But beyond the numbers, the company’s April 30 earnings call revealed something equally important, which is confidence.

While many firms across the financial sector continue to speak cautiously about the global economy, Axis Capital’s leadership sounded increasingly comfortable with where the business is heading. The message from management was clear: the company believes years of restructuring, tightening operations, and sharpening its focus are now beginning to translate into visible results.

A large part of that progress appears to be coming from the company’s focus on speciality insurance.

ALSO READ: UnitedHealth raises profit forecast, to spend USD 1.5 billion on AI

Instead of aggressively expanding into every corner of the market, Axis has spent the last few years concentrating on areas where expertise and disciplined underwriting matter most. During the earnings call, executives repeatedly spoke about investments in talent, product capabilities, and distribution channels, not to grow at any cost, but to grow more sustainably.

Underwriting income increased 15% year-over-year to USD 187 million, while the combined ratio improved to 89.8%. In the insurance industry, anything below 100% is generally seen as a positive sign because it means the company is generating underwriting profits rather than relying heavily on investment income.

Higher interest rates have certainly helped insurers strengthen investment returns over the past year. But investors are increasingly paying attention to companies that can consistently perform through their core operations. Axis Capital’s latest quarter suggests the company is moving further in that direction.

Management highlighted continued momentum across both its insurance and reinsurance businesses. Gross premiums written grew by around 5% during the quarter, supported by what executives described as stable conditions in speciality insurance markets.

CEO Vince Tizzio described the quarter as another step forward in the company’s broader transformation journey.

The company confirmed it continued returning capital to shareholders through share buybacks while also investing in technology and operational improvements.

Climate-related disasters continue to create uncertainty for insurers globally. Economic volatility remains a concern. Geopolitical tensions are still affecting markets worldwide. Claims costs in several areas remain elevated.

But Axis executives suggested the company’s diversified speciality portfolio and disciplined approach to risk management are helping it handle those pressures more effectively than in the past.

The company’s latest results were not driven by a one-time gain or a temporary market boost. Instead, the performance appeared to come from steady improvements inside the business itself.

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Pranav Pasricha, global head of P&C solutions for Swiss Re told the media, “We’re very pleased to announce the strategic partnership with ICEYE. By combining Swiss Re’s risk knowledge with ICEYE’s data, we will be able to further expand our capabilities in geo and remote sensing. The partnership will enable us to develop solutions, advance our services to the benefit of our clients, and enable faster claims payouts. We see this as an important commitment for a serious natural catastrophe threat and think it could become a real game-changer.”

According to Swiss Re, the partnership will allow the reinsurer to upgrade its flood risk management capabilities, better assist disaster response and expedite claims payments globally. Also, it is reported that even though the strategic partnership will initially focus on floods, it is expand to other natural disasters, such as wildfires, wind and earthquake damages in the future.

Last month, the Zurich-headquartered reinsurer appointed Andrew Dougall to the role of global head casualty. Andrew Dougall will be responsible for driving the success and profitability of the company’s bespoke casualty portfolio globally.

During the same time, it was also reported that for 2020, Swiss Re posted a net loss of $878 million compared to a profit of $727 million for year-end 2019.

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A vital coverage of insurers operating in the country
Last year recorded the presence of 103 insurance companies licenced to operate in the country, of which 59 of them are subsidiaries of foreign insurance companies. There are more than 238 foreign reinsurance companies registered with the Reinsurance Registry—which includes Lloyd’s of London. Nuclear insurance pools were also registered with the authority to capture the country’s reinsurance market. Last September, direct premiums in the insurance and surety industries had increased by 8.4 percent compared to the same period in the previous year—and the overall annual growth in the latter during the period between January and September last year was 8.7 percent. Based on the total amount of premiums, 98.2 percent of them came from direct insurance while only 1.8 percent was directed toward reinsurance.

Dividing the industry into sub-sectors, life insurance had increased by 9.1 percent, health industry by 3.5 percent and property and casualty by 10.7 percent. Excluding motor insurance, the property and casualty line had increased by 20.4 percent in the same period. But, whatever the strength and growth of the industry, it still requires reforms that can underpin its development in the coming years.

The new year must see sweeping reforms
Recently, Minister for Finance Arturo Herrera announced that the government is set to begin discussions with the private sector on sweeping reforms in the country’s insurance industry. It is reported that the industry seeks to make the private sector ‘an engine for economic growth and productivity’ following the coronavirus pandemic. He addressed AIMS which is the country’s insurance association at an annual meeting to reevaluate the industry and assess any new requirements in relation to regulations, taxes and investments. The work on the reforms is anticipated to begin in the coming weeks and they will be carried out in close collaboration with all agents.

In this context, McQuattie added “According to information originally reported, the government was in talks with the insurance industry aimed at turning the industry into an engine of economic growth and productivity. During the opening of the annual meeting of the Mexican Association of Insurance Institutions (AMIS), the government representative urged the industry to seize the opportunity to reevaluate the sector and collaborate on an agenda of reforms that they consider necessary to revitalise the industry. This was postponed due to the Covid-19 situation, and it is planned to resume before this end of the year or at the beginning of the coming year. At this point, in the immediate short-term, we are not aware of any major reforms that will be enacted.”

But the Congress has recently approved a Tax Reform 2020 bill, which carries huge implications for the industry. The tax reform contemplates changes to the income tax law, value added tax law and the Federal Fiscal Code. According to a report published by Ernst & Young titled Mexico’s Tax Reform Affects Insurance Industry, the modifications made to the law will affect insurance companies that make payments for reinsurance in other jurisdictions.

AIMS and the works, for deepening financial inclusion
Even if other new reforms take time, AIMS is working towards the greater good of the industry by deepening the levels of inclusion and access to affordable insurance products. This is one of the five policy priorities which are targeted by the association. Others—such as enhancing health insurance is also in focus to create change within the time that it needs to happen. For now, the penetration of insurance in the country’s gross domestic product is 2.2 percent—which points to the fact that more efforts need to be taken to make an impact. For that reason, AIMS and CNSF are working closely on a strategy to increase the penetration rate.

For years, Mexico has stood out for having strong policies and institutions—which even includes prudent fiscal policy and a central bank known for its autonomous functioning. Deepening the financial inclusion will not only benefit the industry but the country at large, for the simple reason that poverty will significantly reduce over time. Actually, a research report published by the International Monetary Fund shows that greater equality can reinforce economic growth and subsequent inclusive growth will lead to better opportunities for the population.

“Inclusion and access to insurance products are increasing in Mexico as much as innovation is allowing consumers to be a part of the process, and as the communication of such solutions expands,” McQuattie explained. Two years ago, the country worked toward expanding its financial services for the rural populace, so that women and underprivileged in rural areas can become a part of the system. With that, 3.4 million people were streamlined into the financial system, as more than 60 percent of women in rural areas gained financial inclusion. The data also showed that 9.5 million people were protected by deposit insurance; 1.8 million people received financial inclusion; and 4.5 million people had 3,800 new access points to financial services.

“There is certainly room for growth in Mexico’s insurance industry as overall awareness of insurance products and solutions among consumers is known to be low. I can understand the optimistic numbers that were predicted back in February relative to gross domestic product, which I would say were related to an expectation of further market penetration and improved communications by the industry,” McQuattie said.

Now the association has devised a plan comprising three pillars—public policy, internal tasks and insurance regulation which are collectively focused on increasing the penetration rate to 3.4 percent of the country’s gross domestic product this year. The country can make sense out of the situation if a national risk transfer policy is established to reach optimal insurance programmes for the government, industry and individuals. In addition, there is a common agenda set with the Ministry of Finance comprising initiatives linked to social programmes—all aimed at serving lower and middle income groups.

Even insurance companies are pledging to increase the penetration rates in the country in their own ways. Take for instance, Crawford which is “proud to lead the market with technological advances that provide access and improve the efficiency and safety in processing claims. These include not only the use of drones, but also, custom designed products like Inspección Remota—a solution that combines a consumer application with Crawford’s experienced desk adjusting operation,” McQuattie said.

Reinsurance creates fierce competition; carries a lot more risks
When these developments are narrowed in focus, it also highlights that the industry is heavily reliant on reinsurance and fronting arrangements because they help to cope with the existing complexities, drive financial inclusion, expand the lines of business and assess mechanisms to manage catastrophic events. This reliance has been in place for years, a very important one, for businesses that are capital-intensive or require additional capacity in catastrophic insurance. In Mexico, “Reinsurance is a very significant part of the industry given the size of the market. In fact, there are a variety of multinational businesses with pre-established reinsurance programmes in the country In addition, Mexico’s unique risks associated with catastrophic phenomena require the significant support provided by reinsurers,” he said.

Mexico is frequently exposed to a string of catastrophic events such as floods, hurricanes, earthquakes, the El Niño phenomenon—and more recently, the coronavirus pandemic. So the country has been open to the international reinsurance market for many years, and the law is not very complex for reinsurance companies looking to establish their business in the Mexican market. All they will have to do is register with the regulator to operate in the country and follow the local insurance and fiscal guidelines. It seems that there are more than 240 international reinsurance companies registered with the regulator to capitalise on the market, with another 170 specialised reinsurers participating in the nuclear pool. This points to the fact that the levels of competitiveness in the country is fierce among reinsurers.

Competition has created new business opportunities on the back of innovative products offered in the market. The country’s enormous supply capacity coupled with low prices and effective risk management could potentially lead to good dispersion for the industry. “Given the current economic conditions, we view the current policies as providing a fair playing field for both domestic and foreign carriers,” McQuattie said. There are two attributes which could help the industry and its players to reach optimal performance. First: A positive rating at a reasonable price is necessary to provide certainty under the new Solvency II legislation. Second: Transparency between brokers, cedents and reinsurers to establish trust between all stakeholders—which is the reason why international brokers will have to provide a full disclosure of their operations.

There are all these important efforts, but there is so much reliance on reinsurance through fronting arrangements, that it is creating new complexities in adjustments and settlement of claims. The industry has observed disagreements between reinsurers and the insured owing to inconsistency in the insurance process, issues while translating reinsurance arrangements into direct insurance and the difference in the applicable law for the practices followed by both parties.

How Mexican insurers and reinsurers are responding to the coronavirus
So now considering the extent of the coronavirus pandemic’s impact on the industry, it is certain that the industry will remain pressured through the next year. According to McQuattie, the pandemic is certainly propelling the insurance industry, but more as it relates to innovation and automation to keep people safe and continue to meet client needs. This is true considering that the industry has come up with various covers in response to the pandemic: Health insurance, life insurance, travel insurance and business interruption insurance.

For health insurance, any coverage related to the coronavirus illness is available under the country’s public universal health programme and private health insurance. In fact, the Mexican Institution of Social Insurance (IMSS) provides healthcare coverage for those who are registered with it—and it mandates that employers must register all employees with it in addition to paying a monthly fee for their access to the IMSS clinic. In private insurance, AIMS reported that 28 out of the total 32 private health insurers operating in the country will cover the coronavirus treatment as a respiratory disease.

Life insurance, on the other hand, affords coverage for death that results from the coronavirus. In fact, Mexican authorised life policies include the pandemic as a cause of death—assisting the country during catastrophic events. But international insurers believe that there might be financial difficulties if the death rates covered by policies rise to unexpected levels or if the investment yields are affected given the volatile scenario in capital markets.

Even travel policies in the country including health insurance coverage is likely to cover the expenses incurred from the pandemic. Although the pandemic is not considered as a valid reason for cancellations and that there would be no coverage under those circumstances, some travel insurers in the country are offering plans with restrictive or limited coverage.

Then there is the business interruption insurance which is an optional coverage provided by Mexican insurers across sectors—such as commercial property insurance policies. This sort of insurance is largely triggered by any physical loss or damage caused to insured properties during catastrophic events such as fire, floods, hurricanes and so on. But assessing whether the loss of business income is triggered by the pandemic would require specific policy terms and conditions—and unfortunately, many of them explicitly exclude loss caused by bacteria or virus.

But there are other types of policy covers like General Liability or Directors and Officers insurance that come to the rescue as they have conditions that are met by the pandemic. Because all of these coverages are provided by the Mexican insurance, it makes the industry more dynamic during extreme situations.

Diversification is needed to readjust during catastrophic events
For example, Crawford has built unique capabilities to quickly mobilise expert and experienced teams on-demand to address catastrophic events the moment they take place. “We also have on-going initiatives that further support those teams with technology and innovation. We support insurers with information on advanced technologies and innovation to address future catastrophes,” McQuaitte said.

“We also communicate via digital and social media channels to educate companies and the general public about the importance of coverage given the ever-rising risk of disasters. We are very good at communicating with companies and people about the possibility of catastrophic events, sharing valuable information and promoting awareness about the importance of catastrophic coverage across many industries. We leverage social media and other communication channels to not only report on the effects of catastrophes when they happen, but also, to provide critical information and support for those affected.”

What about the industry’s growth?
“Growth, however, is another matter,” he said. “In Mexico, as of July of this year, the insurance industry has seen a decline of about 12 percent in claims related to property damage, civil liability and transportation. Overall, the biggest decline has been in auto insurance for small and medium enterprises and personal insurance. The situation has been partially offset by health insurance. Back in October 2019 Moody’s was already projecting lower 2020 insurance demand in Mexico given overall economic slowdown.”

The pandemic has exacerbated some of the growth challenges given its impact on unemployment, lower interest rates and exchange rates. “We are hopeful for growth in the future, especially given the accelerated advances in innovation, but today, the state of Mexico’s insurance industry is one where the prioritisation of product solutions is in flux,” he said, further stating that things have changed since the early part of the year. “The latest economic data shows a 17.3 percent decline in gross domestic product as of June, mainly because of the pandemic. Interestingly, this compares to a 12.3 percent decline for the insurance market during the same timeframe. There is hope for a slight recovery in gross domestic product and in insurance activity as we enter the new year.”

The country’s Insurance and Surety Institutions Law which is a regulatory framework seeks to reinforce the effectiveness of the industry to become a world leader in surety. But it might be too soon to predict the full impact of the law because it was fully implemented recently. But McQuaitte pointed out that “as major institutional investors in the Mexico market, insurance companies would welcome any improvement that reduces the limitation period for claims. Strengthening of the actuarial and technical sufficiency mechanisms and incentivising new product development would also help create a more conducive environment for insurers. Lastly, adoption of measures to stimulate competition in the sector would go a long way to encourage growth.”

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She told the media, “Of course, these transactions would have been negotiated and agreed back in 2019, pre-COVID-19, but the fact they completed suggests an underlying degree of confidence.”

Despite the pandemic, the region witnessed a rise in M&A activities in the reinsurance market in the first half of 2020 with 38 deals completed during the period.

According to the Life Insurance Association of Malaysia (LIAM), the Malaysian life insurance industry rebounded strongly in the third quarter of this year. The sector registered a 44 percent rise in premiums to reach $717 million. The growth is attributed to an improvement in investment-linked business, which doubled from MYR737.72 million in the second quarter of 2020 to MYR1.43 billion in the third quarter of 2020.

The Life Insurance Association (LIA) announced last month that the sector recorded a total of S$2.99 billion in weighted new business premiums for the third quarter of this year, a decline of 2 percent when compared to the same period in 2019.

A GlobalData report published last month revealed that Vietnam’s general insurance industry to grow by 3.4 percent in 2020, down from the 13.6 percent of growth registered in the previous year.

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SAMA’s decision stems from an attempt to boost stability in the insurance sector and add value to the Kingdom’s economic growth. 

Major problems such as insolvency increased in the insurance industry after its liberalisation. For that reason, SAMA noted in a statement that the decision will further prevent ‘wrong practices’ in the industry. Currently, companies that combine both insurance and reinsurance brokerage activities have one year to restrict the practice. 

In a 2017 report, SAMA had noted that it will enforce stringent rules for re/insurers if the restrictions are not followed. The report stated that the new regulation will necessitate insurers to hold more capital to ensure increase in demand for reinsurance protection. 

In fact, SAMA announced that the Rowad Insurance Company of the Cooperative Insurance Agency and Forsan Insurance Agency had failed to comply with regulatory requirements. The two insurance providers were urged to quickly comply within 20 working days or face licence cancellation. 

SAMA’s ban is an important part of Saudi’s Vision 2030 which aims to build a strong non-oil economy. The insurance and reinsurance companies are vital to the Kingdom’s financial landscape. The Kingdom aims to create more insurance and reinsurance opportunities by 2030. SAMA is the central bank of the Kingdom of Saudi Arabia. It is also responsible for monitoring foreign exchange reserves. 

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January 18, 2017: XL Catlin’s P&C Underwriting Capital Management operation has appointed Anne Middleton to manage its ceded reinsurance placements globally.XL Catlin insurance companies offer property, casualty, professional, financial lines and specialty insurance products globally.

Previously, head of finance for several XL Catlin insurance businesses, in her new role, Ms Middleton, who is based in London, will be responsible for overseeing and negotiating the terms, structure and pricing of XL Catlin’s reinsurance programs. She reports to Mark Van Zanden, Chief Executive of XL Catlin’s P&C Underwriting Capital Management team.

Commenting on the appointment, Mr Van Zanden said, “Having strong reinsurance protection allows our P&C underwriting businesses to improve existing and develop new products to help our clients address their known, emerging and new business risks.  Anne will be a supportive partner to our business lines as we look to build reinsurance programs that meet our risk appetites and can help us achieve our underwriting and profitable growth objectives.”

Ms Middleton is a graduate of the University of Oxford. She most recently served as Head of Finance for XL Catlin’s Global Energy, Property & Construction lines of insurance, providing financial support, including analytics, planning, forecasting and risk underwriting monitoring to these business lines.

Prior to joining Catlin in 2012 as an ERM Capital Actuary, she spent five years with PWC as a senior consultant providing actuarial as well as wider economic and risk analysis.

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Daniel Colover

June 23, 2016: Iran’s new approach to building energy allies is being revealed as the former powerhouse staggers back onto the global stage. The lifting of Western-imposed sanctions on January 17 has given the country a new lease of life. Tehran’s ability to adapt will prove vital as today’s market is more competitive than the one it reluctantly stepped back from more than a decade ago.

Tehran remains confident that the country can boost its current 3.7 million barrels a day (b/d) of oil production further, enabling it to be able to export 2.2 million b/d, by the end of the summer. The country’s strategy to regain superiority has started well, but some of this spike in volume may be a case of Iran emptying its full storage capacity.

Iran is planning to introduce new oil contracts, widely known as Iran’s Petroleum Contracts (IPCs), and abandon the generally unpopular buyback contracts that were first introduced in the 1990s. The buybacks were introduced as an attempt to bridge the gap between the country’s need to attract foreign oil and gas companies and a ban on private foreign ownership of natural resources under the Islamic republic’s constitution.

The market remains to be convinced. The new IPCs are essentially risk service contracts where the contractor is paid back by being allocated a portion of the hydrocarbons produced.  However, more clarity is required after a key presentation was cancelled in February.

Blending opportunity

Tehran has adopted a fresh approach to blending in an effort to shrug off its lone-ranger profile and seek collaborative partnerships with energy allies.  Crude oil blending can raise the sale price of a lower grade of crude by blending it with a more valuable grade. This means producers can have a particular variety at the lowest possible cost, which has proved to be a useful trade-off.

In April, Iran joined fellow OPEC members Nigeria, Angola and Algeria with plans to blend its light oil with Venezuela’s heavy crude to get a better crude price. Iran’s Research Institute of Petroleum Industry (RIPI) signed an agreement with South Africa’s state-run PetroSA to jointly pursue research and development (R&D) in crude blending technologies. Iran also signed a long-term cooperation agreement with South Korea at the start of May. It covers a number of areas, including gas and telecommunications, and serves as a springboard for raising Iranian crude supplies to the East Asian country.

Investment culture

Sanctions did not completely derail Iran’s energy infrastructure, with Tehran funnelling cash into the country’s major oil and gas sites – refineries, pipelines, drilling sites, roads and so on – to prepare for the lifting of sanctions. The first phase of the Persian Gulf Star refinery with capacity to produce 360,000 barrels a day (b/d) will be completed by next March, with the remaining two units scheduled to go online in 2017.

When finished, Persian Gulf Star will add 16 million liters/day of gasoline production, the ongoing upgrade at the Bandar Abbas refinery will add 4 million liters/day. Officials say gasoline imports of around 50,000 b/d will not be necessary once the plant is completed. Furthermore, officials have recently said that Iran could even be exporting as much as 10 million liters/day of gasoline after the full start-up of the Persian Gulf Star refinery.

Iran’s ability to reduce inflation from 45% in 2013 to below 10% in late-2015 and introduce subsidy cuts illustrates Tehran’s financial acumen, which will bolster the country’s ability to cope with today’s lower oil prices. The International Monetary Fund (IMF) expects Iran to deliver 4% growth at a time when others in the Middle East grapple with credit rating cuts and urgently slash energy subsidies in a bid to cushion their strained coffers.

Challenges remain

Still, Iran is not free of economic and logistical hurdles. A limited number of ships are curbing Iran’s oil exports. In Mid-April the International Group of P&I raised the reinsurance level to a maximum of $830 million per tanker for shipping Iranian crude, from $580 million previously. Although this does not fully make up for the missing US reinsurance cover as a result of the US’ ongoing sanctions against Iran, it could be seen as sufficient for Asian buyers, such as India and South Korea, or some European importers, for their shipping of Iranian oil, according to industry sources. However, the increased reinsurance is still below a full P&I insurance cover of $7.8 billion.

The movement of Iranian oil to potential consumers is not helped by the remaining US sanctions that prevent business with Tehran in dollars, or with US companies – oil and tanker trade is priced in dollars. The freight shortage will likely ease later this year as ships being used for storage are emptied and Iran repairs unused ships to enlarge its fleet, but the delay will inevitably hamper the speed of Iran’s re-launch into European and Asian markets.

Iran’s seemingly more flexible approach is helping accelerate the country’s return to the global energy market and the international appetite to deal in Iranian business will deepen every time the country reaches its goals, such as the 4mn b/d oil production target. While there is no way to set an exact date, one development is clear – the new Iran has a high chance of regaining its glory of yesteryear.

Daniel Colover is Strategic Oil Market Development Director, S&P Global Platts

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