BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.
To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.
To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.
Axis Capital Holdings Ltd., in Pembroke, Bermuda, recently announced plans to acquire Lloyd’s of London specialty insurer Novae Group P.L.C. and the formation of its own Lloyd’s managing agent for syndicate 1686, bolstering its presence in the London market. President and CEO Albert Benchimol recently spoke to Business Insurance Reporter Matthew Lerner about the company’s strategy of building positions of “relevance and scale” in specialty markets, along with other topics. Edited excerpts follow.
Q: The Novae acquisition — what was the compelling rationale? Why Novae, and why now?
A: We are a specialty company, which means that in the markets that we choose to compete in, it’s very important for us to have the appropriate scale, relevance, skill and portfolio. We’ve achieved that in many of our businesses, and we’re doing a very good job of building that scale in London — in fact we’re already up to over $750 million dollars’ worth of specialty insurance business in the London market. But we saw in the acquisition of Novae an opportunity to significantly accelerate the progress that we were making in the London market, and so we pursued it.
Why Novae and why now? I think it’s a combination of a number of factors, but Novae, we found, was the right company with the right mix of business with the right talent that would fit very well as a kind of bolt-on acquisition to accelerate our London business. So we liked the portfolio, we liked the people, it’s very complementary, we see there were some opportunities for synergies there. We believe that it is a good tactical and strategic step, but it also has immediate economic benefit in terms of a cushion to our earnings and our (return on investment).
And finally, with any acquisition you want to make sure that the execution risks are acceptable, and we felt that with Novae the alignment of the cultures and business was such that we felt very comfortable with the integration of Novae into Axis. So, it was just the right company at the right time.
Q: How is the market right now? Reinsurance has been understandably soft, primary property/ casualty is still soft, and sources tell me that if you pick and choose areas you get a very different view beyond that. What do you see?
A: Look, I think it’s fair to say that the markets are still very challenging, right? But, it really — it does depend on where you’re competing and your position in the market. So I think you’ve been reading the same things that I’ve been reading, and that is that the reinsurance market continues to be giving up some price, perhaps on a pace that is lower than it’s been in the prior couple of years. We’re certainly seeing pushback in the areas where people are looking for more ceding commission or broader terms and conditions, but it’s still ending up at least for the moment in favor of the insurer versus the reinsurer except for a few areas — and I think certainly one area where you’re seeing some real correction is in the U.K. motor business and the U.K. liability business.
I think on the insurance side, it’s a reasonably competitive market, but there are still some areas where we’re seeing positive price action, and again I think that where we find it’s encouraging is that the pace of reduction in almost every single line it is less this year than it was last year, and we are starting to see some positive price actions in a number of lines and markets. For example, in the casualty markets in the U.S. we’ve had some ongoing price-positive price action now for over a year (to a) year and a half, and there are other areas where we’re seeing some positive price action. So still challenging, but we are starting to see some signs in some areas of the price action.
Q: Alternative capital: Is Axis increasing its operations?
A: I would say that we’ve been active in the alternative capital markets for over three years, maybe four years now, but it’s certainly accelerated in 2016.
Q: How so?
A: Well, 2016 was a very important year for us. In partnership with the Blackstone Group, we launched Harrington Re, which is a separately capitalized company that has over $600 million dollars of capital. We are matching especially long tail lines that are generated by Axis and that are invested through alternative investment strategies that are managed by Blackstone, and that is a separately capitalized company for whom we are producing premiums and we are getting a fee for doing that.
We also significantly increased our collateralized reinsurance facilities so that we can cede more risk to those collateralized reinsurance facilities. And just to give you an example, we’re probably ceding close to 20% of our long-tail reinsurance book to our third-party capital partners. We are ceding close to half of our catastrophe book, of our gross catastrophe premium underwriting, to third-party capital. So third-party capital is now a meaningful partner in important lines of business that we are writing at Axis.
Q: Where do you see opportunity geographically?
A: In the last 12 months alone we will have increased our presence in Dubai, and we’ve opened up an office in Miami as a coverholder for Latin American business — we believe there’s some very good growth opportunities there. We also recently closed on the acquisition of Aviabel, a specialty aviation company in Belgium. So we’ve been growing strategically in these areas because we’re establishing the presence, the network and the resources for success in specialty lines in those markets. We certainly want to see growth in the European markets in terms of the London specialty market, and with the acquisition of Aviabel and the proposed acquisition of Novae, we obviously feel good about the growth opportunities for international specialty risks.
Mike Foley was named CEO North America for Zurich Insurance Group Ltd. last year when the global insurer announced a series of organizational changes aimed at simplifying its structure, reducing its costs and improving its results. He joined Zurich from McKinsey & Co. in 2006. Mr. Foley recently spoke with Business Insurance Editor Gavin Souter about how the changes at Zurich will affect the insurer’s operations and its customers. Edited excerpts follow.