Axis Takes $425M Reserve Hit Following Strategy Shift

Bermuda-based Axis said that inflationary pressures were hitting legacy claims.

Axis Takes $425M Reserve Hit Following Strategy Shift

A year an a half after AXIS Capital Holdings Ltd. announced that is was going to focus on specialty lines, the Bermuda-based reinsurer said that its was taking a nearly half-billion dollar reserve charge to make up for claims costs it was seeing rise within its legacy casualty and liability book of business.

According to a statement, the company increased its prior year reserves in the fourth quarter by $425 million pre tax ($361 million, post-tax), which is equal to 4.5% of net loss reserves as September 30, 2023.

“We view these additions to be prudent and in keeping with our learnings from our in-depth study we conducted with our claims team and extrapolating the implications of current industry trends, the social inflation and development patterns,” said Axis CFO Peter Vogt on an analyst call Tuesday.

Vogt added that the reserve charges were “essentially all IBNR”, meaning they were being taken on a “incurred but not reported” basis against possible future claims and that the company’s capital was in a “strong position” when it comes to rating agencies like Standard & Poor’s.

90%, or $354 million of the reserve charge, was attributed to 2019 and earlier in liability reinsurance, executives explained, and the charge followed a internal review trend assumptions, development patterns and a review of open claims since the third quarter of 2019.

"[This review] reflects the reality that our U.S. casualty and professional lines have shown sustained adverse development, driven largely by economic and social inflation,” Vought said. ‘We see the strengthening of reserves as a necessary step to progress forward as a specialty leader.”

Industry analysts questioned Axis executives regarding why they did not consider a loss portfolio transfer (LPT) deal that would have transferred the risk to another reinsures and avoided an immediate hit to earnings.

“As you're aware, we've done LPT transactions in the past, and we really do look at them, as I've said, as a tool to manage both reserve risk and capital management,” Vought explained. “In this case, we reviewed a number of options that were available to us, and we view that the road we're taking has the best economic outcome for the company. And at this moment, we believe our reserves are prudent, and we believe that we're in a very strong capital position."

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