Peter Vogt, the Chief Financial Officer (CFO) of Bermuda-based specialty insurer and reinsurer, AXIS Capital Holdings, said yesterday that while the firm explored numerous available options, it ultimately felt that strengthening its reserves provides “the best economic outcome for the company.”
Yesterday, AXIS announced preliminary results for the full year 2023, and also revealed that during the fourth-quarter the firm strengthened its prior year reserves by $425 million.
Following the announcement, AXIS CFO Vogt, and Chief Executive Officer (CEO) Vincent Tizzio, held a call and Q&A to discuss the company’s reserve strengthening.
During the call, the executives were questioned on whether AXIS considered a loss portfolio transfer (LPT) to address the issue and put some finality to the matter.
“As you’re aware, we’ve done LPT transactions in the past, and we really do look at them, as I’ve said, as a tool to manage both reserve risk and capital management,” said Vogt.
“In this case, we reviewed a number of options that were available to us. And we view that the road we’re taking has the best economic outcome for the company. And at this moment, we believe our reserves are prudent and we believe that we’re in a very strong capital position,” he added.
When pressed on why the LPT route was not economically feasible for the company, Vogt declined to go into any specifics on anything that was discussed, but did provide some more colour.
“I would say that given where interest rates are now, given where we felt our capital position is today, which is strong, and given what we thought the initial discussions with outside folks were going to actually bear fruit to, we felt that actually doing this ourselves and keeping the reserves on our books was the best course of action,” said Vogt.
Emphasising this point, CEO Tizzio explained that AXIS views this strengthening “as a necessary step to progress forward as a specialty leader.”
The $425 million in reserve strengthening is attributable to both AXIS’ insurance and reinsurance segments in liability lines and professional lines predominantly related to 2019 and older accident years.
On yesterday’s call, Vogt provided some additional details on the $425 million, which he confirmed is essentially all IBNR.
“For the full year 2023, which we view as the most logical way of analysing the information as it will be consistent with our global loss triangles, the net reserve strengthening is $412 million, pre-tax, with the fourth quarter strengthening being offset by some positive development through the first three quarters.
“As we break down the $412 million, the strengthening is $176 million in insurance, and $236 million in reinsurance. Furthermore, in both insurance and reinsurance, the strengthening is all related to liability and professional lines,” said Vogt.
“In insurance, these two lines were strengthened by $276 million, with $235 million in liability and $41 million in professional lines. 84% of the total increase was for accident years 2019 and prior. These increases were partially offset by $100 million of reserve releases from other lines of business.
“In reinsurance, these lines were strengthened by $354 million, with $262 million in liability and $92 million in professional lines. 90% of the total increase was for accident years 2019 and prior, and these increases were partially offset by $118 million of net reserve releases from the other lines of business.
“We view these additions to be prudent and in keeping with our learnings from our in depth study we conducted with our claims team and extrapolating the implications of current industry trends to social inflation, and development patterns,” he added.
