AXIS Capital said yesterday that it estimates a hit of up to $120 million from hurricane Michael based on an expectation of a roughly $10 billion industry loss, net of its reinsurance and retrocession, meaning some of the ceded impact is likely to fall to its strategic capital partners.
Bermudian insurance and reinsurance specialist AXIS Capital Holdings Limited has been utilising an increasing amount of third-party capital within its reinsurance underwriting business, with some large quota shares and private insurance-linked securities (ILS) arrangements with some of the biggest ILS investors in place.
This means the firm tends to cede some of the impacts of its major catastrophe losses through to these investors, as the third-party capital helps the firm to moderate its own exposure to specific events.
The company said that its preliminary pre-tax loss estimate for Hurricane Michael is for an impact of between $100 million to $120 million, net of estimated recoveries from AXIS’ reinsurance and retrocessional protection and including the impact of estimated reinstatement premiums.
AXIS said that its loss estimate is consistent with an insurance industry loss of approximately $10 billion from hurricane Michael, which is the upper-end of current industry estimates.
As we explained recently, in the third-quarter of 2018 AXIS ceded roughly $136.5 million of premiums to its strategic capital partners, up from $108.7 million in the prior year period.
More of these cessions flow to third-party capital and ILS investors now, resulting in a share of the impacts of major losses flowing through some of these arrangements.
The extent of AXIS’ work with third-party ILS type investors was made clear recently, when we documented that mutual fund investor Stone Ridge Asset Management had roughly $657 million of investments in various segregated accounts of the AXIS Ventures Re collateralized reinsurance vehicle and another almost $26 million invested into AXIS’ Northshore catastrophe bonds.
As global re/insurance players, like AXIS, become increasingly aligned with third-party investors, the ILS market and its investor base is becoming an increasingly important source of risk capital for these firms, helping them to manage their exposure to major industry losses such as hurricane Michael.