AXIS Capital committed to aviation expansion despite tough market conditions

AXIS Capital has decided to acquire aviation re/insurer Aviabel, underscoring its long-term commitment to the aviation market despite significant pricing pressure.

On Nov. 28 AXIS Capital said that it entered into an agreement to acquire Belgium-based aviation re/insurer Aviabel in order to help expanding its footprint in the global aviation market.

The deal comes at a time of deteriorating rates and premium volumes in the aviation market, which has maintained a downward trend in October renewals, according to JLT Specialty's 'Plane Talking' October report.

Rates pressure is largely influenced by healthy exposure growth and loss records on the majority of risks, according to the report. Between January and October 2016 rates fell by almost 20 percent compared to 2015, according to the report. However, with significantly more renewals coming to market in November and December JLT expects to see far more diversification in the forthcoming results.

Premium volumes maintained its downwards direction in October and the year to date (January to October) figure fell by 13 percent compared to the same period in 2015.

“There are signs that the tolerance for further erosion of the premium is starting to end, with underwriting selectivity and risk differentiation having a significant influence on the individual renewal results,” according to the report.

But losses continue to erode profitability for underwriters and we will likely once again see the year-end claims figure (including attritionals) finish higher than that of the premium income, the report says.

An AXIS spokesperson said that the rationale behind the Aviabel acquisition was not only due to the attractiveness and diversity of the company’s portfolio, but because the company has mitigated any unfavourable impact of competitive pressures on its larger account business.

Nevertheless, an AXIS spokesperson said “we are committed to the aviation market for the long-term. We take a long view on Aviabel’s business.”

“Aviabel’s own diversification in smaller accounts, as well as other areas in which AXIS does not have a presence, has mitigated the adverse impact of competitive pressures on the larger account business. In fact, we believe it has outperformed the market due to its more diversified portfolio including smaller accounts.”

Aviabel's gross earned premium in 2015 was €50.1 million, up from €46.3 million in 2014. However, the aviation re/insurer’s after tax profits dropped almost 74 percent year-on-year to €2.4 million over the period.

Following the trend that has been prevalent through the year, JLT suggested little change in market conditions for the final two months in 2016.

But AXIS Capital remains determined to continue expanding its footprint in the aviation market.

“Aviabel will support the continued expansion of AXIS Insurance’s aviation operation globally. Aviabel has a portfolio that complements our existing business, expanding our presence into the general aviation and smaller account segments while extending our geographic reach,” the spokesperson said.

“Additionally, we will now have access to Aviabel’s retail distribution network across Europe, which will further complement our existing business.”