Canadian Underwriter

Why further rate increases could be needed after 2021

October 30, 2020   by Greg Meckbach

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Despite double-digit price increases in several commercial lines, premiums will need to rise further, a Bermuda insurer CEO said Thursday.

“More rate action is needed and likely it will take beyond 2021 in some lines to get to rate adequacy,” said Albert Benmichol, CEO of Axis Capital Holdings.

This is because of several factors, including increasing frequency and severity of weather events, social inflation, uncertainties stemming from the COVID-19 pandemic, and low interest rates, Benmichol said during a conference call announcing his company’s financial results for the three months ending Sept. 30.

“Current pricing is approaching adequacy but does not yet translate into stellar [returns on equity] for the industry.”

In 2020 Q3, rates for the Axis Canadian specialty business was up about 25% compared to 2019 Q3, Benmichol.

Overall, across both the insurance and reinsurance markets “we are seeing some impressive numbers in terms of rate change.”

Net premiums written dropped slightly from US$1.16 billion in 2019 Q3 to US$1.09 billion in the latest quarter. Axis has exited some lines of business including Middle East accident and health.

Axis Reinsurance Company (Canadian Branch) reported net premiums written of $71.8 million in 2019, according to the 2020 Canadian Underwriter Statistical Guide. Of that, about $57 million was in liability and about $12 million was in commercial property.

Axis brings in roughly US$4.5 billion in net premiums written a year, worldwide, split about evenly between commercial primary and reinsurance.

In primary insurance, Axis had an average rate increase of about 16% across its book of business in 2020 Q3 compared to 2019 Q3. This compares to year-over-year increases of 15% in 2020 Q2 and 10% in the first quarter of this year.

“In many lines, it may take increases of beyond 2021 before we reach adequate risk adjusted returns,” Benmichol said.

Company-wide, the combined ratio was 114.5% in the latest quarter, up 5.1 points from 109.4% in 2019 Q3. Of the 2020 Q3 loss ratio, 22 points of that was due to weather related losses and catastrophes, including Hurricanes Laura and Sally, the Midwest United States derecho (a major thunderstorm system) this past August, western U.S. wildfires, and the Beirut port explosion.

In cyber and technology, the rate increase was about 6% for Axis in Q3.

“This has been a line of business that has not seen a lot of price action. We think in 2021 that [the cyber] line of business will see more price action because we think we need to get paid for all the increased ransomware claims and so on,” said Benmichol.

In the United States, prices increased more than 25% in excess casualty for Axis, while North American professional lines rates went up almost 17%.

“We saw particularly strong rate action across public D&O, where we are essentially an excess writer, at more than 55%,” said Benmichol.

To account for losses caused by the COVID-19 pandemic, Axis earlier booked charges of US$235 million, CFO Peter Vogt said Thursday. As of Sept. 30, most of that US$235 million was losses incurred but not reported.

Benmichol was asked about Axis Capital’s exposure to COVID-19 going forward.

“With regard to policies for business interruption, we were very quick, as were a lot of people, to immediately change the wordings of our policies. A good bunch of our policies were in businesses that were already cancelled or in the process of being cancelled. We believe that today we have reduced the number of policies that are exposed to COVID in the U.K. by about 70% through the attrition of those policies expiring, not being renewed, or new language being brought in.”

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