Minimum scale, third-party capital required in reinsurance: Benchimol

Albert Benchimol, the President and Chief Executive Officer (CEO) of insurer and reinsurer Axis Capital, has said that in reinsurance a minimal amount of scale is required, while the benefits of a hybrid model as well as the ability to access third-party capital are important too.

During the Axis Capital third-quarter earnings call, President and CEO Benchimol advised that operating in the global reinsurance business requires a “minimum amount of scale,” stressing the importance of global representation for international firms and the need to understand regional business.

“You need to write multiple lines to be able to provide them on multiple accounts. But, once you’ve achieved that scale, incremental scale is not necessarily a significant benefit. As probably can be proven by the fact that it’s not necessarily the largest reinsurers that have the best results,” said Benchimol.

In a challenging reinsurance market much discussion has circulated around the need for scale and relevance, with some in the sector warning against scale for the sake of scale, and that being relevant to clients in a tough operating landscape isn’t about market capital and size.

Instead, analysts have advised in recent times that relevance is driven by building and maintaining relationships, being recommended among industry players and ultimately refers to the line size you are being asked deploy.

Axis Capital failed in its recent bid to merge with Bermudian reinsurance firm PartnerRe, resulting in the receipt of an amalgamation termination fee and reimbursement of expenses totalling $315 million.

However, according to Benchimol the firm feels confident that its “21^st Century approach” and utilisation of alternative reinsurance capacity enables it to remain relevant and of adequate scale to clients globally, without the need for any acquisition on the reinsurance side of its operation.

“We think we’re excellently positioned and certainly when you look at the business that we have retained and grown during the last nine months, and the commitment and support of our clients and brokers has been very, very encouraging,” said Benchimol, commenting on the company’s reinsurance division, Axis Re.

Adding; “So, we will continue to run that business on a standalone basis. It does not need an acquisition. I think there are plenty of opportunities for growth. And where our clients feel they need more capacity, we feel very confident that we can access alternative capital to provide them with the size of capacity that they need at any point in time.”

The admission from Benchimol that Axis Re doesn’t require any form of merger or an acquisition will perhaps be a little bit of a surprise to some in the industry, following the three-way M&A saga between itself, PartnerRe and Italian firm Exor earlier in 2015.

But nonetheless, Axis remains confident that its hybrid insurance and reinsurance business model, and its approach to “capital management whereby we will complement our own balance sheet with a broad range of third-party capital is the right approach to evolving markets.”

Having a presence in the insurance and reinsurance space does provide Axis with diversification, balance, flexibility and opportunities, albeit with the possibility of increased headwinds should business on both sides become significantly challenging simultaneously.

Benchimol notes that according to recent listings Axis Re is the 14 largest reinsurer in the world, and when discounted markets like Lloyd’s, companies like RGA that operate in life, and national, extremely focused reinsurers like India Re and Korea Re, Axis Re is actually number nine or ten on the list, “which puts us right smack in the best spots in reinsurance,” says Benchimol.

Explaining this point, Benchimol said; “Because there will be consolidation and there will be reductions in the number of panels. And what clients and brokers are looking to do is to reduce the number of the smaller reinsurers in the world. And so we don’t need 50 or 60 reinsurers, but certainly, we need at least ten.”