AXIS CEO calls 23% stock price drop 'greatest disappointment of the year'

Bermuda-based AXIS was hit hard by natural catastrophes 2017 but CEO Albert Benchimol believes that the financial impact of the year’s challenges on the company do not explain the 23 percent drop in the firm’s share price and suggested that it was further exacerbated by questions relating to the  Novae acquisition.

AXIS faced a difficult market environment and pricing conditions in 2017. In the first quarter, AXIS was impacted by the Ogden discount rate change in the UK, increasing costs for the UK motor business. In addition, AXIS was hit by severe natural catastrophe losses in North America including hurricanes Harvey, Irma and Maria as well as wildfires in California. Of the approximately $120 billion in global insurance catastrophe losses in 2017, AXIS’ net retained losses were $835 million, or approximately 0.7 percent of global industry losses. AXIS reported a net loss of $416 million for 2017 and an operating loss of $265 million.

“While the financial impact of the year’s challenges on our company was within the range experienced by our Bermuda peer group, it does not fully explain my greatest disappointment of the year: the 23 percent drop in our stock price,” Benchimol said in the re/insurer’s 2017 annual report.

While it was a subpar year for many Bermuda companies, Benchimol believes that the firm’s stock performance was further exacerbated by questions relating to its acquisition of Novae.

In August 2017, Novae Group shareholders approved the terms of the acquisition offer from AXIS. The deal approval came after AXIS raised its cash offer to acquire Lloyd's property/casualty underwriter Novae Group to £477.6 million from £468 million.

As a result of the transaction, S&P Global Ratings revised the outlook for AXIS Capital Holdings to negative from stable, reflecting its concerns that AXIS' capital redundancy will significantly diminish after the deal acquisition of Novae Group.

But Benchimol remains convinced of the benefits of the deal. “Our experience with Novae since we signed our transaction, and after the close in October, indicates that the benefits will exceed our initial expectations,” Benchimol said. “Expected cost synergies are now estimated at $60 million, as compared to our initial estimate of $50 million. In January 2018, we concluded a reinsurance to close transaction that was underway during our negotiation of the acquisition. This transaction transfers to our reinsurer essentially all liabilities relating to 2015 and prior years, providing finality and security with regard to the balance sheet we acquired,” Benchimol said.

He added that AXIS’ combined underwriting teams are now transacting in a market that is much stronger than anticipated at the time of the acquisition. And, they are doing so as members of a company that has a much stronger market position.

“We are optimistic that as we proceed with the integration of Novae, our results will demonstrate to all our stakeholders the value of this strategic acquisition. While our financial performance was disappointing, 2017 was an outstanding year for organizational development,” Benchimol said.

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