Albert Benchimol, CEO of AXIS Capital Holdings Limited, believes that favourable market conditions will continue with the benefits of further rate hardening.
The Bermuda-based insurer and reinsurer recently revealed its financial results for the second quarter of 2020, which saw the current market being favourable, despite the drop in its net income.
For the second quarter, AXIS posted net income of $112 million, representing a year-over-year decrease from Q2 2019’s net income of $166 million.
Even though there was a drop in income, the company posted an increase of $68 million in gross premiums written for the quarter, representing a 4% increase to a $1.7 billion total. The re/insurer explained that this jump was due to an increase of $69 million, or 7% in its insurance segment.
In the Q2 earnings call, Benchimol made a brief overview of market conditions where he explained the increase in rates: “For our insurance segment, we’re now into 11 consecutive quarters of rate increases. For reinsurance, the pricing actions have become more recently, but we’re seeing positive momentum picking up now.”
Discussing the mid-year renewals specifically, he said: “For the June 1st renewals, we saw the best market conditions in more than 10 years with tightening terms and conditions in addition to higher pricing. We saw lower layers up about 15%, while upper layers increased as much as 60%, depending on loss experience.
“Overall, reinsurance is clearly participating in the rebound, sharing in the underlying rate increases on subject business and also benefitting from improvements in reinsurance terms and conditions.”
He continued: “In Axis Re’s case, we’ve used these recent renewals to continue upgrading the quality of our portfolio. And we think that we’re well positioned to capitalize on the improving market. Importantly, we’re seeing improvements in wordings in terms and conditions in both insurance and reinsurance, and that will help loss ratios beyond the impact of rate.”
More favourable terms and conditions has improved the quality of the overall portfolio it seems, with improved T&Cs suggesting that losses will be easier to predict going forward.
Benchimol went on to discuss several reasons why he believes rate firming could continue over the coming years whilst addressing his predictions for 2021, saying: “Looking forward, we believe the favourable conditions that we’re seeing will very likely sustain well into 2021. And there’s growing consensus that it will extend even beyond that. We see several reasons for this.
“First, we’re dealing with an underlying social inflationary period that is putting pressure on prior year reserves and adds uncertainty to outlook. Second, interest rates are about as low as they’ve ever been, creating substantial headwinds for investment income. And third, it’s our expectation of the effects of COVID-19 and its economic repercussions will be felt over a number of years. These are not Axis-only issues.”
AXIS’ Q2 financial results can be accessed here.