Charman, still a major Axis shareholder directly and through family trusts, told Inside P&C that Benchimol and the board had showed “crass incompetence” around the abortive sale.
“Together, they have excelled at consistent and persistent mediocrity,” the serial entrepreneur said.
Charman added that the board had been “obliging”, and questioned its focus on shareholder value.
“Axis should have grown significantly globally, become more diversified and more relevant and then been sold five years ago,” he said. “The board should be ashamed of themselves.”
Charman has been an outspoken critic of Axis’ board and leadership since his acrimonious departure from the company. Following an AM Best downgrade to ‘A’ he called for Benchimol to be fired and the firm sold.
Many of the board members have changed since Charman’s time at the firm, with four of the 10 non-executive directors having joined since 2020.
About-turn on sale
Charman issued his comments after Axis Capital pulled the sale of Axis Re two weeks after this publication revealed it was quietly exploring a disposal.
Axis appointed investment bank Jefferies to seek buyers for the reinsurance business, utilizing the same team that had worked on its acquisition of Novae when they were at Credit Suisse.
However, following the leak of the story and with a number of the likeliest bidders passing, Axis withdrew the business from sale – telling staff in a May 9 memo that it has “no plans to sell Axis Re”.
Sources have noted that the revelation that the business was non-core could damage Axis Re’s positioning with clients and brokers, while harming staff engagement and retention.
Publicly Axis has not been drawn on its efforts to sell the business, although it privately downplayed the idea it had looked to sell its roughly $3bn-premium reinsurance unit in discussions with reinsurance broking leaders.
The memo, co-authored by group CEO Benchimol and reinsurance CEO Steve Arora, noted “a great deal of speculation in the media” about Axis Re and thanked staff for continuing to propel the business forward “despite all the noise”.
“As Albert shared during our last CEO Update, as a corporate policy we do not talk about market speculation and we won’t. But we can tell you this: Axis has no plans to sell Axis Re,” staff were told in the circular.
“Our focus is on continuing to build on the progress we’ve made in recent years to maximize profitability, reduce our net cat exposure, and position the business for success as part of our broader efforts to achieve top-quintile performance for Axis.”
Axis’ exploration of a sale of the reinsurance business comes when the sector is highly out of favor with investors following a sustained period of underperformance. This reflects reinsurers’ leveraged exposure to catastrophe business, the impact of the 2013-17 soft market and the secondary market’s lack of pricing power.
A number of other hybrid insurance-reinsurance businesses – including Axa XL – are perceived as reluctant participants in the reinsurance market, but right now there is a dearth of acquirers for reinsurance assets following Covea’s transaction with PartnerRe.
Reinsurance retrenchment aids underlying underwriting
Axis Re’s performance has been challenged for a number of years, with the unit generating an underwriting loss in three of the last five years, and making only 1-2 points of margin in the other two.
The firm has struggled with outsized cat losses hurting underwriting results.
Axis is in the middle of a multi-year drive to squeeze volatility out of the reinsurance business, with cat treaty exposure scaled back dramatically, and the book reoriented towards casualty and specialty lines.
This has led its PMLs to fall around 60% on average since 2019.
In contrast to the reinsurance retrenchment, like other peers the firm has been accelerating in insurance, with 20% year-on-year growth in gross written premium in Q1 2022.
Given the reinsurance squeeze, its group-wide top-line growth has not yet reached the $10bn GWP target it set in 2018 as an aspiration. After a bump-up following its Novae acquisition in 2017, Axis group top line grew by more than $1bn to reach $6.91bn in 2018, but since then had gained only 11% to post $7.69bn GWP in 2021.
However, after the challenging cat years of 2017-2018, the group’s underlying combined ratios have improved – with a ratio of 87.4% in Q1 2022 as compared to 97.7% in full year 2018.
On the firm’s Q1 earnings call, Benchimol highlighted a jump in operating income year on year, which more than doubled, as one of the improving metrics.
“During the first quarter of 2022, we continue to expand our footprint in some of the most attractive specialty P&C markets, strengthened the overall quality of our book and materially lower our net cat exposures, all the while delivering great service to our customers and distributors.”
Axis shares were trading at 1.03x book at Friday close. The firm is trailing its peer group, with Everest Re valued at 1.16x book, RenaissanceRe at 1.22x and Arch at 1.43x, reflecting their superior return profiles.
For the year to date, the stock is down 1.8% into a challenging equity market, outperforming RenRe (which is down 12.8%), but trailing Everest Re at +2.2% and Arch at +3.5%.
Charman and Axis have had a rancorous relationship since he was forced out as chairman of the company in 2012. At the time, Axis’ board said it had been unable to resolve a dispute with Charman about what the role of non-executive chairman should involve, seemingly implying that he had continued to act in an executive capacity.
The former Tarquin CEO founded Axis after 9/11 with what is still the biggest real-terms fundraise ever for a Bermudian carrier at $1.6bn.
He led the company for more than 10 years before handing the reins to former PartnerRe CFO Benchimol in May 2012 and becoming non-executive chairman in place of long-time business partner Michael Butt. He was in place as chairman for less than two months before his ouster by the board.
Charman was subsequently parachuted in as CEO of rival Endurance, which he sold to Sompo for $6.3bn in 2016. He retired as executive chairman of Sompo International at the end of March.
Axis declined to comment.
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