AXIS Fourth Quarter Profits Jump
Driven by higher premiums from both its insurance and reinsurance segments, Bermuda-based AXIS Capital Holdings Ltd. yesterday [Feb. 8] posted a fourth quarter 2010 profit of $264 million, or $1.99 a share, compared with $282 million, or $1.87 cents a share, the previous year.
Operating earnings were $187 million, or $1.41 per share, compared with $276 million, or $1.83 per share, a year ago.
Revenue rose 9.7 percent to $943.32 million, helped by a boost in net premiums earned and higher realized gains on investments.
Net premiums earned rose 6 percent to $757 million and the company made $77.7 million total net realized gains on investments, compared with $6 million in the year-ago.
Combined ratio for the quarter was 85.6 percent, compared with 77.5 percent a year ago. Combined ratio is the percentage of premiums an insurer has to pay out in claims and expenses. A figure over 100 indicates that underwriting was unprofitable.
Commenting on the 2010 financial results, John Charman, AXIS Capital’s CEO and president, stated: “AXIS finished the year strongly with an annualized operating return on average common equity for the fourth quarter of 14.3%. Our 2010 operating return on average common equity was 12.4% and our diluted book value per share increased 17% during the year. Our combined ratio for 2010 was an excellent 88.7%. During the year, we also returned $820 million to shareholders through share repurchases and dividends.
“Over the last five years, we have increased book value per share at a compound annual rate of 16.5%. All of this has been accomplished despite a difficult economic environment, a challenging property and casualty insurance and reinsurance operating environment and a few relatively active and costly catastrophe years.
“During the year, we continued to invest heavily in our global underwriting platform that will allow for substantial and broad scalability of our profitable underwriting portfolio when the market turns. This scalability will positively impact a far more diversified profile of business than we have seen at AXIS in any period to date. In 2011, we will continue to strive for underwriting margin, manage risk more sharply each day, strongly position our investment portfolio for a rise in interest rates and prudently manage our capital. Regardless of the timing of the market turn, we believe we are strongly positioned to continue to generate market-leading book value growth for our shareholders.”
Shares of the Bermuda-based company, which has a market value of $4.5 billion, closed at $36.82 on Tuesday on the New York Stock Exchange. They have marginally gained in value since December when the company raised its dividend.
Our insurance segment reported gross premiums written in the quarter of $497 million, up 6% from the fourth quarter of 2009, primarily driven by professional lines. For the full year, gross premiums written were $1,916 million, an increase of 8% from the prior year, primarily driven by professional lines, property and offshore energy lines. Net premiums written increased 34% and 30% for the fourth quarter and year to date, respectively, with net premiums earned increasing 8% and 4% for the same periods. These increases were primarily due to changes in our ceded reinsurance purchasing on renewal during the second quarter and the increase in gross premiums written.
Reinsurance Segment
Our reinsurance segment reported underwriting income of $65 million for the quarter, a decrease of 50% compared with the fourth quarter of 2009. The segment’s combined ratio of 84.9% was higher than the 68.3% reported in the fourth quarter of 2009. The current accident year loss ratio increased from 56.8% in the fourth quarter of 2009 to 69.3% this quarter, largely due to a net $41 million increase in estimated net pre-tax losses (net of reinstatement premiums) for the Chile and New Zealand earthquakes. Increased general and administrative expenses for the quarter were primarily the result of performance-related compensation costs. Net favorable prior period reserve development was $47 million, or 10.9 points, this quarter compared with $47 million, or 11.6 points, in the fourth quarter of 2009. For the full year, our reinsurance segment reported underwriting income of $199 million, compared with $440 million for the prior year.
Our reinsurance segment reported gross premiums written of $138 million and $1,834 million in the quarter and full year 2010, respectively, compared to $103 million and $1,812 million in the corresponding periods of 2009. Premium growth in the quarter was primarily driven by the property reinsurance lines.
Investments
Net investment income for the quarter was $108 million compared to $118 million in the prior year quarter. The decrease was primarily due to lower reinvestment yields on our fixed maturities. For the full year, net investment income decreased 12% to $407 million, primarily due to lower reinvestment yields on our fixed maturities and lower returns from alternative investments.
For the quarter, net realized investment gains were $78 million compared to $6 million in the prior year quarter. Net realized investment gains were $195 million for the full year compared to net realized investment losses of $312 million in 2009. The prior year balance included other than temporary impairment charges of $337 million in 2009, compared to $18 million during the current year.
Capitalization / Shareholders’ Equity
Total capitalization at December 31, 2010 was $6.6 billion, including $1.0 billion of long-term debt and $0.5 billion of preferred equity, compared to $6.0 billion at December 31, 2009. At December 31, 2010, diluted book value per common share, on a treasury stock basis, was $39.37 and book value per common share was $45.60, compared to $33.65 and $37.84, respectively, as of December 31, 2009.
During the quarter, we repurchased 7.8 million common shares under our authorized repurchase plan at an average price of $35.63 per share, for a total cost of $277 million. For the full year, we repurchased 21.8 million common shares at an average price of $32.02, for a total cost of $699 million. As of February 4, 2011 we had approximately $593 million of remaining authorization for common share repurchases through December 31, 2012.
