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AXIS results hit by Japanese typhoon loss creep & higher expenses

25th April 2019 - Author: Steve Evans

Bermudian insurance and reinsurance group AXIS Capital has reported first-quarter 2019 results that were dented by $30 million of loss creep related to Japanese typhoons Jebi and Trami, as well as higher than expected expenses.

AXIS Capital Holdings logoAXIS Capital has reported net income of $98 million, or $1.16 per diluted common share, for Q1 2019, which is up from net income of $63 million, or $0.75 per diluted common share, for the prior yeat period.

But the re/insurers operating income fell to $105 million, or $1.24 per diluted common share, down from the $123 million, or $1.46 per diluted common share, reported in the prior year period.

AXIS’s results had been dented by roughly $30 million of loss creep related to typhoons Jebi and Trami, as the industry loss estimates for those 2018 storms continued to rise.

In addition, the company reported a 6.1% increase in its combined ratio for the quarter to 96.9%, driven by 3.4% higher acquisition costs than the prior year quarter, 1.8% higher loss costs, and 0.9% higher general and administrative expenses.

Albert Benchimol, President and CEO of AXIS Capital, commented on the quarters performance, “We are pleased to again deliver double digit operating ROE on an ex-PGAAP basis, and to report first quarter results that are more in-line with the solid performance we produced during most of 2018.

“Notwithstanding increasing loss estimates for the Japanese windstorms Jebi and Trami, our underlying underwriting results improved across nearly all of our lines. This progress reflects our disciplined actions in recent years to strengthen our market position and improve portfolio profitability and volatility, a commitment that continues into 2019, as we invest in new strategic capabilities and further pare back on volatile and less profitable business.”

Underwritten premiums shrank a little in Q1, as AXIS reports a drop in gross premiums of $80 million, or 3%, to $2.583 billion during the quarter.

The firm experienced a $30 million or 3% decrease in the insurance segment and a $50 million, or 3% decrease in the reinsurance segment.

Net premiums declined by $209 million, although this is partly to do with higher cessions to third-party capital partners during the period.

The shrinking in the insurance segment was largely due to property non-renewals, analysts said, while in the reinsurance segment AXIS wrote less UK motor, credit and surety business.

However the firm did grow its catastrophe reinsurance book at 1/1, with growth also seen in accident and health.

Analysts said that the core loss ratio and expenses should be a focus for shareholders and are likely to be questioned during AXIS’ earnings call today.

However, the company continues to make good progress on its integration of Novae and some of the change in business mix likely reflects continued efforts to manage the gross to net as efficiently and profitably as possible.

There is without a doubt further work to do here, but it will take time for AXIS’ capital partners strategy to settle and for the firm to identify the optimal mix of retained and ceded, but fee driving, business for the firm’s future.

While the quarter’s results were technically a miss for some analysts, the majority remain confident in AXIS’ ability to deliver over the cycle, although while warning about ongoing underwriting pressure the firm is likely to come under in key markets such as Lloyd’s.

Benchimol commented on the progress being made, “Meanwhile, we are achieving significant progress on our various operational initiatives. We are now in the final stages of the successful integration of Novae into our business, and we entered 2019 as a single syndicate. We achieved combined net savings from the integration and transformation activities of $69 million on an annualized basis, against our target of $100 million. Additionally, we continue to increase our digital, technology and new product capabilities, and improve our ability to leverage data to support our underwriting – all to better serve our clients and partners in distribution.”

Looking forward, Benchimol added, “As improving market conditions create an encouraging tailwind to our efforts, we are optimistic about our outlook and remain confident that we are well on our way to advancing our relevance, increasing profitable growth, and positioning AXIS for success in a transformed insurance marketplace.”

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