AXIS earns more fees, cedes more risk to third-party capital

by Artemis on August 2, 2017

During the second-quarter of 2017 Bermuda-based insurer and reinsurer, AXIS Capital Holdings, noted the continued positive momentum it sees in its strategic capital partnership activities, recognising increased fee income and ceding more premiums to third-party capital in the period.

The re/insurer recognised greater fee income in the opening quarter of the year, and also reported that it ceded more premiums to what it calls its ‘strategic capital partners’ during Q1, as well.

AXIS’ second-quarter 2017 financial results show that the firm has maintained this trend, and Albert Benchimol, President and Chief Executive Officer (CEO) of AXIS, speaking during the company’s earnings call, said that “partnerships with strategic capital providers, including Harrington Re, continued their positive momentum.”

In recent times, AXIS has been expanding its third-party reinsurance capital activities, which includes its total-return reinsurance joint-venture, Harrington Re, and also initiatives within its Venture’s division.

In Q2 2017 AXIS managed a total of $566.3 million reinsurance premiums, of which it ceded $75.7 million to its third-party capital activities and a further $62.2 million to Harrington Re, resulting in net reinsurance premiums written of $428.4 million.

This is compared to total managed premiums of $536.4 million in Q2 2016, of which $55.8 million was ceded to third-party capital providers, resulting in net premiums of $480.5 million.

This shows that in Q2 2017 AXIS ceded roughly 13.2% of its managed reinsurance premiums to its other strategic capital partners, compared with roughly 10.2% a year earlier.

For the half-year it’s a similar story year-on-year. In H1 2017 AXIS ceded $229.5 million of its $1.78 billion reinsurance premiums to third-party capital activities, just under 13%. While in H1 2016 AXIS ceded $149 million of its $1.84 billion in reinsurance premiums to third-party capital, which equates to approximately 8%.

So it’s clear that during 2017 AXIS has increased the proportion of ceded premiums to its third-party capital ventures when compared with the previous year.

According to AXIS, the increase in ceded premiums occurred in catastrophe and agriculture lines, alongside the impact of the retrocession to Harrington Re Ltd., which increased ceded premiums earned in its professional lines, as well as a reduction in premiums earned in its professional lines.

Fee income from its partnerships with strategic capital partners also increased this year, up to $11.6 million in Q2, compared with $985,000 a year earlier. For the half-year period, fee income increased from $6.9 million in 2016 to $22.7 million as at June 30th, 2017.

“This strategy allows us to provide meaningful capacity to our clients, while sharing risks with our capital partners, all the while improving the balance of our portfolio and generating meaningful fee revenue,” said Albert Benchimol.

Joe Henry, AXIS Chief Financial Officer (CFO), also commented on the firm’s third-party capital ventures, during the re/insurer’s Q2 earnings call.

“As we have previously discussed with you, we have been ceding more of our reinsurance premiums to our strategic capital partners in recent periods, particularly in our liability and professional lines since the launch of Harrington Re. In addition, we have increased retrocessions of our agriculture business this year.

“In conclusion, I’d like to emphasize our good underwriting results, continue progress in our targeted growth initiatives and continued momentum in our strategic capital partnership activities,” said Henry.

The increasing fee income AXIS is seeing shows how beneficial third-party capital activities can be, especially during the softening cycle when underwriting and investment income is pressured. As AXIS continues to feed more risk to its third-party ventures it’s likely to see fee income rise further in the months ahead.

AXIS recently acquired London and Lloyd’s specialty market player Novae Group for $604 million, in a deal that will help the firm broaden its activities with third-party capital providers.

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