves the performance of the books it underwrites.

For the full year, AXIS’ reinsurance portfolio delivered a technical profit, with a combined ratio of 99%. For the fourth quarter of 2021, the combined ratio was 90.8%, which gave the company a good quarter.

In insurance and reinsurance, AXIS recorded an impressive 3.5% improvement in the accident year combined ratio to 88.7%, excluding catastrophe and weather-related claims, which helped to generate a operating return on equity of 9.1%. For the fourth quarter, operating return on equity was 15.1%.

Albert Benchimol, President and CEO of AXIS Capital, commented on the results: “It was a strong fourth quarter, highlighted by an annualized operating ROE of 15%, a good end to a year of significant progress. results provide further evidence that our work over the past few years to reposition our portfolio is delivering the results we expect, and we are committed to maintaining this momentum and delivering consistent profitable growth.

“In addition to significantly improving our combined ratio, we continued to optimize the balance and volatility of our portfolio by lowering PMLs across the curve. In addition, we continued to take advantage of conditions favorable market conditions to strengthen our well-established positions in some of the best performing specialty insurance markets.

“Within our Insurance segment, we experienced both record growth in new business and total premiums as we produced the largest and most diverse insurance portfolio in the company’s history. Our insurance business produced a combined ratio of 91.6% for the full year, and we are focused on delivering performance in line with the top ranks in the specialty insurance industry.

“Within our reinsurance segment, which recorded a full-year combined ratio of 99%, we took significant portfolio actions during the year and in 1:1 renewals to improve quality and reduce portfolio volatility, and we will continue to do so in 2022.

“I am proud of the commitment and agility shown by our team, as we continue to navigate a dynamic environment while delivering the high level of service that our customers have come to expect from AXIS. We are excited for the future and focused on continuing to make progress and increasing the value we deliver to all of our stakeholders. »

The overall picture is of a company building portfolios it is much more confident in and the results are starting to prove it, with net premiums increasing much more than growth. AXIS is also looking to expand profitably in hardening markets, rather than expanding gross pound as so many other re/insurers have been this year.

Moving on to Managed Premiums and AXIS’ so-called Strategic Capital Partners, where the company partners with third-party capital investors, other reinsurers and also its capitalized total return style reinsurer Harrington Re.

Reworking how the company leverages third-party reinsurance capital has been a major focus for AXIS this year, with much more emphasis on the reinsurance side of the book in the results.

The additional revenue generated from risk sharing with investors and other third parties has become a boost to AXIS’ results each quarter and the reported figure has increased significantly for the fourth quarter of the year.

Total managed premiums reached more than $1.56 billion in the fourth quarter of 2021, compared to $1.35 billion the previous year.

Premiums ceded to the so-called “other strategic capital partners” group, which includes third-party style investors and insurance-related securities (ILS), fell during the quarter, but again, they all came from the side of the reinsurance of the AX Company.

This reflects the recent pattern of greater risk ceding of the reinsurance portfolio to ILS-style investors, but also the fact that the annual pattern of these cedings is changing somewhat, moving closer to the main renewal quarters.

For the full year, cessions to these other financial partners and investors were nearly $525 million and all came from the reinsurance side of the business, down slightly from the $583 million in premiums. reinsurance ceded in 2020.

As AXIS has recently adjusted the way it works with its financial partners, including some changes in the mix of investors it previously relied on, commission income has steadily increased and again in Q4 2021 an improvement was reported.

Nearly $27.2 million in fee income was reported from strategic capital partner activities in the fourth quarter, up from a year earlier of $12.9 million.

For the full year, commission income from Strategic Capital Partners business reached $73.2 million and came entirely from the reinsurance side of the business in 2021.

The reinsurance side generated $49.8 million in commission income in 2020, while combined with insurance-managed premiums and ceding fees for the previous year, it was still well below $60.5 million. dollars.

Net income for the full year across the entire AXIS Capital business was $588 million in 2021, so at $73.2 million, this fee income related to third-party financial partners was a major contributor.

In 2021, there were changes at AXIS Capital to its business unit dealing with third-party and ILS-style investors, with the unit rebranding as AXIS ILS and a number of senior recruits coming into the business.

We expect the strategy to adjust accordingly and as a result, working with investors through managed premiums and divestments is likely to become an increasingly important lever as AXIS begins to seek to expand at his activities again.

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