AXIS Capital Holdings Restricted (NYSE:AXS) This fall 2022 Earnings Name Transcript
AXIS Capital Holdings Restricted (NYSE:AXS) This fall 2022 Earnings Name Transcript January 26, 2023
Operator: Hiya and welcome to the Fourth Quarter 2022 AXIS Capital Earnings Name. All individuals shall be in pay attention only-mode. Please notice immediately’s occasion is being recorded. And now I want to flip the convention over to Miranda Hunter, Head of Investor Relations. Ms. Hunter, please go forward.
Miranda Hunter: Thanks, operator. Good morning, women and gents. I am glad to welcome you to our convention name to debate the monetary outcomes for AXIS Capital for the fourth quarter and yr ended December 31, 2022. Our earnings press launch and the monetary complement had been issued final evening after market closed. If you want copies, please go to the Investor Info part of our web site at axiscapital.com. We’ve got put aside an hour for immediately’s name, which is on the market as an audio webcast on our web site. With me immediately are Albert Benchimol our President and CEO; Pete Vogt, our CFO; and Vince Tizzio, CEO, Specialty Insurance coverage and Reinsurance and our future group CEO. Earlier than I flip the decision over to Albert, I’ll remind everybody that the statements made through the name together with the question-and-answer part which aren’t historic details could also be forward-looking statements.
Ahead-looking statements together with however not restricted to our feedback on January renewals contain dangers, uncertainties and assumptions. Precise occasions or outcomes could differ materially from these projected in our forward-looking statements, as a result of a wide range of components together with the chance components set forth in our firm’s most up-to-date report on Type 10-Okay and our different reviews the corporate filed with the SEC. This consists of the extra dangers recognized within the cautionary notice relating to forward-looking statements in our earnings press launch issued final evening. We undertake no obligation to publicly replace or revise any forward-looking statements. Along with this presentation could embrace non-GAAP monetary measures. Reconciliations are included in our earnings press launch and our monetary complement.
And with that I am going to flip the decision over to Albert.
Albert Benchimol: Thanks, Miranda and welcome to your first AXIS convention name and good morning everybody and thanks for becoming a member of us. As we commented in our press launch, this was a robust quarter to cap a milestone yr for AXIS. Over the previous few years throughout these investor calls, we have shared our journey with you as we work diligently and steadfastly to reposition AXIS to be a number one specialty underwriter and create a stronger extra resilient e-book of enterprise, whereas inserting the corporate on a pathway to producing lasting worthwhile progress. To perform this, we have considerably reworked our enterprise. We drove constant progress in enticing specialty markets, diminished our publicity to catastrophes and created a quicker, extra built-in and extra environment friendly working mannequin.
We’re a really completely different firm immediately than we had been a number of years in the past, a centered specialty underwriter delivering steadily bettering outcomes. To be clear, we’re not declaring victory and we’re dedicated to proceed growing our progress, our profitability and our effectivity. However we’re progressing into 2023 with accelerating momentum underpinned by years of improved underlying efficiency, robust positions in our chosen markets and rising demand for specialty coverages. We’re assured that we’ll not solely proceed to construct on this progress however we’re properly on our method to taking the enterprise to even increased ranges. Let’s get to the outcomes. So however one other yr, the place the trade was challenged by catastrophes, monetary and social inflation and Russia’s invasion of Ukraine, excluding the affect of combine we have improved in our key efficiency metrics.
In the course of the yr, we generated report premium manufacturing, diminished our expense ratio, grew our underwriting revenue by 35% and improved our total mixed ratio by 1.7 factors to 95.8%. Our specialty insurance coverage enterprise continued to supply wonderful outcomes for the quarter and for the yr. For the yr, we grew our specialty insurance coverage gross written premiums by 15%, web earned premiums by 18% and underwriting revenue by 46%, and produced an all-in mixed ratio of 89.6%, bettering each our loss and expense ratios. For AXIS Re, however the finalization of our exit from property and property disaster markets mid-year as we focus the enterprise on specialty reinsurance, our market presence stays robust and related as indicated by latest renewal exercise.
I am happy to report that we carried out very properly the 1/1 renewals. We maintained our disciplined underwriting method and requirements, exited non-target enterprise, all of the whereas remaining near our prospects and brokers. In the long run, we efficiently balanced considerably all of the non-property-related renewals that met our thresholds. We estimated shedding lower than $10 million of desired renewals as a result of our exits from property and property cat reinsurance the place our shares had been diminished. In the long run of our of our addressable non-property-related renewals, we estimate a 90% retention ratio, 12.5% price will increase and seven% new enterprise with greater than half of the brand new enterprise coming from focused credit score and surety, cyber and A&H strains. So total, we achieved mid single-digit progress ex-FX on the renewed a part of the portfolio.
We’re inspired these statistics point out that our choice to exit the reinsurance property and casualty markets didn’t materially affect our means to entry and retain the enterprise that we needed. Our efficiency through the 1/1 renewal speaks to the worth that AXIS Re brings to the market by means of the information and experience of our underwriters and the deep relationships that we share with our prospects and brokers. We function in a aggressive atmosphere for positive and the yr is simply starting. However I consider that our efficiency in latest renewals demonstrates that we’ve got a robust centered reinsurance enterprise inside a broad specialty underwriting firm. Importantly, we’re within the markets the place we need to be and the place we’ve got robust positioning that enables us to benefit from what we anticipate shall be continued favorable circumstances for the foreseeable future buoyed by rising demand for specialty protection.
We have achieved our plan of rebalancing our enterprise in 2022. On a professional forma foundation specialty insurance coverage made up 71% of our gross written premium and we must always report in extra of 75% this yr. Furthermore, we’re taking concerted actions to maintain our progress and construct upon our momentum, whereas delivering elevated worth to our prospects. This consists of the launch of our devoted wholesale division with expanded merchandise and assets, investments in manufacturing in product innovation and digital capabilities, enlargement into decrease center markets and efforts to additional leverage our world platform to learn our strategic companions. And we have made this progress, whereas cultivating a robust staff and a purpose-driven tradition that is earned AXIS recognition as the most effective place to work.
We’re assured that the most effective days are forward for AXIS and we glance to the longer term with pleasure. On a private notice, it has been an actual privilege to steer AXIS throughout this time of transformation. As we introduced final month after 11 years as President and CEO of AXIS, I am going to transition my tasks to Vince Tizzio on Could 4 at our Annual Common Assembly. In Vince, we’ve got a implausible chief who I am assured has the imaginative and prescient, trade information, grit and tenacity to steer AXIS to even better ranges of success. I am extremely excited for the way forward for this firm and I am assured that with Vince on the wheel, AXIS shall be in very succesful arms. On that notice, I am positive you are keen to listen to from each Pete and Vince. And so given the CEO transition we have adjusted our typical name format.
I am going to now cross the ground to Pete who will share our monetary abstract. Vince will then ship commentary on the markets. I am going to come again with some closing feedback after which we’ll have our Q&A. However I need to shut by saying that for AXIS, I firmly consider that our second has arrived. And with that I am going to cross the ground to Pete. Pete?
Pete Vogt: Thanks, Albert and good morning, everybody. This was a superb quarter for AXIS. In the course of the quarter, we generated web revenue accessible to widespread shareholders of $41 million and an annualized ROE of 4.2%. Working revenue was $167 million with an annualized working ROE of 16.9%. Diluted e-book worth per share elevated $3.45 or virtually 8% to $46.95 at yr finish. This was principally pushed by web unrealized good points reported in different complete revenue and web revenue generated. This was partially offset by widespread share dividends declared. As famous in our press launch, adjusted for web unrealized losses on available-for-sale mounted maturities, the e-book worth per diluted widespread share could be $55.49. The corporate produced consolidated present accident yr mixed ratio ex-cat and climate of 90% a rise of 0.5 level over the prior yr quarter and a consolidated present accident yr loss ratio ex-cat and climate of 55.5% a rise of 1.2 factors.
Each of those metrics had been impacted by mixture of enterprise. This quarter’s pre-tax cat and weather-related losses web of reinsurance and reinstatement premiums had been $64 million or 4.7 factors. This compares to $54 million or 4.3 factors in 2021. Out of the $64 million of cat losses $32 million or 2.4 factors was as a result of climate primarily attributable to Winter Storm Elliot. Moreover, we had $23 million attributable to the COVID-19 pandemic. These losses had been attributable to a handful of A&H contract A&H disaster XOL contracts, in Japan. We’ve got no publicity to different international locations in that area. We additionally had $9 million of losses because of the Russia-Ukraine struggle. These losses had been within the insurance coverage section, with roughly two-third related to political danger and one-third related to marine struggle.
Internet favorable prior yr growth was $8 million. This was equally break up between the segments. As introduced in December, we had been happy to finish loss portfolio switch reinsurance agreements with RiverStone Worldwide for reserves in our skilled strains and legal responsibility strains within the insurance coverage portfolio. These reserves relate to companies, that we had usually exited years in the past. We acquired the safety at a value considerably consistent with our carried reserves. The web monetary affect of the transaction within the quarter was a value of $11 million, together with antagonistic prior yr reserve growth of $5 million and acquisition prices of $6 million. We’ve got included an exhibit in the back of our investor monetary complement, which illustrates the revenue assertion monetary parts of the transaction.
As famous within the press launch issued by RiverStone, on December 15, the transaction covers web reserves for losses and loss bills of roughly $400 million and supplies ground-up cowl to a coverage restrict of $605 million. The consolidated acquisition price ratio was 20.6% within the quarter, a rise of 0.2 factors over the prior yr and this was pushed by a rise within the reinsurance section, largely offset by a lower within the insurance coverage section. The consolidated G&A expense ratio was 13.9%, a lower of 0.9 level over the prior yr quarter. This was largely attributable to good expense management and web earned premium progress. We proceed to deal with our expense controls. This may be seen as our quarterly G&A expense progress price was solely 20% of our web premiums earned progress price.
The normalized G&A expense ratio within the quarter was 11.9%. This was two factors decrease than the present quarter G&A expense ratio, largely as a result of company bills of $15 million attributable to our CEO transition and performance-related compensation prices. Reorganization bills of $9 million had been primarily associated to the exit from disaster and property reinsurance strains of enterprise. Reorganization bills are excluded from working revenue. And lastly, on a consolidated foundation, price revenue from strategic capital companions was $12 million within the quarter in comparison with $27 million within the prior yr. Earlier than I focus on the segments, I would prefer to convey to your consideration some updates that we made to our strains of enterprise for disclosure functions. You will note on Web page 8 of the monetary complement within the insurance coverage section, we’ve got made the next updates.
Cyber is now a separate line of enterprise. It was beforehand reported inside skilled strains. Property and terrorism strains of enterprise have been mixed. The brand new line of enterprise shall be known as property, as our terrorism enterprise primarily covers bodily harm and enterprise interruption following an act of terrorism. And lastly, we mixed Marine and Aviation right into a single line of enterprise. As well as, additionally on Web page 8 throughout the reinsurance section, the disaster property and engineering strains of enterprise at the moment are recognized as runoff strains. This replace will apply to all our public firm disclosures. Prior yr quantities have been reclassified within the enterprise descriptions in our monetary complement additionally mirror these updates. Now, let’s transfer on to our dialogue on the segments.
I am going to begin in insurance coverage. As soon as once more, insurance coverage had a robust quarter, with good efficiency throughout a lot of metrics. Gross premiums written elevated by 12% to $1.5 billion, making it our highest manufacturing quarter ever. The rise primarily associated to new enterprise and favorable price adjustments in property and legal responsibility strains in addition to new enterprise in marine and aviation strains and accident and well being strains. The present accident yr loss ratio ex-cat and climate decreased by 1.5 factors principally as a result of improved loss expertise in property, marine and aviation and cyber strains. On a run price foundation, it is higher to have a look at the complete yr loss ratio. The acquisition price ratio decreased by 0.3 level within the fourth quarter. Excluding the loss portfolio switch, the acquisition price ratio would have been 17.9%, a lower of 1 level from final yr.
The lower is primarily associated to a lower in revenue fee prices. The underwriting-related G&A expense ratio decreased by three factors within the fourth quarter, primarily pushed by a rise in web premiums earned and a lower in performance-related compensation prices and personnel prices. Now let’s transfer on to the reinsurance section. I am going to remind everybody that the fourth quarter is the smallest quarter for gross premiums written for reinsurance, representing simply over 10% of the section’s annual gross premiums. Reinsurance section’s gross premiums written elevated by $40 million or 16%, in comparison with the prior yr quarter. The rise was primarily attributable to elevated line sizes and new enterprise in credit score and surety, in addition to favorable premium changes, notably in motor {and professional} strains.
These will increase had been partially offset by a lower in disaster strains attributable to the exit from this line of enterprise, in addition to a lower in legal responsibility strains, as a result of timing variations. The present accident yr loss ratio ex-cat and climate, elevated by over six factors, principally as a result of adjustments in mixture of enterprise related to the exit from disaster and property strains of enterprise. Moreover, we reviewed our loss price pattern assumptions and given the present inflationary atmosphere, we elevated the year-to-date loss ratios in our motor legal responsibility {and professional} strains of enterprise, and this impacted the quarter by over one level. For a greater view on the continuing run price of our reinsurance enterprise, I might take a look at the complete yr loss ratio for the enterprise, ex-property and cat, which is 67.3%, primarily flat from 2021.
The acquisition price ratio elevated by 1.2 factors, primarily associated to adjustments in enterprise combine, pushed by our exit from disaster and property strains of enterprise and changes attributable to loss-sensitive options, pushed by improved loss efficiency, primarily within the credit score surety enterprise. This was partially offset by the affect of retrocessional contracts. The underwriting-related G&A expense ratio elevated by one level, primarily pushed by a lower in charges associated to preparations with strategic capital companions. This was partially offset by a lower in personnel prices, associated to our exit from disaster and property strains of enterprise. Internet funding revenue was $147 million, in comparison with web funding revenue of $128 million for the fourth quarter of 2021.
Within the quarter, funding revenue from mounted maturities was $105 million, up over 57% from $67 million within the fourth quarter final yr, because the yield on the portfolio has elevated 160 foundation factors from 1.9% to three.5% over the past 12 months. At year-end, as I simply famous, the mounted revenue portfolio had a e-book yield of three.5%, at a period of three years. Our market yield was 5.6%, 210 foundation factors above the e-book yield. I might notice that since year-end, charges have declined a bit and our market yield is now at 5.25%. Given the period of our portfolio and the present market yields, we’d anticipate web funding revenue from mounted maturities to be a minimum of $150 million better in 2023, than we reported in 2022. Total, the continued enchancment in most working metrics and optimistic momentum in our core underwriting e-book, this was a robust quarter for AXIS.
That summarizes our fourth quarter outcomes. And with that, I am going to flip the decision over to Vince for market commentary.
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Vince Tizzio: Thanks, Pete, and thanks, Albert on your earlier feedback and type phrases. In just some quick months, I’ll succeed Albert as our firm President and CEO. I am honored to take action and depend it a privilege to advance our firm technique, together with our colleagues and construct upon additional our stakeholders’ belief. I would like to supply a common view of the market, an summary of our price efficiency throughout our companies and share our outlook. Let’s simply soar in. Inside our insurance coverage section, circumstances stay largely favorable, throughout most of our measures of manufacturing, new enterprise writings. And in most lessons, we proceed to see charges usually in line or forward of loss price tendencies. As evidenced in our monetary outcomes, our distribution companions importantly proceed to hunt the worth of our underwriting specialists, our broad product set and our little platform.
Let me present extra coloration on our insurance coverage market. In the course of the quarter there have been a lot of components at play with completely different enterprise strains acting at completely different factors within the underwriting cycle. For example, we noticed firming circumstances in lots of strains equivalent to property, legal responsibility, credit score and political danger all of which achieved price will increase within the fourth quarter that had been increased than their annual averages. Additional, as Albert has commented prior to now quarters we proceed to see deceleration and in some cases flat to unfavorable price change within the public D&O and monetary establishment markets. As a closing instance, in cyber we’re seeing a moderation in price achievement, although pricing will increase nonetheless stay at double-digits. I am going to communicate extra to this final level in a bit.
Total, circumstances are favorable as market dislocations proceed to drive extra dangers into the specialty channel. For AXIS, we’re persevering with to pursue a extremely focused and disciplined underwriting technique throughout each line we write, throughout all channels of our distribution. We stay centered on driving formidable worthwhile progress in enticing markets as we proceed to supply excellent service to our dealer companions. Let’s get into the numbers in additional element. Inside our insurance coverage e-book the typical price will increase was practically 6% for the quarter and near 9% for the yr, marking 21 straight quarters of optimistic price change and bringing the cumulative price change for our insurance coverage e-book to virtually 60% because the starting of 2018. By area, worldwide produced price will increase of 8% for the quarter and practically 10% for the yr.
In North America, price will increase had been 4% for the quarter and practically 8% for the yr. price by underwriting division AXIS wholesale which is a key space of funding for AXIS generated will increase of greater than 8% within the quarter and seven% within the yea, these outcomes had been fueled by a resurgence of pricing throughout property and choose casualty strains. Property charges had been up greater than 10% within the quarter and are over 8% for the yr. We anticipate this momentum to proceed because the market reacts favorably. Casualty strains are averaging a rise of greater than 7%, with major casualty strongest at 11% for the quarter and greater than 9% for the yr. Extra Casualty is up over 4% for each the quarter and yr. I famous earlier that in cyber, we noticed a deceleration in price momentum however continued to expertise agency market circumstances with a mean price enhance of practically 22%.
That is in comparison with a mean year-to-date enhance of virtually 50%. I’ll add that inside AXIS we’ve got benefited from compounded price enhance of virtually 140% over these previous three years. Inside skilled strains we noticed a lower of two% within the fourth quarter. As Albert has remarked in prior calls, public D&O is seeing essentially the most difficult circumstances with charges down greater than 22% year-to-date. That is pushed by a lot of components together with the discount of IPO and de-SPAC enterprise, whereas conventional enterprise is exhibiting extra modest reductions. Given the altering components we’re writing a lot much less public D&O enterprise than we did this time final yr, whereas carefully adhering to our danger choice and pricing adequacy requirements. Importantly, our London-based skilled strains unit which doesn’t write U.S. public D&O is each rising and reaching common price will increase.
To offer an entire image on the speed entrance, through the quarter, 88% of our insurance coverage portfolio renewed flat to up. And for that — for the year-end that determine was 91%. Total, new enterprise pricing metrics have been a minimum of as robust if not higher than renewal pricing. In abstract, we’re properly positioned to capitalize on favorable circumstances throughout our key insurance coverage markets together with, a resurgence of price in sure strains as talked about. We’ve got deep relationships with our prospects, our distribution companions, a robust product set to service all of our channels of distribution, and we sit up for the continuance of those outcomes. Let’s flip to reinsurance. Inside reinsurance given the shifts in our property disaster market this quarter was marked by vital disruption.
As Peter famous the — for AXIS the fourth quarter solely represents roughly 10% of our reinsurance portfolio. However, pricing in our reinsurance enterprise approximated 11% throughout the quarter. We’re observing a market reflecting robust steering within the type of pricing, phrases and circumstances and sure capability deployment as evidenced by the 1/1 renewal cycle that went right down to the very finish. I am going to focus my feedback on the 1/1 renewals the place for us 45% of our enterprise renewed at that time. Albert spoke earlier about our efficiency through the 1/1 renewals. I am going to spend a while now speaking about what we noticed on the speed entrance. Throughout our reinsurance e-book, pricing was up greater than 12% with most strains of enterprise seeing optimistic price momentum.
By the use of line motor carried out the strongest with a 24% enhance; marine was up 17% and we produced double-digit will increase in A&H at 13%, legal responsibility at 11%. Skilled strains was up 8% and credit score and surety had been flat. To the credit score of our underwriting staff, we approached the 1/1 renewal season with a centered and disciplined underwriting technique grounded in our dedication to our chosen markets and with a transparent and responsive communication stance with our buying and selling companions. Stepping again and taking a look at our enterprise in complete, we proceed to be inspired by the favorable price atmosphere we see throughout the overwhelming majority of strains that we write and we anticipate that these circumstances will final all through 2023. We’re dedicated to answering the decision from our prospects for specialty merchandise, companies and capabilities.
With that, I am going to flip it again over to Albert.
Albert Benchimol: Thanks Vince and Pete. So there you may have it. As we take a look at the yr forward, our specialty insurance coverage enterprise continues to fireside on all cylinders and we’re investing to create new avenues of income progress inside our key markets. The reinsurance market is firming up and we’re energetic and engaged individuals in our chosen specialty strains. And throughout each companies, we’re usually seeing favorable market circumstances that ought to maintain all year long. So why do not we open up our Q&A session. Operator?
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