Reinsurance price momentum continued at the January 1st, 2020 renewals but even with the strong rate response in certain classes, many lines are still not at attractive levels, according to Albert Benchimol, the President and Chief Executive Officer (CEO) of Bermuda-based re/insurer, AXIS Capital Holdings Limited.
After consecutive heavy catastrophe loss years, subsequent loss creep and the impacts of emerging exposures such as climate change and social inflation, reinsurance market conditions have been challenging for most.
The January 1st renewals season has been described as late, messy and disappointing, underpinned by extremely wide ranging rate increases depending on line of business and geography.
Speaking during AXIS Capital’s Q4 and full year 2019 earnings call, President and CEO Benchimol discussed the company’s performance throughout the year and at the recent renewals, highlighting a continued focus on discipline which the firm believes will drive lower loss ratios in 2020 and beyond.
“We were able to replace most of the premium volume lost in canceled or exited business with growth in lines with pricing that met or exceeded our target requirements. However, even with the strong rate increases observed this year, many lines still are not priced at adequate levels and we prefer to wait for sufficient pricing before pursuing growth in those markets,” said Benchimol.
He explained that the firm enters 2020 with a stronger, less volatile book of business, adding that a leaner, more digitally enabled AXIS is well positioned to take advantage of areas exhibiting the strongest pricing corrections.
At the January renewals, AXIS renews around 50% of its annual reinsurance premium, and, overall, the re/insurer measured average renewal rate increases in the mid-single digits over the whole book, with more modest rises on average in pro rate business, and high single-digit rises in non-proportional business.
“Overall, we maintain a high level of discipline focusing on profitability and portfolio balance. As a result, we reduced premiums in all markets other than the U.S. where we felt pricing was more adequate,” said Benchimol.
Adding: “When all is said and done, we expect the January 1 renewal premiums to come in about 10% below expiring volume, but with an improved price technical ratio even as we shrank the property cat portfolio to achieve that better balance and lower volatility.”
Despite the impacts of typhoons Jebi and Trami in 2018, AXIS significantly expanded its exposure in Japan in 2019 under attractive terms. In the end, 2019 turned out to be an active year for typhoons in Japan with Faxai and Hagibis driving significant losses, but despite this, Benchimol said in November of last year that growing in Japan was still the right call, longer-term.
Looking forward to the upcoming 2020 Japanese renewals, Benchimol said: “We expect the Japanese cat market, which renews on April 1, to respond positively to the high loss activity that we saw in the last two years. In our experience, Japan has been a responsible market.
“We expect substantial rate increases to reflect an expectation of greater frequency and severity of events going forward and improved returns on risk. We intend to manage our exposures and take advantage of improved pricing to start generating an adequate return on the 2019 investment we’ve made in this key market.”
A similar trend is anticipated for the mid-year U.S. renewals, with AXIS expecting to see double-digit increases with higher rates on those lines that have experienced meaningful adverse development on prior year losses.
“So, market conditions are highly encouraging. But as I noted earlier, despite strong increases to-date, many lines are still not at attractive levels. And, it will take one, two, or even more cycles of renewal increases before we see a uniformly healthy and sustainable market.
“Thus, we now believe that rate increases will last through 2020 and very likely longer. That will be excellent for AXIS as we expect we’ll be able to generate strong profitable growth under the anticipated market conditions given our positioning in our core markets,” said Benchimol.
