In announcing its first-quarter 2018 results yesterday, Bermudian insurance and reinsurance group AXIS Capital Holdings Limited discussed its new enterprise-wide transformation initiative that began earlier this year, with the goal of making the company “future ready”.
AXIS’ results show a much improved income position compared to the prior year, while also showing that the company underwrote significantly more premiums at the January reinsurance renewal season to take advantage of the better rates available.
AXIS Capital reported net income of $63 million, or $0.75 per diluted common share, up from just $5 million, or $0.06 per diluted common share a year earlier. Premiums underwritten in the reinsurance segment rose by 27%, while insurance premiums written rose by 6% and with a combined ratio of 90.8% across the business, this was a much more profitable quarter for the firm (more on the results here).
Albert Benchimol, President and CEO of AXIS Capital, commented on the results, “Over the past several years, AXIS has taken action to become a relevant and leading player in a select number of attractive specialty insurance and reinsurance markets, positioned to deliver superior results across a wide range of market conditions. This quarter’s results demonstrate the benefits of our portfolio optimization initiatives and overall earnings potential, highlighted by broad-based improvement in underwriting profitability across our operations and an annualized ex-PGAAP operating ROACE of 12.0% in the quarter.”
Having just acquired the business of Novae in recent months, AXIS Capital has been focused on putting a business structure in place that is fit for the future, in an industry that the company recognises is changing dramatically.
With an enlarged operation, increasing use of third-party capital through strategic activities and its Harrington Re total-return underwriting vehicle, and now enlarged operations at Lloyd’s thanks to the Novae acquisition, AXIS Capital has a broader platform, the optimisation of which could pay dividends in years to come.
Benchimol explained the importance of a strategic realignment and rationalisation of the business. With efficiency on the mind of every reinsurance sector CEO the statement makes it clear that AXIS is pushing to ensure it remains relevant through a time of market change.
“Our efforts to realize AXIS’ potential are generating traction. Earlier this year we launched a new phase of our transformation efforts, an enterprise-wide program to further modernize all of our functions and position AXIS to lead in a transforming industry,” Benchimol said.
The goal of the recently begun change program is to make the AXIS Capital business “future-ready” and to position the firm for “long-term profitable growth against the backdrop of a rapidly transforming industry” the company explained.
Included in the initiative begun this year is the completion of the integration of Novae, a realignment of AXIS’ accident and health businesses, as well as other efforts designed to increase the efficiency of the AXIS Capital business and to enhance profitability while focusing operations on the customer.
As a result of the initiative, AXIS said that it expects to deliver additional cost savings of $40 million, on top of the previously announced $60 million related to the integration of Novae.
But to deliver these run-rate savings of $100 million per year by year-end 2020, AXIS said it would expect to shoulder cumulative pre-tax reorganization charges of around $100 million, $28 million of which has already been incurred in the last two quarters.
“We are focused on getting better, smarter, and faster in serving our clients and partners in distribution. We will, on the one hand, be more efficient in the delivery of our differentiated services, and on the other, invest in greater analytics, technology and development for our staff. Through the combined impact of the Novae integration and our transformation efforts, we expect to deliver savings of $100 million by year-end 2020, even as we continue to invest in leading capabilities,” Benchimol commented.
These types of cost-saving, efficiency, rationalisation and customer-focused change initiatives are set to break out across the industry, as every company looks for run-rate cost-savings, at a time when it’s widely appreciated that the expense ratios must come down.
At the same time re/insurers are going to be looking to maximise their earnings from the expertise they put to work in origination, pricing, analysing and underwriting risks, especially where they do so for other investors capital.
AXIS is clearly in the process of making its business more competitive for the future, a necessary step that (if well-executed) could put it on the front-foot while others play efficiency catch-up in years to come.