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Axis Re’s Arora: Current market firming ‘not a slam dunk’

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Axis Re CEO Steve Arora has warned that while there are several “reasons to be enthusiastic” about firming pricing, current market conditions are not a “slam dunk” for the industry, with the pressure on to deliver meaningful returns to shareholders.

In an interview as part of Insurance Insider’s virtual conference (Re)Connect, Arora noted that increased demand has assisted rate increases in both primary and reinsurance markets, adding that most classes “are approaching a rate adequate situation”.

He also said reinsurers now have a deepened understanding of market issues and receive higher quality data from cedants than in the past.

However, the executive warned that there are a number of complexities in the current market that reinsurers must address.

These include climate change driving increased frequency and severity of weather events, systemic exposures such as cyber attacks and ransomware, and social inflation affecting casualty lines.

He added that Covid is still an ongoing loss event and pricing is not fully reflective of loss expectations, even as rates begin to decelerate.

“The first half of the year in insurance and reinsurance was a good start but it is way too early to call this a market recovery; two quarters don’t define an entire year or an entire cycle,” said Arora.

“We do need to be careful about exuberance. This current market is not a slam dunk.

“When you really look at your returns, the things that are under your control are your underwriting margins and your costs,” said Arora.

“We need to be focused on intelligent risk taking. It’s time to allocate capital to the most attractive areas and produce a solid return for shareholders.”

Axis Re has meaningfully reduced its exposure to property catastrophe risk this year. It cut cat reinsurance premium by 10% at the 1 January renewals.

Arora addressed the reduction in exposure.

“We have a significant [cat] portfolio. We take a lot of risk. We offer meaningful support to our clients. What we’re trying to do is respond to trends,” he said.

He added that the drawback from cat business was “just about being an active portfolio manager”.

Axis’ actions in this area include reducing aggregate covers offered and cutting cat exposure through both pro-rata and excess of loss business “where we observed structural inefficiencies”, as well as increasing attachment levels on treaties.

“We are doing this all while balancing and understanding the needs of our clients,” Arora said.

“We want to grow through an optimal portfolio construct to benefit both us and our investors.”

He added that the majority of the repositioning work on cat exposure is now completed but added: “If you want to be an intelligent portfolio manager, you never stop.”

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