AXIS targets third-party capital non-cat expansion: Benchimol

AXIS Capital, the Bermuda headquartered specialty insurance and reinsurance underwriter, is aiming to grow out its non-catastrophe activities with third-party capital partners, which should replace an anticipated dip in fee income from catastrophe risks it was sharing, the firm’s CEO has said.

AXIS Capital has been working with its so-called strategic capital partners for some years now, sharing sections of its insurance and reinsurance books with them, in return for earning fee income.

This began largely as a property catastrophe focused venture, but with AXIS exiting the property reinsurance space it was anticipated that there would be some changes in the near-future as that business declines and stops.

As we explained previously, AXIS Capital intends to continue to build out its insurance-linked securities (ILS) operations, under the AXIS ILS brand.

This is expected to involve an increasing focus on leveraging third-party capital, through a range of partnership structures and insurance-linked securities (ILS) vehicles, but with less of a focus on securing capital to underpin a property reinsurance book, given the exit from that space.

That’s not to say catastrophe exposure won’t exist in AXIS’ portfolios, the firm is very active in property insurance and other specialty lines that bring it cat exposure, but it won’t be writing property reinsurance for itself or investors any more.

As a result, a shift to a non-catastrophe ILS focus was expected and CEO Albert Benchimol, as well as CFO Pete Vogt, discussed this strategic shift during the firm’s earnings call recently.

Vogt explained, “We are seeing really good traction with our third-party capital partners on other business, outside of property and cat.

“We’ve done some really good deals, when we think about longtail business and we’re also looking at other opportunities in that book in that particular business lines.”

There will be some change in the source of third-party capital related fee income as a result of this shift.

“I would say if you look at our fees, year-to-date, there’s about $12 million associated with property year-to-date and so I think we’re going to see that come off,” Vogt said, but added, “I do think that we will see some fee income go back up due to some of our business in the longtail lines.”

Albert Benchimol, CEO of AXIS Capital, confirmed the broadening of this third-party capital and ILS strategy at AXIS, with more of a focus on long-tail lines of business and non-cat risks.

“We started our third-party capital, obviously, with cat and property. But as you know, we’ve been very proud of the fact that we’ve been able to expand our partnerships to include a very broad portfolio of risks, to the point where today, more than 50% of our fees are actually coming in from longer-tail lines,” Benchimol said.

He added that, “As you’re looking forward, it’s very likely that there’ll be a dip in 2023 as we lose the cat piece.”

But confirmed the core strategic relevance of this piece of the business at AXIS, saying that, “We’re still working hard at continuing to share other risks.

“So over time, we would hope that those fees would be replaced by new relationships, new fees, as we look to expand the non-cat lines with our third-party capital partners.”

This decline in fees began to be evident in the most recent quarter, as we reported.

So it will be interesting to watch how that moves over time and whether there is evidence of growth, as non-catastrophe lines are increasingly shared with third-party investors.