AXIS Capital Holdings Limited, the Bermuda domiciled insurance and reinsurance group, ceded $40 million of premiums and $10 million of losses to its Ventures Re, third-party capital reinsurance unit which is backed by investors.
AXIS Capital established the AXIS Ventures Reinsurance Limited (Ventures Re) reinsurance vehicle in November 2013 as part of its platform for bringing third-party investor capital into its business.
Managed by the AXIS Ventures unit, Ventures Re is a Class 3A insurer under the Bermuda Insurance Act and a registered segregated accounts company as well, and is utilised for managing capital from investors for deploying in funds that are deployed into short-tail reinsurance business, largely property catastrophe risks.
As well as entering into some of its own contracts, Ventures Re receives reinsurance risks directly from parent AXIS Capital, underwriting these contracts on a fully collateralised basis using the third-party investor capital.
Through the AXIS Ventures unit and Ventures Re reinsurance vehicle, AXIS Capital can earn commissions and fee income for servicing the business underwritten using the third-party capital, while also benefiting from a source of efficient capital to cede risk to.
So in 2016, AXIS Capital ceded $40 million of risk premiums to Ventures Re, which will all have been fully collateralised using third-party funds under management in the Ventures unit.
At the same time, AXIS Capital also ceded $10 million of losses to Ventures Re in 2016, through the reinsurance contracts the pair had entered into, which is not really surprising given the higher incidence of losses that impacted insurance and reinsurance linked funds and sidecars throughout the year.
However the fact premiums ceded outsized losses considerably suggests a profit for the third-party investors in the AXIS Ventures strategies and a greater share of profits for AXIS itself as well in 2016.
Which is a considerable improvement on 2015 performance when AXIS ceded $19 million of premiums to Ventures Re and recovered ceded losses of $23 million in the same year.
During 2016 AXIS Capital benefited from fees and commissions from the Ventures business, in terms of acquisition costs and administrative fees paid by Ventures Re.
AXIS Capital is, like so many other insurance and reinsurance firms, gradually building out strategies where it leverages other people’s capital for underwriting risks, benefiting through fee income, shares in profits and also cheaper access to reinsurance and retrocession for itself.
AXIS’ Harrington Re launch has perhaps overshadowed the business it has been doing at Ventures Re, but the AXIS Ventures third-party capital and ILS investments unit is a key component of its overall efforts to bring new capital into its business model, adding greater efficiency to its underwriting business.