26 January 2023Insurance

Axis Capital takes 76% cut to Q4 net as reinsurance endures transition

Axis Capital suffered a 76% decline in fourth quarter net income to $48.5 million with improved underlying results in primary insurance offset by heightened nat cat and a reinsurance sector weakened by the retreat from property.

Gross written premium rose 12.5% to $1.76 billion, a 15% gain in constant currency on a 12% increase in insurance and a 16% gain in reinsurance. Earned in after outward reinsurance, NPE rose 8.3%.

The 16% rise in Q4 GWP for reinsurance did not overcome the premium erosion the segment has suffered during its year of transition. Mark FY2022 GWP down 6.9% to $2.63 billion.

Management attributed the decline to non-renewals and resignations from property lines plus a decrease in motor lines due to non-renewals and decreased line sizes.  Gains credit and surety as well as agriculture lines driven by new business, plus an increase in professional lines due to favourable market conditions helped compensate, management said.

Axis Capital resigned from property reinsurance mid-year 2022 in a bid to stabilise earnings with a focus on specialty lines.

Q4 results thus “speak to the work that we’ve done in prior years to transform our business, enabling us to grow in profitable specialty markets, reduce our exposure to catastrophes, and create a more agile and responsive operating infrastructure,” outgoing CEO Albert Benchimol said.

Catastrophe and weather-related losses delivered $64 million in pre-tax hit net of outward reinsurance and reinstatement premiums, putting 4.7 percentage points (pps) into the loss ratio, up from 4.3 pps last year.

Of the sum, nat cat and weather, chiefly winter storm Elliot, accounted for half at $32 million. The pandemic took blame for $23 million and the Russia-Ukraine war for $9 million. The sum was split nearly evenly between insurance and reinsurance.

Reinsurance loss ratios suffered. The current accident year loss ratio, excluding catastrophe and weather-related losses, rose 6.3 percentage points to 65.5% in Q4.

The heightened ex-cat loss ratio was "principally due to changes in business mix associated with the exit from catastrophe and property lines of business in June 2022, together with a year-to-date update to loss ratios for motor, liability, and professional lines to reflect the current inflationary environment," management said.

The $30 million in cat and weather-related losses was down from $32 million in the prior year period and brought that loss ratio down 0.5 pps to 5.7%.

The primary insurance sector shined in comparison. The combined ratio was down 3.5 pps from Q4 2021 on a 3.0 pps decline in underwriting expense and a1.5 pps decline on ex-cat attritional losses. The $33 million in cat and weather-related losses rendered a cat loss ratio 1.2 pps above the prior year reading.

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