Fitch Affirms Ratings Of AXIS Capital Holdings
Fitch Ratings has affirmed the ‘A-’ Issuer Default Rating of AXIS Capital Holdings Ltd. and the ‘A+’ Insurer Financial Strength ratings of its operating subsidiaries. The Rating Outlook is Stable.
A statement from the ratings agency said, “AXIS Capital’s ratings continue to be supported by a good competitive position and strong capitalization. Operating results showed some deterioration through the first nine months of 2015, but remain generally consistent with current ratings. In addition, there is an expectation for continued weakness in the reinsurance sector that will challenge AXIS Capital’s earnings.
“AXIS Capital’s underwriting ratios deteriorated moderately during the first nine months of 2015 as the company reported a combined ratio of 95.7%, including 3.3 percentage points [pp] from catastrophe and weather-related losses and 6.0pp of favorable reserve development. Both reinsurance and insurance segments reported higher combined ratios relative to comparable periods.
“Return on equity [ROE] was 11.8% during the first three quarters of 2015, down from 15.6% in the comparable period of 2014. ROE benefited from the $280 million PartnerRe break-up fee following the termination of the acquisition agreement and would have fallen to an estimated 7.1% without it. Similarly, pre-tax operating earnings covered fixed charges by 9.7x through the first nine months before falling to 5.6x after adjusting for ‘one-time’ charges such as the break-up fee and reorganization charges.
“In addition, the ratings reflect Fitch’s negative sector outlook on global reinsurance, as the fundamentals of the reinsurance sector have deteriorated with declining premium pricing and weakening of terms and conditions, particularly for property catastrophe risk. This is leading to consolidation in the reinsurance sector as companies aim to enhance their relative competitive positions.
“AXIS Capital’s market position and size/scale is considered ‘medium’ based on premiums and stockholders’ equity metrics. Companies with AXIS Capital’s market position and size/scale typically have IFS ratings in the ‘A’ category, but can reach into the lower ‘AA’ category. It remains to be seen if recent mergers in the reinsurance sector will disadvantage small- and medium-sized competitors that did not increase scale through acquisition.
“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, 2015, which is down moderatetly from the comparable period in 2014 due to the impact of multi-year reinsurance agreements. The financial leverage ratio was 14% at Sept. 30, 2015, essentially unchanged from year-end 2014.”
