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Reinsurance the smartest approach to cyber as AXIS gets more comfortable with the tail: CEO Benchimol

1st February 2023 - Author: Luke Gallin

After renewing its cyber treaty at the January 1st reinsurance renewals, AXIS Capital Holdings, the Bermuda domiciled global insurer and reinsurer, is “very satisfied” with the program it secured, as it continues to add more comfort around the tail risk, according to Albert Benchimol, President and Chief Executive Officer (CEO).

In its recent Q4 and full year 2022 earnings announcement, AXIS announced growth in gross premiums written (GPW) of 7% to $8.2 billion for the year, with 15% expansion in its insurance segment partially offset by a 7% decline in reinsurance.

Within its primary insurance operation, GPW rose by $722 million, or 15% during 2022, and part of this was down to increases in cyber lines due to favourable rate changes.

As AXIS continues to shift to a specialty player following its exit from the property and casualty reinsurance markets, it has grown its cyber book – a line of business many re/insurers, AXIS included, expect to become increasingly important.

But as the company expands its exposure to a still emerging line of business where the tail is evolving and growing, ceding some of the risk to its reinsurance partners is important.

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AXIS renewed its cyber reinsurance program at 1/1, and during a recent earnings call, President and CEO Benchimol discussed the firm’s experience at the important January renewals, a period in which it renews a lot of its specialty programs.

He explained that regarding its addressable non-property-related renewals, it estimates a 90% retention ratio, 12.5% rate increases, and 7% new business – with more than half of that new business coming from targeted credit and surety, cyber, and accident and health lines.

These statistics, said Benchimol, indicate that the decision to exit the P&C reinsurance markets did not materially impact its ability to access and retain the business that it wanted.

“By and large, we came in with the capacity that we wanted. We came in, by and large, within the pricing that we expected and that we budgeted for,” said Benchimol during the call. “The one area where we gave up a little bit was on the cyber program. We gave up a point of ceding commission, but that’s frankly because we wanted to achieve a 60% quota share and we felt that that was the right thing to do. But by and large, I would say that we did not get any surprises. We’ve got an incredible team on our ceded side.”

Overall, continued Benchimol, the firm is “very satisfied” that it got the reinsurance program that it required in place.

“I think going forward, everything that I hear is that obviously, we’ll pay market conditions, but we think that we ought to be among the better treated cedents given the history of profitability of our relationships on the reinsurance side,” he added.

Later in the call the cyber topic was raised again, and Benchimol offered some insights into how AXIS views the risk now, and going forwards.

“I continue to believe that cyber is going to become one of the most important lines of business for insurance,” said Benchimol. “But I think we also recognize that it’s an important product, but it’s a young product. It’s emerging. I think that the understanding of the risk and the tail is growing a lot. I think the industry is doing a very good job of trying to manage around the tail exposure.”

Benchimol went on to explain that while AXIS is a big fan of cyber and is very good at it, the carrier wants to manage its tail exposure where it is, until it gets even more comfortable around that, around reinsurance capacity, around wordings, and so on.

“So, we feel very good about the fact that we are sustaining leadership positions on the cyber side, which I think is a great investment in the future. But on the other hand, we’re not going to do it by taking excessive risk in the near-term. And so, we’ve got great incoming business. We’ve got a very strong reinsurance program. And we think that right now that’s the smartest way to approach cyber as we add more comfort around the tail risk,” said Benchimol.

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