Our next presenter is Albert Benchimol, President and CEO of AXIS. Albert joined AXIS in 2011 as CFO, became CEO the very next year, as I recall. Prior to AXIS, he was a senior executive CFO, wore other hats at PartnerRe for a 10-year period. Since joining AXIS, Albert has built a very experienced team of people, and the pace of change seems to be accelerating at the company. Really to talk about that change, where the company's going, I'm happy to turn it over to Albert Benchimol.
Thanks, Jim. Good morning, everybody, and thank you for attending my session here. I'm really excited to talk to you today and give you a progress report about the transformation of AXIS into a 21st century specialty lines writer. We've done a lot over the last few years, and it's really good to be able to share some of this with you. Obviously, we start with the normal safe harbor. Kind of our investment highlights very quickly. We're in the specialty lines business, and we write specialty both insurance and reinsurance. We're not in the standard lines. We really differentiate ourselves where you need a differentiated underwriting talent, service, claims management, and that's really where we make a difference in the market. As you can see, our track record for the 14 years that we've been in existence is very strong.
Our financial strength is among the best in the industry. Where I want to spend most of our time today is really around our execution of the strategic initiatives to improve the profitability and lower the volatility of our book of business and really transform ourselves into a 21st century company, taking advantage of the trends that are happening in the market today. Very quickly in terms of data, we're 14 years old. We're about 56% insurance, 44% reinsurance in terms of gross written premiums. In the 14 years that we've been in existence, we've written $50 billion of premium, and very proud to say that we've delivered an all-in combined ratio, including corporate G&A of 90 throughout this period of time. Very important, our insurance business has reported underwriting profit in each and every year.
Our reinsurance business has missed that claim in only two years, KRW and 2011 because of the global cats, but other than that, a very profitable business. Since we've started our company in late 2001, our growth in book value per share adjusted for dividends 12.5% among the best in the industry. We're very proud of that record. In terms of financial flexibility and strength, we have close to $7 billion of capital, which includes both preferred shares, perpetual preferred shares, and some debt. Our ratings are all in the A+ range. Very, very strong reserves. I think a statistic worth mentioning is that we do have a policy of very prudent reserve setting, and that's a policy that's composed of three elements. One is making sure that we reserve the current year above the actuarial midpoint.
Secondly, that we take the bad news early, thirdly, that when there is good news, we wait until it's well proven before we take action on that. The result of that philosophy is one that has delivered favorable reserve releases in each year of our existence. Just to give you a sense of that philosophy, literally 90% of our underwriting profits have been declared as reserve releases. I think it's really important when you look at our results both with and without prior year development, you recognize that our results on a max-in-year basis do contain a fair amount of conservatism in there. Finally, $15 billion almost of invested assets, a very prudent allocation of assets are fixed income with an average rating of AA- and a strong balance sheet with debt and preferred at less than 24%.
I don't want to spend a lot of time on this slide, but I do want to highlight for you that in 2014, we've announced a four-point strategy to significantly reduce the volatility, enhance the profitability of our business, and the good news is that we have delivered and will continue to deliver on that. Let me walk you through the highlights of that. We talked about achieving against the 2014 levels about four points of improvement in our combined ratio, excluding any potential impact that may come from rate and trend in the market. If you think about that, it's about a point in expenses, about a point in increasing the profitability of our newer businesses so they are less of a drag on our business and at least two points of improvement in the loss ratios of our existing businesses.
We've delivered on each of those. If you look at the underlying loss ratios through the application of analytics to guide our underwriting actions, we've significantly enhanced the underlying profitability of many of our portfolios. We will continue to do that. In fact, one of the statistics that I've mentioned through our insurance book for 2015 is that we've essentially kept the combined ratio flat for the insurance business, notwithstanding the fact that we absorbed close to two points of adverse rate and trend and that our midsize loss experience due to energy losses was twice what it was in the prior three years. We were able to absorb a lot of adverse events and still keep the combined ratio essentially flat on the insurance business. With normal midsize losses, we think we can start demonstrating some progress, and I'll talk more about that.
Also change the mix of business to have less volatility, and I'll share that with you. In terms of profitable growth of our individual businesses in the insurance area, our new initiatives, including A&H, grew 30% in 2015, and the aggregate combined ratio of that book of business was down by four and a half combined ratio points, and the drag against our overall results was cut in half. From over two points to less than a point. With regards to expenses, we've identified $50 million of expenses that either have or will come online between now and the end of 2017, and we are continuing to seek for additional efficiencies where we can use the savings to continue to fund our investments in underwriters, in analytics and data, and building our franchise. We feel very good about that progress.
These are new slides, I want to walk you through the geography of these slides. These slides are really about the changes that we have instilled in our mix of business over time. You see in the slides two charts. The top is the insurance chart, and the bottom is the reinsurance chart. Let me walk you through the geography of those slides. The orange bars that you see in each of those charts going from 2010 to 2015 is the volatility in our plan. This is the standard deviation of the dispersion of potential results of the book of business that we intend to create every year. That's our plan. The volatility of that plan, we indexed at 100 in 2010.
You can see both in insurance and in reinsurance, that every year we have planned to reduce the volatility of our portfolio through underwriting actions, through mix shifts, through uses of reinsurance. Dramatically from, in both cases, in insurance, you see that we're in the 60% range and below 60% of what it was in 2010. That's what we plan to do. Let's talk about what we actually delivered. The lines that you have on this chart in the diamonds are a rolling 12-quarter volatility of results. The diamonds are rolling 12-quarter volatility of results ex-CAT, and the dotted lines are the rolling 12-quarter volatility of results, including CAT. In fact, part of the reduction in volatility that we're creating is a reduction in the CAT exposure of the company.
You can see that both in insurance and in reinsurance on both an ex-CAT loss basis and with CATs, we've had a significant reduction of the volatility of our book of business, and that drives capital efficiency going forward. Although you may have a higher combined ratio in some cases, that you can still achieve an ROE, which is as good or even better because of the capital efficiency that you can have. This really demonstrates that the actions that we planned ultimately delivered the results that we intended. This is, in my mind, very important both for the stability and the financial strength of the company, but for our shareholders. We know that companies with lower volatility of earnings do tend to deliver a higher valuation, a higher multiple of book value. How do we achieve that?
We achieve that through macro changes in our portfolio and micro changes in our portfolio. For macro changes, I'm talking about mix of business between short-tail lines, property CATs, mid-tail lines that are not property-related, and then longer tail lines. As you can see on the insurance side, on top, the blue being the property-related lines, have shrunk from 2010 to 2015. Growth in the mid-tail lines that are not property-related and the long tail lines are about essentially the same. The reinsurance book is the one that really had significant change in their composition. You can see where we had a significant component of our portfolio in property and property CAT in 2010, and today it is less than 30% of the book of business.
That reduction in premium has been offset by growth in other short tail lines and also growth in longer tail lines, including professional liability, GL, and motor business. Now, these are the right decisions to make. I think if anybody, whenever we talk with anybody about where the CAT book is today, there is no doubt that the CAT book has seen significant reductions in pricing, significant reductions in target profitability, significant reductions in target ROE. It's the right thing to do to reduce the composition of CAT in the overall portfolio. Not simply changing the macro composition of the portfolio, but also within each of those portfolios, using data and analytics and helping our underwriters with giving them much more data so that they can improve the individual underlying portfolios. I'll share some of that with you.
The one negative in the near term when we do this is that the mix and the shift of business actually masks the value of our efforts and the improvements that we've delivered in each of the lines of business. That's what I want to talk about next. These are somewhat busy lines, and again, I'll walk you through the geography. Insurance on top, reinsurance on the bottom. The dotted line, or the dashed line is our reported loss ratio, developed loss ratio for each line of business for each year through the fourth quarter of 2015. This is the data that you get when we deliver our triangles to you, the fully developed data. As you can see, it's been kind of flat in the insurance, and it's trended only a little bit up in reinsurance. Why is that?
It is only because of the change in the mix of business, the reduction in the CAT component of our book of business. If you look at the top chart, the green line is the fully developed loss ratio for our longer tail lines, which includes professional liability and GL. You can see that after some increases that we observed in 2012 and 2013, there is a downward trend in that line, notwithstanding market conditions. You can see that the loss ratio is declining in professional lines and GL, that includes our prudent reserving philosophy, which is not yet giving full credit to what we believe we've seen in the portfolio that we've built.
The blue line that you see is a property line, we told you that we were making significant changes to our property book, that we were reducing micro zonal concentrations, we were focusing on the dispersion of risk, you can see the significant reduction in the blue loss ratio for the property lines. The red lines are the specialty lines, which include marine, accident and health, energy, and so on. You can see that those are generally very profitable lines. As we indicated to you, in 2015, we did see a spike in losses and mid-size losses that came out, and that did have an adverse.
We remain of the view that is not a trend, but normal volatility in specialty lines, and we are very confident that the actions that we are taking are delivering real results in terms of loss ratios. Same thing with regard to our reinsurance book. Our ex-CAT loss ratio has gone up in reinsurance, not because the profitability of our individual lines is going down. The profitability of our individual lines is staying flat or improving, it's simply because we are writing less of a CAT book. From a macro perspective, I think we've got the mix of business that we generally want. We will certainly continue to make tactical adjustment to our book of business to write whatever is the best business that's available in the market at any point in time.
We are also very optimistic that as we continue our investments in data and analytics, in improved processes, in arming our underwriters to make the best decisions, that we will continue to see improvement in the underlying loss ratios of our business. This slide really speaks to, you'll have the slide so you can read all the details, but it really speaks to this journey that we are engaged upon with regard to the transition of AXIS into a 21st century company. It's about arming the best people in the industry with the best tools and the best data to make the best decisions. This is not something that we are promising to do in the future. It's something that we've initiated a few years ago and that we continue to execute on. Let me give you some examples.
As we said to you, we've increased the amount of analysts and actuaries in our portfolios. We started in 2014 with professional lines and property in insurance, and you saw in the charts already the benefits that we're seeing in terms of the loss ratios for those businesses. With regards to reinsurance, we're doing exactly the same thing. We've created a new approach to categorizing risk. We've introduced marginal scoring. Just this year, we've announced a very strong development with regard to the development of the non-CAT database to allow us to analyze credit and trade credit exposures. These are analytics that we're not simply using for ourselves. These are analytics that we're sharing with our clients, and it's really developing great goodwill with our clients to share that. We have not stopped. We're doing much more.
By early this year, we will have finished reviewing all of our portfolios on the insurance side. Our underwriters will have all that data for them. We will then start to use that and transition to predictive analytics. We are targeting predictive analytics to D&O and professional liability to start in 2016. We are looking at predictive analytics in terms of triaging our submissions. We receive thousands upon thousands upon thousands of submissions every year. The question is: where do we want to spend our time and energy? We've now collected the kind of data that allows us to identify the profiles of the submissions by broker, by category, by size, that are most likely to give us the business that we can win, that we want and that we can win.
That is going to allow us to get so much more productivity out of our underwriting teams. We will continue to do that, expand that through other lines of business. We will continue to expand some of the modeling that we have on the reinsurance side to other lines of business. For those of you who monitor great companies out there like Progressive or Travelers, you go, "Gee, I hear that from them." What's so special about that? The issue is, it's true that when you're dealing with a very large number of small, relatively homogeneous accounts, these data and analytics have been in place for quite some time. They have not been in place in specialty risks. In fact, there's been a real issue in applying analytics to specialty risks.
We really do believe that we are about to break out in terms of the analysis of these specialty risks and using the findings from these analyses to improve our portfolio and act on that. It's a very exciting time for us as we build the 21st century reinsurer. This is a slide that you may have seen before, but this is our vision of that 21st century insurer and reinsurer. It's about having a formidable front end with great underwriters, great service, a customer-centric approach to value creation and solving problems, introducing new products that respond to the new risks of the day. It's about strategic relationships with our brokers to identify and win the best business that's out there.
It's about having one of the best claims organizations in the industry, where we can differentiate ourselves and win business upfront because of the capabilities that we can demonstrate on the claims side. Of course, having among the best underwriters in the business. I've spoken to you already about analytics and portfolio construction, I'll skip that. The third part of the 21st century insurer and reinsurer is about leveraging multiple sources of risk funding to ensure that we match the risk to the best capital for that risk. That, of course, includes keeping a lot of that risk on our own balance sheet, making more efficient use of reinsurance, using capital market hedging tools, but also having an array of strategic partnerships that we can work with to have capacity, to have capital that we can use for the benefit of our clients. Why that?
The more third-party capital we have, the more we can do for our clients, the more we can give them capacity for attractive risks. We can earn fees, very attractive fees, from the management of those risks to improve the net ROE of our company. For the investors, we can provide them with very strong analytics to allow them to get exactly the risk they want. There are very different appetites for risks in the capital markets, by duration, by volatility, by potential severity. Not everybody wants all types of risks. With the analytics that we can provide, we can pinpoint the kind of risk profile that investors want, and we can help them share that data with their own clients to make sure that they're giving their clients exactly the risks and the returns that they are seeking.
This is the 21st century insurer and reinsurer that we are building at AXIS, we've made significant progress on that. Just to conclude, I think the relevance of our franchise is increasing every day, both in 2015 and what we're seeing in 2016, all of the signs continue to be very strong. We are absolutely delivering on the targeted initiatives that we've put in place in 2014 to improve our profitability, we are investing in the next generation of insurance companies and creating the 21st century insurer and reinsurer. You are all aware of a significant amount of turmoil in the industry right now. A lot of people are figuring out what do we need to do in this market. We've been on this journey for three years. We've asked ourselves a lot of questions.
We've struggled a lot with what do we want to do, how do we want to do it. We are already on the path, I believe we're incredibly well-positioned to take advantage of both the opportunities and the challenges that people have in this industry. That's my prepared remarks, what I really want to do is rush through that so we can spend some time on the Q&A. Jay, if you'll join me, we can go through that.
Well, I'll stay right here. Any questions for Albert? Albert, let me start. A couple of questions. On page 12, where you talked about this new model for a reinsurance company, for the modern-
Insurance and reinsurance.
Insurance and reinsurance. You sort of had it on there, but you didn't talk much about the investment side.
Sure.
Many of the newer vehicles you're seeing, Watford, ABR Re, there's an investment component that adds something a little unique to the traditional model.
Is that part of the thinking as well, to align yourself with an investment manager?
Well, that's what we talk about here if you take a look at this little square here under strategic capital partners. It's really about creating balance sheets that are appropriate for the risks and, of course, matching the right investment for the right risk. For example, it would not be appropriate to use long-term funds like private equity or long-term credit funds for a short-tail portfolio where liquidity is important. If you're doing a CAT portfolio, you're dealing with something that has high volatility, low duration. It has to be a short-term portfolio, right? If you're dealing with something that has a lot of GL, a lot of professional liability, you can afford to have a portfolio that is better matched in terms of longer-term drawdown funds, real estate investments, private equity, and so on and so forth.
It's about creating the right vehicles, whether it's a sidecar or a separate vehicle like a Watford, that allows you to do that. Absolutely, that is part of the overall vision.
As far as investment and returns, in other words, taking some of the flow-
Right
that you're generating, investing more in alternative investments, that's also part of the-
It's absolutely something that we're looking at. Obviously, we don't announce anything until it's done. You can rest assured that we've got some very smart people looking at that. In fact, my colleague Ben Rubin, who's in charge of our third-party capital efforts, is here, and I'm surprised he found the time to be here because he's so busy working on a number of opportunities as we speak.
The other question I had was on some of these, the higher number of mid-size losses.
Yeah.
It seems like you've had a chance to look at them, analyze them. As you do that, are you convinced that these were, quote, "unusual in nature," or could we see this just an elevated level of claims going forward?
It's very difficult with a single point to analyze whether you have a trend or not. I think if you look at the specialty lines, and marine in particular, marine has been one of our most profitable lines. It's a line of business that occasionally has a bad year. This year in 2015 was the worst in energy, I think since 2008, and before that, 2005. Every once in a while it'll pop. There is no question that the industry has seen a larger number of events in 2015. The next question is, okay, there's a greater number of events. How does our participation in those events look like? Do we have a larger share of the losses?
In fact, when you look at our share of the losses, it's about a little over 3% of the industry losses. We have about 4% of the industry premium. It's consistent with our market share of those losses. We feel very good again that when we are getting a loss, it's the kind of loss that we expect based on our underwriting and our expected risk appetite. We're monitoring it, of course, but our expectation as of now continues to be that it is one of those unusual high severity, high frequency and severity years, and we'll see what 2016 gives.
Let me throw one more out there. During the PartnerRe courtship, you spoke very positively about that combination.
Sure.
You were very enthused about the potential for that merger. Does it make sense given the benefits that you cited quite frequently and loudly about that, does it make sense there has to be another company out there that might have the same characteristics? Does it make sense to pursue something like that?
I think it certainly had a number of benefits because it certainly allowed us to have more of a front end and to do more of leveraging third-party capital and again, to use this data and analytics over a broader portfolio. It gave us potential. The one thing that drove the PartnerRe transaction was it was an incredibly attractive transaction for us. It was accretive in book value. It was accretive on earnings. There were great efficiencies to be had. The truth is, when there was another bidder and the price went up, at some point, that deal didn't look as attractive to us.
I think you are aware, the truth is the company did not go at a huge price. It's not like it was so large, but we were interested only when it made great sense for us. When it stopped making great sense for us, we stopped going for it. If we found a transaction that gave us the same kind of benefits and the same kind of economics, of course, we would look at it. We didn't seek a dilutive transaction because we needed it. We were approached, as very clear in the proxies, we were approached and were able to negotiate a deal that was very attractive. We took it.
Got it. Any other questions out there? All right. Great, Albert. Thank you very much. Appreciate it.
Thank you. Appreciate it.