Axis Capital lost select 1.1 deals, confident on Q2 quota share renewals

Re/insurer  Axis Capital failed to renew select reinsurance deals to the 1.1 deadline, but feels confident that a rising history of improving underlying performance has improved its profile for a series of pending quota share renewals slated for Q2, top company officials have argued.

“We have several covers of course at 1.1 – not all of which renewed,” CEO-designate Vince Tizzio told participants in an equity market conference hosted by Bank of America Securities.

Deals that did clear the bar “in large part were as we had expected,” Tizzio said, acknowledging that the group entered renewals aware of threats on capacity and terms.

Axis’ primary insurance rates backing those reinsurance deals are “adequately contemplated,” he said. “We are able to generally pass our rates on to our insureds.”

The more serious test comes as Axis faces down the bulk of its larger quota share deals to renewal deadlines in April, May and June, outgoing CEO Albert Benchmiol noted.

“Right now we feel confident about our ability to renew our reinsurance on reasonable terms,” Benchmiol said. “On select lines we expect to pay a little bit more” but “it is our expectation that we will be able to pass on any incremental reinsurance costs to protect our margins.”

Axis’ declining loss ratios have bolstered a reinsurance purchasing argument around improved attractiveness of the underlying business, the two concurred.

For the coming period, growth hopes will trump share buy-back as the best use for capital, despite Axis’ low stock market valuations, given the improvements in efficiency that can be gained from scalability, Benchmiol argued.

“I think we have a unique opportunity in the near-term to take advantage of momentum in the market,” Benchmiol said.

“Growth will provide an avenue for a meaningful reduction of our expense ratio going forward,” Benchmiol said. His loss ratio at 52% last year is podium-worthy, but blurred by expenses ratios where “dropping 1-2 points” could add operational leverage. “That is something we can take advantage of every year.”

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