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AXIS’ third-party capital premiums ceded fall again, but fees rise for Q2


Bermuda-headquartered re/insurer AXIS Capital has continued to cede lower reinsurance premiums to third-party capital partners in the second-quarter of 2023, but this quarter its fee income earned bounced back.

AXIS Capital logoAt the same time though, overall managed premiums at AXIS Capital, where it underwrites business on behalf of strategic capital partners and other reinsurers has risen year-on-year.

Managed premiums reached $2.3 billion for Q2 2023, up from $2.1 billion a year earlier. For the first-half, managed premiums for strategic capital partners and other reinsurers were flat at $4.7 billion.

A key driver of change in the managed premium business, has been AXIS’ pull-back from writing property catastrophe risks and re-focus on specialty lines, which has resulted in an adjustment in the way it works with so-called Strategic Capital Partners.

It has resulted in a greater emphasis being placed on writing a wider range of risks, while large quota share arrangements it used to have in place with major insurance-linked investors have been shuttered in recent years.

Recall, AXIS Capital adjusted its reinsurance strategy, pulling-back from property reinsurance, while the part of its Strategic Capital Partner business where it cedes risk to third-party investors using insurance-linked securities (ILS) style arrangements has evolved to encompass an increasingly broad range of risks.

The catastrophe loss ratio at AXIS roughly halved in the second-quarter, indicating the pull-back has been effective in reducing volatility for the company.

Reinsurance premiums underwritten continued to fall as well, by 7% in Q2 2023, as AXIS continued to pivot towards insurance business as well, with premiums rising 15% in that segment of its business.

Catastrophe and weather-related losses, net of reinsurance, more than halved to $32 million, down from $67 million a year earlier.

Cyclone Gabrielle and other U.S. weather-related events were the key drivers of catastrophe and weather activity in Q2 for AXIS.

For Q2, the company has again cited “decreases in net premiums earned and fees related to arrangements with strategic capital partner,” representing the reduction in third-party capital and insurance-linked securities (ILS) style business undertaken now AXIS has shifted away from property cat risks.

In Q2 2023, AXIS Capital ceded just $94 million in premiums to its so-called “other strategic capital partners”, so third-party and insurance-linked securities (ILS) style investors, all of it being in reinsurance form.

That was down from $107 million ceded a year earlier.

For the first-half of 2023, the total reinsurance premium ceded to those third-party capital providers reached $204.5 million, again lower than the previous year’s $315.8 million.

The continued reduction in reinsurance premiums ceded to ILS style investors will have driven AXIS’ strategic capital partner fee income down again, for that type of business, but overall, thanks to the higher level of managed premium in the business, the fee income reported actually rose.

Fee income came out at $14.6 million for Q2 2023, up from $11.8 million a year earlier.

For the first-half, fee income earned was $22.5 million, down from nearly $29.5 million in the prior year.

The other driver of improved fee income in Q2 2023 may have been the lower catastrophe and weather loss ratio, as better performance on the inwards book results in better fee income earned where risks are being shared with strategic capital partners and reinsurers, although it is hard to tell.

It’s worth noting here that, as we reported, AXIS has some new collateralized reinsurance appropriate vehicles it has established under the Monarch Point Re name, so it will be interesting to see whether there are any changes to premiums ceded and fees once they come into use.

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