Ratings agency A.M. Best recently interviewed AXIS Capital CEO Albert Benchimol for its A.M. Best TV channel. Benchimol inevitably discussed alternative reinsurance capital and said that AXIS feels well positioned to succeed in that space.
Benchimol said that while alternative capital in reinsurance captured a lot of headlines in 2013 it is actually just one part of a much larger issued, excess capital in reinsurance.
Benchimol said that excess capital looks set to keep increasing as we move into 2014 and the fact that the industry is increasingly well capitalised but demand for risk protection seems relatively stable means that companies will be looking for opportunities to deal with a glut of capital.
Some may choose to return capital to shareholders, others may choose to make acquisitions, while others may choose to grow their business by reducing pricing in the competitive environment. Very likely, Benchimol said, companies will actually choose to do all three.
Benchimol then went on to discuss where there might be opportunities for insurers and reinsurers to grow their business with new opportunities, including new lines of business such as cyber, business contingency planning or on taking risk back from government-backed risk facilities.
Flood insurance and government backed insurance windpools are ripe for moving back into the private insurance and reinsurance market, explained Benchimol. TRIA is another opportunity, although Benchimol said that government participation would still be required but that as a whole TRIA may evolve to include more private market participation.
Benchimol said that alternative reinsurance capital has impacted AXIS in three ways. Firstly, as a firm with 60% of premiums in insurance business, AXIS has benefitted from better rates on the reinsurance protection it has purchased.
The improved rate environment has benefitted AXIS both on its traditional reinsurance purchases and also in its use of third-party capital for its own protection. An example of this was last year’s first-time sponsorship of the Northshore Re Limited (Series 2013-1) catastrophe bond, AXIS’ first tapping of the cat bond market.
Conversely, as AXIS is also a reinsurer it is feeling increased competition in the market place and in some cases Benchimol said that AXIS has lost business or it has written less of a particular line of business. The impact of alternative reinsurance capital has hit many reinsurers in this way, but for a firm with such established insurance credentials AXIS can shift its capital into other parts of the market.
Benchimol said that alternative capital is not foolish or naive capital, rather it has sought a fair price for the capital it has provided. This has impacted AXIS in areas where profits were once above-average, reducing the profits on these lines of business.
Benchimol said that more fundamentally AXIS sees alternative capital simply as another form of risk funding. It helps it to provide capacity to its clients where they need it, which Benchimol said is an important aspect of how the firm thinks of alternative capital.
AXIS launched a third-party reinsurance capital management business in 2013, when it hired Ben Rubin to head up the initiative. Benchimol said that Jay Nicholls, CEO of AXIS Re, is also very involved in the third-party capital strategy, having a long history of such activities at RenaissanceRe previously.
Benchimol said that he feels AXIS has the right leadership, as well as the right approach in place, to succeed at managing third-party reinsurance capital.
You can watch the full episode of A.M. Best TV below: