AXIS Issuance Receives ‘BBB’ Rating
Fitch Ratings today [Mar. 15] assigned a ‘BBB’ rating to the $400 million perpetual preferred securities issuance of Bermuda-based AXIS Capital Holdings, Ltd.
The international ratings agency also affirmed AXIS Capital’s ‘A’ Issuer Default Rating and the ‘A+’ Insurer Financial Strength ratings of AXIS Capital’s operating subsidiaries. The Rating Outlook is Stable. A full rating list is shown below.
AXIS Capital is issuing $400 million in Series C perpetual, non-cumulative preferred shares with a dividend of 6.875%. The proceeds will be used to repurchase the full $250 million of Series B 7.5% perpetual, non-cumulative preferred shares and a portion of the $250 million Series A 7.25% perpetual, non-cumulative preferred shares.
Consequently, financial leverage ratios are not expected to change and preferred securities will total $500 million or approximately 9% of total shareholders’ equity.
Fitch analysts said AXIS Capital’s debt-to-total capital, excluding unrealized gains on fixed income securities, was 16% at year-end 2011. All classes of AXIS Capital’s preferred securities are treated as equity in financial leverage calculations. AXIS Capital’s Total Financing and Commitments [TFC] ratio, which includes its preferred securities, was considered appropriate for the current rating category at less than 0.4 times (x). TFC is a comprehensive measure of debt-related leverage, and is intended to flag those companies that have an above-average reliance on the capital markets for funding.
Fitch said the ratings continue to “reflect AXIS Capital’s conservatively structured balance sheet, history of favorable reserve development and benefits from premium diversification across business lines. Balanced against these strengths was a poor operating performance during 2011 due to heavy catastrophe losses.”
Consolidated net income was $9 million in 2011, down significantly from $820 million in 2010. AXIS Capital posted a combined ratio of 112.3% for 2011, up nearly 24 percentage points from 2010. Pretax catastrophe losses reached $931 million, but do not appear to be out of proportion with its market share or peers.
AXIS Capital has successfully grown its stockholders’ equity in its initial decade of operation, and operating leverage of 0.6x at year-end 2011 is conservative relative to peers. AXIS Capital manages its exposure to catastrophic events to a maximum of 25% of stockholders’ equity in a 1-in-250-year event.
Favorable reserve development continues to contribute to earnings, amounting to $257 million or 7.8 percentage points during 2011. Maintaining a high level of favorable development will be a challenge given the recent period of soft market conditions faced by both primary insurers and reinsurers.
AXIS Capital’s diverse premium base enables it to compete effectively under a variety of market conditions as seen during a difficult 2011 and reduces its exposure to any one segment of the market. The company’s net written premium during 2011 was split between primary lines 43% and reinsurance 57%. Geographically the premium base is spread across the US, Bermuda and Europe.
Fitch said key rating triggers that could lead to a downgrade include:
- Losses from a major catastrophic event that are worse than expectations or when compared with industry and peer company losses. Further, an inability to raise capital following a loss event would be viewed negatively;
- An unfavorable trend that caused Fitch to question AXIS Capital’s better-than-peer underwriting results.
- A permanent increase in leverage measured by debt-to-total capital in excess of 25% or net written premiums-to-stockholders’ equity greater than 1x;
- Reserve deficiencies indicating poor reserving practices.
Key rating triggers that could lead to an upgrade include:
- Improved market position measured by continued strong consistent organic capital formation and double-digit returns on equity with lower volatility than peers over an extended period of time. Fitch considers a rating upgrade to be unlikely in the near term given AXIS Capital’s business profile and challenges in the current market rate environment.
Fitch has assigned the following rating:
AXIS Capital Holdings, Ltd. –Series C 6.875% preferred securities rating of ‘BBB’.
Fitch has affirmed the following ratings:
AXIS Capital Holdings, Ltd. –Issuer Default Rating at ‘A’; –5.75% Senior Debt Rating at ‘A-’; –Series A 7.25% preferred securities rating at ‘BBB’; –Series B 7.50% preferred securities rating at ‘BBB’.
AXIS Specialty Finance LLC –5.875% senior debt rating at ‘A-’.
AXIS Specialty Limited (Bermuda) AXIS Reinsurance Company AXIS Insurance Company AXIS Surplus Insurance Company AXIS Specialty Insurance Company –Insurer Financial Strength ratings at ‘A+’.
AXIS Capital is the Bermuda-based holding company of the AXIS group of companies. AXIS Capital provides specialty insurance and reinsurance on a worldwide basis through operating subsidiaries and branch networks based in Bermuda, the United States, Europe, Singapore, Canada and Australia, as well as a Representative Office in Brazil.
AXIS Capital was capitalized with approximately $1.7 billion in November 2001 to address the need for quality capacity in the global insurance/reinsurance industry following the tragedy of September 11th.
In July 2003, the company decided to go public marking the first major step in its goal of financial flexibility.
By 2004, AXIS Capital had firmly established itself in both the global insurance and reinsurance marketplaces. AXIS Capital has continued to focus on strong organic growth by maximizing opportunities available to the Company globally.
At December 31, 2011, AXIS Capital had shareholders’ equity of $5.4 billion, total capitalization of $6.4 billion and total assets of $17.8 billion.
