AXIS looks to third-party reinsurance capital as a long-term play

by Artemis on November 7, 2013

Bermuda headquartered insurance and reinsurance group AXIS Capital Holdings Limited will take its time expanding into the third-party capital management and insurance-linked securities space, preferring to see its efforts as a long-term play, according to CEO Albert Benchimol.

AXIS Capital has begun to make preparations to become more active in third-party capital and has undertaken a couple of small deals, said Benchimol during the firms third-quarter earnings call. However it does not want to rush into the space, preferring to find the right opportunities which match the firms strategies.

AXIS hired Ben Rubin back in June, who was previously with investment bank the Bank of America Merrill Lynch in its insurance team, as Executive Vice President, Capital Markets, as it sought to establish more expertise in ILS and managing third-party capital. AXIS also established a weather and commodity markets group, which is another area where third-party capital may find opportunities to participate in future.

Another area of activity in ILS for AXIS is in the catastrophe bond market where it became a cat bond sponsor for the first time with the recent Northshore Re Limited (Series 2013-1) catastrophe bond.

AXIS’ growing participation in the ILS and third-party reinsurance capital markets comes against a backdrop of increasing competition and reduced prices in the traditional reinsurance market.

Benchimol commented on prospects for 2014; “The combination of new capital and the advertised reduction in reinsurance purchasing from several large cedants should make market conditions a bit more challenging as we enter 2014.”

AXIS has seen 10% to 20% decreases in reinsurance pricing across many U.S. property catastrophe reinsurance programs, but this rate pressure is now expanding outside of property catastrophe business according to Benchimol, as reinsurers look to become more expansive in search of new lines to profit from.

He explained; “Outside of property lines the competitive landscape is also intensifying as reinsurers seek to expand their product offerings. Pressures on commissions exist across the board and, as historically low loss trends continue, cedants are reviewing their buying strategies and generally retaining more risk.”

Benchimol went on to explain that AXIS is seeing more consolidated reinsurance buying in the form of multi-line programs, with reinsurers more willing to offer expanded coverage such as multi-year covers and aggregate products. AXIS itself does not expect to have to pull back on reinsurance as a whole, preferring instead to be flexible about where it underwrites business.

In terms of its third-party reinsurance capital management plans, Benchimol referred to the launch of its capital management business in June saying that it will allow AXIS to partner with capital sources and provide them with a portion of the reinsurance business it underwrites in certain lines.

Benchimol explained the firms progress; “We’re having tons of conversations. We have a couple of small deals that we’ve done which look a lot more like retro than anything else really and I expect that in 2014 there will be some small portions of certain portfolios that will be shared with some external sources of capital.”

AXIS is in no rush according to Benchimol, who commented; “This is a long-term play. There is a lot of things happening, a lot of headlines happening, in the ILS base in 2013. But we’re approaching this thing as a longer term play, making sure that we match the right investors with the right risks. And again our goals here, our anticipation, is that this will be a gradual build-up of good partnerships over time and it’s progressing as we expect it to.”

So clearly AXIS Capital will look to utilise third-party capital within its underwriting as it moves forwards, but with no rush to raise capital. It will be interesting to watch whether as AXIS adjusts its reinsurance portfolio to avoid the highly-competitive lines and regions, whether it chooses to utilise third-party capital in those areas instead.

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