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Energy losses contribute to reinsurer's lackluster earnings

Energy losses contribute to reinsurer's lackluster earnings

Axis Capital Holdings Ltd. experienced income declines in 2015 amid unusual losses in its energy book and continued pricing competition, particularly in its reinsurance and international divisions.

The Pembroke, Bermuda-based insurer and reinsurer reported net income for the fourth quarter of 2015 of $134.8 million, down 17.6% from the same period of 2014, according to the company's earnings report released Tuesday.

Net premiums written increased 7.3% in the fourth quarter of 2015 to $595.4 million, according to the report.

The fourth quarter's underwriting results were reflected in a deteriorating combined ratio of 94.5% compared with 92.7% in the same period in 2014 as Axis experienced an unusual frequency of midsize and attritional losses in its marine and liability lines, according to the company. The midsize losses, primarily in the energy sector, contributed close to 7 loss ratio points to the company's insurance segment in 2015, twice the average of the prior two years, Albert Benchimol, president and CEO of Axis Capital, said during the earnings conference call on Wednesday morning.

“It is an industry that has significant properties at risk,” he said. “Our share of the losses is not inconsistent with our share of the market, so we are not disturbed by that.”

However, Mr. Benchimol did caution that premiums from the energy business are expected to decline due to falling oil prices as fewer construction projects, a key source of insurance demand, are initiated.

“We expect, however, that we will see growth in our renewable energy division as that picks up the slack,” he said.

Net income for the full year 2015 also declined 21.9% to $601.6 million compared with 2014, according to the report.

Net premiums written decreased 5.9% to $3.7 billion in 2015 compared with 2014, according to the report.

The combined ratio for 2015 deteriorated to 94.7% compared with 91.6% in 2014, according to the report.

Axis experienced continued pricing pressures in most lines of business in 2015, as did the rest of the industry, particularly in the catastrophe business and its specialty insurance lines, Mr. Benchimol said.

The U.S. segment of the insurance business performed much better than the international division, with average rate increases of about 6% in casualty lines amid pricing corrections while property rates were down about 8% due to an abundance of capacity and a lack of catastrophes, he said.

In the international insurance business, “the toughest conditions are in global property, energy and terrorism with double-digit reductions,” he said.

In the reinsurance sector, Jan. 1 renewals were competitive, with property and casualty pricing declines in the range of 5% to 10%, with the larger declines on the international side, he said.

“The pricing pressures in the reinsurance book are a widespread industry phenomenon,” Amit Kumar, New York-based vice president and senior analyst of insurance at Macquarie Capital (USA) Inc., said Wednesday. “Unfortunately, it's the new normal or the new reality. The industry has not had a meaningfully large loss event and because of that, over time, the pricing has continued to decline. At a certain level it does start getting close to the cost of capital, and that's when a lot of carriers say 'enough is enough.' I don't think they need to do anything differently than what the broader market is doing. There is a collective understanding that they're really getting closer to the bottom.”

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