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Axis losses deepen as catastrophes weigh on quarterly results

Hurricane Michael hits the Florida coast

Axis Capital Holdings Ltd. on Wednesday reported a 2018 fourth-quarter loss of $198.4 million, compared with a net loss of $38.1 million for the fourth quarter of 2017, largely due to catastrophe losses from Hurricane Michael and the California wildfires as well as high attritional property losses.

Estimated pretax catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, totaled $269 million, compared with $133 million the prior year, the Bermuda-based insurer and reinsurer said in a statement.

Net premiums written increased by 3% to $752.7 million compared with the prior-year quarter, while net investment income increased 12% to $113.1 million.

The fourth-quarter combined ratio deteriorated to 117.3% from 100.7% in the fourth quarter of 2017.

“This was a tough quarter. However, notwithstanding fourth-quarter results that were clearly unsatisfactory, our overall performance for the year has continued to show progress,” said Albert Benchimol, president and CEO of Axis Capital, on a conference call with analysts Thursday morning.

“We do believe the higher property loss frequency is broadly based across our industry and that the fourth quarter experience is more of an unusual quarter, than it is a trend,” said Mr. Benchimol.

Despite the unsatisfactory fourth quarter, he said Axis has taken steps to improve underwriting profitability and made organizational progress.

“Our attitude across both insurance and reinsurance is that most lines of business require more price action for this industry to produce an adequate return. We intend to push hard for it. We’re not afraid to incur lower retention rates or shrinkages in businesses that are not delivering the right returns,” Mr. Benchimol said during the call.

A highlight for the year was the successful integration of Novae Group PLC, the London-based insurer and reinsurer Axis bought last year, into its London operations to make it a top 10 insurer at Lloyd’s, he said.

“We have seen significant new opportunities as a result of our enhanced relevance even as we have taken additional portfolio actions that have not yet been reflected in our results,” Mr. Benchimol said.

He said the company had also launched a transformation program to better leverage data and analytics.

As of the fourth quarter 2018 the company has already achieved $70 million in annualized savings due to synergies related to the Novae integration and the transformation, Mr. Benchimol said during the call.

He also had positive news on rate trends. “The bottom line is that the fourth quarter exhibited an acceleration of the positive pricing trends we observed during the year and everything we see points to a continuation market discipline in 2019,” said Mr. Benchimol.

He said the company’s average rate increases are ahead of the market, and as a result its retention rates are almost 10 points lower than last year.

In the company’s U.S. insurance division, average rate increases were 7% for the fourth quarter, rising to nearly 9% in December. “The rate was led by U.S. excess casualty and E&S property, which both finished the year at about 11% for the quarter and year to-date,” Mr. Benchimol said.

The company’s London-based international division saw strong pricing in the fourth quarter with average rates up 8%, bringing the full year average up to 4%, he said.

“After some firm action by Lloyd’s in the year we saw the closure of eight syndicates and over 70 different announcements of exits or significant reductions in various lines from market participants. This newfound discipline is having a tangible impact on risk appetite and pricing,” Mr. Benchimol said.

“There are several anecdotes of price increases in the 100% to 300% range,” he added.

Of all the major lines, only terrorism and political and credit risk showed average price reductions in the quarter, Mr. Benchimol said. “Even perennial laggards such as aviation delivered 10% plus increases,” he added.

Reinsurance renewals at Jan. 1 saw price increases in loss affected areas, but overall the market was flat. “Conditions vary greatly by line and geography,” he said.

In North America there was more price action, he added, perhaps reflecting a greater dissatisfaction with recent results and loss trends. “Professional lines exhibited the strongest price action in the 5% to 10% range, but in some cases that was still not enough and we reduced exposures where warranted,” Mr. Benchimol said.

Overall, the company achieved modest growth in North America and Asia and reduced its renewing book in Europe and global specialty markets.

For the full year 2018, Axis reported net income of $396,000 compared with a net loss of $415.8 million in 2017. Estimated pretax catastrophe- and weather-related losses, net of reinsurance and reinstatement premiums, totaled $430 million, compared with $835 million in 2017.

Net premiums written for the year increased by 16% to $4.79 billion compared with 2017, while net investment income was up by 9% to $438.5 million.

The 2018 combined ratio improved to 99.9% from 113.1% in 2017.



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