The growing volume of alternative reinsurance capital which has entered the insurance and reinsurance sector in recent years is seen as a resource for the industry, rather than a competitor, by CEO of AXIS Capital Albert Benchimol.
In an SEC filing where he extolls the virtues of the hybrid insurance/reinsurance model, of which he said the larger players in the market “believe the hybrid model works” Benchimol said that AXIS competes more with traditional players than with third-party or ILS capital.
Benchimol said that alternative capital is seen by himself and AXIS “not as a competitor but simply as another resource for our industry.”
Given AXIS’ focus across insurance and reinsurance, with a specialty edge, Benchimol said that AXIS doesn’t compete directly with alternative capital, rather competing with other reinsurance firms “who have alternative capital.”
And AXIS itself is already leveraging third-party capital within its own underwriting, sharing some of the business it underwrites with investors.
“We have a number of third-party capital partners with whom we share some of our underwriting risk,” Benchimol commented.”
On the hybrid model, of being both an insurance and reinsurance underwriter, Benchimol said “We’re very big proponents of the hybrid insurance/reinsurance model.”
He said that if AXIS is successful in its goal of combining with reinsurer PartnerRe, he expects the reinsurer to benefit from AXIS’ primary insurance activities, “particularly as the dynamics of the insurance market continue to evolve.”
“The case for a well-managed hybrid has been made by both practitioners and observers,” Benchimol continued.
The case for hybrid insurance, reinsurance and third-party capital activity has indeed been well made by the very largest players in the market. It remains to be seen how the companies with lesser scale can benefit from this approach, which could go some way towards explaining the desire to merge at AXIS.
PartnerRe is also a reinsurer that leverages third-party capital, specifically within its sidecar Lorenz Re. If these two firms come together they will have a chance to leverage additional third-party capital and to offer a wider range of business to third-party investors.
Would EXOR leverage third-party or alternative capital if it buys PartnerRe, or would it seek to only utilise its own capital to maximise returns? If EXOR wanted to be expansive, it could potentially bring in more third-party capital, further lowering the cost-of-capital for PartnerRe in its underwriting.
EXOR hopes that given PartnerRe will be part of its own diverse operations, that it can gain a cost-of-capital benefit there as well. Add in efficient third-party capital and perhaps an EXOR owned PartnerRe could increase its underwriting efficiency?