Moody’s Affirms AXIS Capital’s Ratings
Moody’s Investors Service on Tuesday [May 14] assigned a Baa3 [hyb] rating to the 5.50 percent Series D preferred shares to be issued by Bermuda’s AXIS Capital Holdings Limite in an amount up to $230 million.
AXIS Capital will use the net proceeds from the offering to repurchase all $100 million of its Series A preferred shares [7.25 percent dividend] and to fund general corporate purposes, including common share repurchases.
Moody’s has also assigned provisional ratings to the shelf registration of AXIS Capital Holdings Limited and AXIS Specialty Finance LLC, and affirmed existing ratings, including the A2 insurance financial strength ratings of AXIS Capital’s principal operating subsidiaries. The outlook for all ratings is stable.
Moody’s stated that the Baa3 [hyb] rating assigned to the Series D preference shares reflects standard notching [vs. the senior rating] for non-cumulative preference shares.
The security, which is intended to constitute Tier 1 or Tier 2 capital in accordance with the group insurance regulatory requirements of the Bermuda Monetary Authority, is rateable by Moody’s because although it contains a “variation or exchange” provision, the conditions under which the security could be varied/exchanged, and the nature of changes that could be made, are limited in ways that retain important protections for investors.
The Series D preferred shares will receive some equity credit from Moody’s in its financial leverage calculation based on the securities’ subordination, optional deferral, non-cumulative nature of dividends and lack of a stated maturity. After adjusting for equity credit and redemption of Series A preferred shares, the Series D issuance will increase the debt-to-total capital ratio for the group by less than one percentage point to approximately 21 percent pro forma as of March 31, 2013.
Moody’s A2 insurance financial strength rating for the principal operating subsidiary, AXIS Specialty Ltd., is based on its broad market acceptance, comfortable risk-adjusted capitalization, good spread of risk, and generally good operating returns since its inception in November 2001.
A Moody’s spokesman said: “The group’s subsidiaries operate diverse global platforms which allow management to trade from one class of business to another as market conditions change, hence mitigating industry cyclicality. At the same time, however, multiple platforms also mean broad appetite for risks.
“Some of these risks are highly specialized or have a significant credit component correlated to credit markets, which raises the possibility of a fortuitous clash of risks. Other credit challenges include significant exposure to catastrophes and reserve uncertainty in long-tail classes, though Moody’s believes the company’s current reserve position is reasonable.”
According to Moody’s, the following factors could lead to an upgrade of AXIS’ ratings: 1) adjusted debt-to-capital ratio below 20 percent cross cycle; 2) earnings before interest and taxes [EBIT] fixed charge coverage above 9x cross cycle; 3) return on total capital above 13 percent cross cycle; 4) gross underwriting leverage below 2.0x cross cycle [the sum of gross premiums plus gross loss reserves divided by total equity minus 10 percent of high-risk assets].
Conversely, Moody’s said the following factors could lead to a downgrade: 1) adjusted debt-to-capital above 25%; 2) EBIT fixed charge coverage below 6x in consecutive years; 3) decline in shareholders’ equity [including share repurchases] by more than 10 percent over a rolling twelve month period; 4) material increases in loss reserve estimates for prior accident years; 5) the 1-in-250 year annual aggregate modeled loss from natural catastrophe perils (with consideration of multiple events per year), net of reinsurance, exceeds 50 percent of total shareholders’ equity.
The following ratings have been affirmed with a stable outlook:
- AXIS Capital Holdings Limited — senior unsecured debt at Baa1; preferred stock at Baa3 [hyb];
- AXIS Specialty Finance LLC — guaranteed senior unsecured at Baa1;
- AXIS Specialty Limited — insurance financial strength at A2;
- AXIS Reinsurance Company — insurance financial strength at A2;
- AXIS Re Limited — insurance financial strength at A2;
- AXIS Insurance Company — insurance financial strength at A2.
The following ratings have been assigned with a stable outlook:
- AXIS Capital Holdings Limited – Series D preference shares at Baa3[hyb];
- AXIS Capital Holdings Limited — provisional senior unsecured debt at [P]Baa1, provisional subordinated debt at [P]Baa2, provisional junior subordinated debt at [P]Baa2, provisional preferred stock at [P]Baa3;
- AXIS Specialty Finance LLC — provisional guaranteed senior unsecured debt at [P]Baa1, provisional guaranteed subordinated debt at [P]Baa2, provisional guaranteed junior subordinated debt at [P]Baa2;
AXIS Capital is a Bermuda-based global provider of specialty lines insurance and reinsurance with consolidated shareholders’ equity of $5.9 billion as of March 31, 2013.
The principal methodology used in this rating was Moody’s Global Rating Methodology for Reinsurers published in December 2011.
