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Text: If you'd like copies, please visit the investor information section of our website, axiscapital.com.
This was a strong quarter for AXIS in a year where we demonstrated meaningful progress in strengthening all aspects of our business and in enhancing the value proposition that we deliver to our customers.
I'm grateful to my access colleagues for their tenacity and commitment in serving our brokers and clients as well as supporting one another, as we collectively navigated to a dynamic environment that included another tough cat year, continued curve balls thrown at us by the COVID pandemic, and rising inflation.
To the credit of our team in 2021, AXIS advanced its efforts to reposition the portfolio, manage down volatility, and drive profitable growth while capitalizing on a favorable market.
We began 2022 as a stronger company than we were just a year ago, committed to further increasing the value that we deliver to all of our stakeholders, and we're confident that we'll continue to build on our progress in the year ahead.
In a few minutes, people will walk us through the fourth quarter results, but I'd like to take a moment to step back and put our annual results in the context of a multiyear transformation.
Let me get to some of the specifics of the evident progress in our performance.
Comparing our results in 2017, we've taken our attritional ratio down by nine points to 55.1 this year and brought our current year ex-cat combined ratio by 10 points to 88.7, the best since 2007.
All the while, we reduced our PML by over 50% across the curve.
The improvement in our performance is attributable to more proactive reshaping of the portfolio, reduction of limits, and modification of attachment points, in addition to good growth in selected lines once they reached rate adequacy.
In 2021, industry cat losses are up about 40%, and but our cat loss ratio stayed flat at nine and a half.
This is still higher than we target, even in a $100 billion-plus cat year, and we're actively continuing our disciplined actions to reduce our cat exposure and deliver more consistent earnings.
Importantly, we continue to build a very successful specialty insurance franchise, which produced $4.9 billion of gross premium in 2021, making up 63% of our writings, up from 50% in 2017.
We expect that number to approach 70% this year as we capitalize on our already well-established presence in some of the most attractive P&C markets today.
Our insurance business is producing excellent results, growing production by 20%, generating record new business and total premiums, while at the same time, strengthening the overall portfolio.
Our insurance segment delivered a combined ratio of 91.6 this year, the best since 2010 and a parent year ex-cat combined ratio of 85.9, the lowest since 2006.
We're confident that the business is on pace to establish its place among the top carriers in the specialty insurance sector.
We continue to be focused on actively growing this business by enhancing the customer experience, and investing in capabilities and services that will increase the value that we deliver to our customers and the greater specialty sector.
Our reinsurance business also delivered improved performance and it's an encouraging sign of progress that in a very high cat year for the industry, it produced a combined ratio below 100.
In addition, the current year ex-cat combined ratio of 86.3 was the best since 2012.
This progress demonstrates the work our team has done to improve the quality and resilience of our reinsurance portfolio.
And as I noted earlier, we're fully committed to driving even more progress.
Indeed, during the recent January 1 renewals, where we write more than 50% of our reinsurance business, we advanced our corporate objectives to reduce volatility, allocate capital rigorously, and produce the most optimized portfolio for the current market.
As such, we took decisive action and reduced our reinsurance property and property cat premiums by 45%.
Our performance over the last few years tells us that our plan is generating tangible results, but we're still not done.
We won't be satisfied until we consistently deliver top quintile performance.
I've said this before, but it repeating, we know exactly what we need to do to sustain this momentum and profitably grow our business.
We'll continue to grow a franchise that leverages our broad global capabilities to deliver value-added products and services that meet our customers' needs.
We'll continue to intelligently grow our portfolio while reducing exposure to catastrophe events.
We're focused on achieving a competitive expense ratio that can support continued investment in long-term profitable growth, and we will continue to invest in our culture, our people, and then making a positive impact in our communities as well as in advancing our ESG objectives.
We're excited to begin 2022 and looking to the future with optimism and enthusiasm.
We're confident in what we can achieve and believe there's significant runway to further grow the business, deliver consistent profitable results, and enhance the value that we provide to all our stakeholders.
And with that, I'll now pass the floor to Pete, who will walk us through the fourth quarter and year and I'll come back to discuss market trends, and we'll have our Q&A.
This was an excellent quarter for AXIS in what was another good year of progress for the company.
During the quarter, we generated net income available to common shareholders of $197 million and an annualized ROE of 16.4%.
Operating income was 182 million, and annualized operating ROE was 15.1%.
The combined ratio for the quarter was 93.1%, with core underwriting results continuing to show improvement.
The company produced a consolidated current accident year combined ratio ex-cat and weather of 89.5 points, or 2.3 points better than the prior year quarter.
The improvement was attributable to both segments.
The consolidated current accident year loss ratio ex-cat and weather was 54.3%, a decrease of more than three points over the prior year quarter.
This was driven by improvements in the insurance segment.
The quarter's pre-tax cat and weather-related losses net of reinsurance were $54 million or 4.3 points.
This compares to 198 million or 18.4 points in 2020.
2020 did include 125 million or 11.6 points attributable to the COVID-19 pandemic.
There was no change in the total net loss estimate of 360 million established in 2020 for the COVID pandemic.
We reported net favorable prior year development of $9 million in the quarter, and this compared to 7 million in the fourth quarter of 2020.
The consolidated acquisition cost ratio was 20.4%, a decrease of 0.9 point over the prior year quarter, and that was attributable to both segments.
The consolidated G&A expense ratio was 14.8%, an increase of 1.7 points compared to the fourth quarter of '20.
The G&A ratio was impacted by year-over-year increase in performance-related compensation costs as well as an increase in personnel costs, partially offset by an increase in net premiums earned.
The personnel costs were largely associated with increased headcount in our insurance segment.
We are really pleased to continue to attract talented individuals to join our team and support the growth.
especially considering the favorable market conditions we see in this sector.
Normalizing the G&A ratio, which was primarily impacted by performance-related compensation.
The fourth quarter '21 ratio was 13.5%, and this would compare to a normalized 4Q 2020 of 13.8%.
We continue to focus on expense efficiency and expect to achieve a mid-13 G&A ratio going forward.
And lastly, on a consolidated basis, fee income from strategic capital partners was 27 million for the quarter, compared to 13 million in the prior year, largely associated with an increase in our investment manager of performance fees.
Now we'll discuss the segments.
I'll start with insurance, where once again, we had continued improvement across the underwriting metrics.
The current accident year combined ratio ex-cat and weather decreased by over five points, reflecting the underwriting actions we have taken to strengthen the portfolio.
Gross premiums written increased by 19% to 1.3 billion, making it our highest fourth quarter ever.
I would also note that the year-to-date gross premiums written of 4.9 billion, was also a record for the insurance segment.
The increase in gross premiums written in the quarter, primarily related to new business and favorable rate changes centered in the professional lines, liability, property, and marine.
The current accident year loss ratio ex-cat weather decreased by 5.3 points, resulting from not only the impact of favorable rate over trend but also driven by improved loss experience in several lines of business.
Pretax catastrophe and weather-related losses net of reinsurance were 23 million.
These were primarily attributable to the Quad-State tornadoes and other weather-related events.
The acquisition cost ratio decreased by over a point in the fourth quarter compared to 2020.
This was mainly related to an increase in ceding commissions due to growth in professional lines.
This is consistent with what we've been discussing throughout the year.
Now let's move on to the reinsurance segment.
During the quarter, our current accident year combined ratio ex-cat weather decreased by a point due to the repositioning of this portfolio.
The reinsurance segment's gross premiums written was essentially flat compared to the prior year quarter.
I would note that the fourth quarter is the smallest quarter for gross premiums written for reinsurance representing less than 10% of their annual gross premiums.
If we look at the full year, gross premiums written increased by a modest half a point as we continue to make changes in the portfolio, to improve balance and profitability of the book.
The current accident year loss ratio ex-cat weather increased by 0.2 point, resulting from the change in business mix as we increased writings in accident and health and liability along with a decrease in premiums earned in catastrophe and credit surety businesses.
This mix impact was offset by favorable rate over trend in all lines of business.
Pretax catastrophe and weather-related losses net of reinsurance were 32 million.
This was primarily attributable to December convective storms, the Quad-State tornadoes and other related events.
The acquisition cost ratio decreased by 0.4 points compared to the prior year quarter.
This was primarily due to the impact of retrocessional contracts.
Net investment income was 128 million for the quarter, and this compared to net investment income of 110 million for the fourth quarter of 2020.
The increase in net investment income was primarily attributable to positive returns from our alternative assets, principally related to private equity funds as well as a positive return on our privately held investment.
This was partially offset by a decrease in income from fixed maturities attributable to lower yields on the portfolio.
With respect to yields, at the end of the year, the fixed income portfolio had a book yield of 1.9% and a duration of three years, and our new money yield was 1.7%.
As we sit here today, given the movements we've seen in rates, our current new money yield is virtually equivalent with our book yield.
It's good to see these two yields coming together so that we can avoid any more headwind to our fixed income portfolio yield going forward.
Diluted book value per share increased to $55.78.
This was principally driven by net income generated, partially offset by a decrease in net unrealized gains related to increased treasury rates, and the widening of credit spreads as well as common share dividends declared.
Overall, the continued improvement in most operating metrics and positive momentum in our core underwriting book, this was a very strong quarter for AXIS.
That summarizes our fourth quarter results.
Market conditions remain quite strong.
Within our insurance segment, this represents the 17th consecutive quarter of rate increases and the 7th consecutive quarter of double-digit increases.
The average rate increase in our insurance book was more than 14% for the fourth quarter.
For the full year, rates also averaged up 14%, which was nearly identical to the increases that we saw in 2020.
Average rate increases were generally equivalent across both our North American and London International businesses.
By class of business, professional lines once again saw the strongest pricing actions with average rate increases of close to 24% for the quarter and nearly 22% for the year.
Continued rapid pricing escalation in cyber remains the key driver.
For the quarter, Cyber increased nearly 80% and averaged 50% for the year.
Excluding cyber, other professional lines are averaging 13% for the quarter and 14% for the year.
Breaking it out further, London is averaging more than 18% for the quarter and the year, Canada is averaging more than 30% for the quarter and 24% for the year, while in the U.S., rates are averaging about 9% for the quarter and about 11% for the year.
Liability, primary casualty, and excess casualty are all averaging increases in the high single digits for the quarter and the low double digits for the year.
Property rates increases were close to 10% for both the quarter and the year.
Among our other specialty lines, we saw high single-digit to low double-digit increases across the portfolio.
This included renewable energy, where we're a global leader at 13% for the quarter and the year.
While in marine and political risks, those increased 11% for the quarter, with an annual average just shy of 8%.
During the quarter, 96% of our insurance portfolio renewed flat to up and about half of the increases were double digit.
As mentioned earlier, we're achieving record new business production and we continue to see new business pricing metrics at least as strong, if not better, than renewal pricing.
In this market, we have terrific positioning and the ability to add value to our customers and partners and distribution while growing quite profitably.
The question on everyone's lips is how long will it last.
Looking forward, we expect that after many years of unsatisfactory performance, the industry will sustain a rational approach to pricing.
And there are enough uncertainties and pressures on loss costs and profitability as well as higher reinsurance costs to bear, that we expect disciplined pricing through 2022 and potentially into 2023.
Let's look at our reinsurance segment.
We estimate that for the full year 2021, we averaged reinsurance rate increases of about 11%.
As Pete just noted, the fourth quarter is a relatively small renewal period for Access REIT.
My comparison, just over half of our reinsurance business renews at January 1.
So I'll focus my comments on 1/1.
There's been a lot of talk already in the industry about 1/1 and there's no doubt that pricing is making further progress.
At AXIS, during the January 1 renewals, we saw average rate increases of about 9%.
Our international book renewed at average increases of more than 10%, while our North American book generated increases of 9%.
By and large, professional lines, casualty, and A&H came in, in the high single to low double digits, and other specialty lines, including marine, aviation, and credit and surety in the low to mid-single digits.
On property cat pricing, you'll have heard that global rates average in the 10-ish percent range.
but pricing was not uniform across the book.
Lower layers of reinsurance towers and aggregate treaties where supply was more constrained, exhibited the strongest pricing increases, especially if they were loss impacted.
In those loss impacted treaties, you would have seen increases in the 25% to 50% range.
As one moves up the towers to layers that are further removed from frequency and where supply was more plentiful, rate increases were more subdued.
As I noted earlier, we took meaningful action to reshape our cat portfolio and reduce our overall earnings volatility.
This was evidenced by a 70% reduction in gross premiums for aggregate treaties and a 75% reduction in gross premiums on low-attaching treaties among our various actions, leading to a 45% reduction in property and property cat reinsurance premiums at the 1/1 renewals as compared to the prior year.
This is consistent with our commitment to build the portfolio that we believe will drive the economic performance that we target.
Given the changes expected to our portfolio to reduce both frequency and severity, our average rate increase on profit was 7%.
With the reduction in profit and deposit [Inaudible] [Technical Difficulty] I'm sorry, my line was going down so I'm replacing it.
So with reduction to the property and catastrophe exposure, these two lines represented about 17% of our 1/1 renewal premiums, down from 27% in the 1/1 renewal portfolio last year.
I'm pleased that despite this meaningful shift in business mix and reduction in property cat lines that generally model well.
We continue to expect an improvement in overall technical ratios, but with much lower volatility.
Our general view of the reinsurance market is that while it's still running overall behind primary pricing, the market is heading in the right direction, but must continue to do so to adequately compensate reinsurers for the risk and volatility they assume.
In the year ahead, with the outlook that we have for the market, we will push for continued growth of our specialty insurance business.
We remain disciplined in our capital allocation to those lines in markets that provide the best balance of both short-term and longer-term opportunity, while working in partnership with our customers and brokers to ensure we maintain transparency on our ongoing support as we help them solve their risk management needs.
We see a bright future for AXIS.
We have a great team that's fully engaged and committed to building on our progress, generating consistent and sustained profitability, and enhancing the value that we deliver to our customers and shareholders.

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compname reports fourth quarter net income available to common shareholders of $197 million.
compname reports fourth quarter net income available to common shareholders of $197 million, or $2.31 per diluted common share and operating income of $182 million, or $2.13 per diluted common share.

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