Analysts at KBW have suggested that the earnings of Bermudian re/insurer AXIS Capital could benefit from positive reserve development in 2021.
The firm estimates that AXIS’s year-end 2020 loss and LAE reserves were overstated by about $236 million, implying that reserve releases should add modestly to its 2021/22 earnings.
AXIS reported a net loss of $5 million for the fourth-quarter of 2020, compared with a net loss of $10 million for the same period in 2019.
Catastrophe and weather losses totalled $198 million in Q4, of which $118 million related to the company insurance segment, while $80 million to its reinsurance business.
KBW believes that AXIS’s reserves for 2020 are already in line with CEO Albert Benchimol’s intention to “prudently reserve” in light of the above-average uncertainty associated with both COVID-19 and social inflation.
For most lines, KBW notes that initial ratios of paid to total incurred losses dropped, and ratios of IBNR to net earned premiums rose, in accident-year 2020 compared to accident-year 2019.
Analysts currently model 2021/22 reserve releases of $17.4 million/$5.3 million, compared to 2020’s $15.9 million and 2019’s $78.9 million.
The projected slowdown in these reserve releases is attributed to thinner margins embedded in recent accident-years’ loss picks and to less- certain claim cost inflation rates.
“Overall, we believe that AXS’s year-end 2020 reserves are redundant and should drive modest net reserve releases in 2021 and 2022, which in turn suggests that its pricing isn’t based on under-estimated losses,” KBW concluded.
“Along with the estimated overall redundancy, we see signs of sequentially increasing conservatism in AXS’s ratios of initial accident-year paid to incurred losses, and in initial ratios of accident-year IBNR to net earned premiums, despite the rate increases earned in 2020 for most lines of business.”
