Fitch Affirms Ratings Of AXIS Capital Holdings

December 21, 2014

Fitch Ratings has affirmed the ‘A+’ Insurer Financial Strength [IFS] ratings of AXIS Capital Holdings Ltd. [AXIS Capital] and its operating subsidiaries. The Rating Outlook is Stable.

A statement from the ratings agency said,AXIS Capital’s ratings reflect its ‘Medium’ market position and size/scale, strong capitalization, good profitability and history of favorable reserve development. Balanced against these strengths are material catastrophe exposure and greater earnings volatility relative to its closest peers over the most recent five-year period.

“AXIS Capital’s market position and size/scale is considered ‘Medium’ based on premiums and stockholders’ equity metrics. Medium companies typically have IFS ratings in the ‘A’ category, but can reach into the lower ‘AA’ category.

“AXIS Capital utilizes a reasonable amount of operating leverage relative to other Bermuda insurers with significant catastrophe exposure. The company reported an operating leverage ratio of 0.7x at Sept. 30, 2014, essentially unchanged from year-end 2013.

“Near-term capital growth is limited by management’s strategy to return capital to shareholders in an amount equal to operating earnings. The financial leverage ratio was 20% at Sept. 30, 2014, but is expected to be at a more normalized level of approximately 15% at year-end 2014 after a December debt maturity.

“AXIS Capital’s profitability compares favorably to Fitch’s median guidelines for the current rating category, but trails reinsurance peers with a similarly diversified book of business. Underwriting ratios deteriorated modestly during the first nine months of 2014 as AXIS Capital reported a combined ratio of 91.6%, including 2.5 percentage points from catastrophe and weather-related losses and 6.6 points of favorable reserve development.

“Return on equity was 15.6% during the first nine months of 2014, benefiting from pre-tax realized investment gains of $121 million and flat equity due to material common stock repurchase activity.

“AXIS Capital has a history of favorable reserve development, reflecting positively on reserving practices. Over the past two years, the Reinsurance segment reported greater favorable reserve development relative to the Insurance segment. Year-to-date 2014, AXIS Capital reported net favorable reserve development of $193 million, up from the prior year period despite expectations for a reduced benefit.

“AXIS Capital has significant exposure to catastrophe-related losses; however, the company’s varied premium mix of non-property lines provides some earnings diversification. Over the last several years AXIS Capital has been changing its mix of business in order to reduce risk to catastrophe losses. Expectations are for a higher run-rate combined ratio with lower volatility from catastrophes.”

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