AXIS Capital recognises higher capital partner fees & cessions, likely due to Monarch

AXIS Capital, the Bermuda based specialty insurance and reinsurance company, recognised higher fee income from its work with third-party investors, or so-called strategic capital partners, during the first-quarter of 2024, with higher premiums ceded to partners as well.

As we’ve reported in recent quarters, AXIS Capital’s activities with third-party investors increased in 2023, ceding 17% more in reinsurance premiums to them. As a result, the fee income earned rose slightly as well.

As we also said, one driver was the fact that, in 2023, AXIS Capital partnered with investor Stone Point to launch the Monarch Point Re casualty ILS vehicle during the third-quarter of last year.

Monarch Point Re is a collateralized reinsurer, capitalised with a more than $400 million raise, operating as a kind of third-party capitalised casualty reinsurance sidecar structure for AXIS and the investor and the initiative had been helping to drive premiums ceded to strategic capital partner investors higher.

As a result, it’s natural to expect an increase in fee income will follow, as the Monarch Re casualty ILS strategy beds in and gets up to scale.

In the first-quarter of 2024, AXIS has reported that on a net basis, its premiums written decreased by $26 million, or 4% year-on-year, which the company said reflected “an increase in premiums ceded to our strategic capital partners.”

AXIS also reported “an increase in fees related to arrangements with strategic capital partners” for Q1 2024, which drove a 1.2 point reduction in the re/insurers underwriting-related general and administrative expense ratio.

Unfortunately, AXIS has failed to include its full disclosures on the Strategic Capital Partners in its quarterly financial supplement, this time around.

So information is limited as to how much of an improvement there has been in fee income, but we presume a good deal of this will come via the Monarch Re casualty sidecar initiative.

The company did disclose in its 10Q filing that other insurance related income reached $8 million for the three months ended March 31st 2024, up on $1 million for the prior year Q1, which AXIS said was “primarily associated with an increase in fees related to arrangements with strategic capital partners.”

While you can see that reinsurance premiums ceded rose to $380 million in Q1 2024, up from $240 million a year earlier, it is wrong to assume this is all related to the strategic capital partner investor-related activities, as at least some of this will be ceded to traditional reinsurers as well.

Recall that we also reported back in March that AXIS had registered another collateralized insurer class of company in Bermuda to support the continued expansion of its Monarch Point Re casualty insurance-linked securities (ILS) platform.

AXIS, through its AXIS ILS unit, has an expanding array of third-party capital activities, including the Monarch Point Re casualty sidecar structure and the firm’s first cyber catastrophe bond Long Walk Re.