AXIS says Q3 cat losses up to $175m, much higher than analyst estimates

AXIS Capital Holdings Limited has announced a preliminary estimate that its third-quarter 2019 catastrophe losses from events including hurricane Dorian and Japanese typhoons will total from $150 million to as much as $175 million, net of recoveries from reinsurance and retrocession.

This is significantly higher than analysts had been expecting, with some expecting a company of the size of AXIS Capital to bear losses of less than half this level from the industry events in Q3.

As a result, the analysts believe AXIS is being super cautious with its estimate and putting plenty of fat on it to account for potential loss creep that could emerge from events such as typhoon Faxai.

As well as the major events of the third-quarter such as Dorian and typhoon Faxai, AXIS Capital also said its losses are based on impacts to aggregate reinsurance treaties hit by other 2019 catastrophe and weather-related events.

AXIS is among the Bermudian headquartered insurance and reinsurance firms that make significant use of third-party capital, both as a manager of it and in retrocession or quota shares through which it shares in its underwriting returns and losses with investors.

As a result, given the forecast for an up to $175 million hit from Q3 catastrophes, which AXIS has announced net of estimates of reinsurance and retrocessional recoveries, including estimated reinstatement premiums, it’s almost certain portion of its losses have been shared with its strategic capital partners, including from its ILS activities.

In fact, AXIS Capital now has roughly $2.1 billion of third-party capital under management in total, more than $1 billion of which is in ILS structures, private quota share deals with investors and sidecar like collateralized reinsurance strategies.

Given where AXIS has pegged its potential Q3 losses and the fact they are so much higher than estimates, as well as the chance of direct ILS losses, it’s possible there could be some impact in terms of held collateral for a number of structures supporting its reinsurance and retro program while the actual loss impacts of recent events unfold and are better understood.

AXIS is being very conservative, having set these estimates based on a $6 billion industry loss for hurricane Dorian and $8 billion for Japanese typhoons, which will include Faxai.

In addition, the company has also been hit by other weather and cat events in Q3, which appear to have tipped some aggregate reinsurance structures into loss during the third-quarter.

AXIS said that its estimate of up to $175 million of loss, net of reinsurance and retro recoveries, includes “full limit losses from aggregate excess of loss reinsurance treaties that were also impacted by other 2019 catastrophe and weather-related events.”

This suggests that other events in Q3 took these aggregate treaties beyond their attachment points and tipped them into a full loss, something perhaps to watch out for with other re/insurers during reporting season.

AXIS noted that there remains significant uncertainty, as the final ultimate net loss for these events could differ materially from its current estimate.

Analysts from Keefe, Bruyette & Woods (KBW) said that AXIS’ estimate of third-quarter 2019 catastrophe losses is far above their own, which they’d pegged at around $73.5 million.

The KBW analysts suggest that conservatism is the reason, especially as AXIS has picked the industry losses at the higher end.

They also said, “We expect most exposed (re)insurers to incorporate extra conservatism in 3Q19 catastrophe loss estimates following Typhoon Jebi’s very material loss creep,” which may prove a feature of the coming results season.

AXIS’ estimate of Q3 catastrophe losses follows one from fellow Bermudian Arch Capital Group, which reported an expectation of cat losses of up to $75 million, which was also above analysts estimates, although not as far above as AXIS’.