Fitch Affirms AXIS, Maintains Negative Outlook

October 10, 2018

Fitch Ratings has affirmed the ‘A+’ [Strong] Insurer Financial Strength [IFS] ratings of the operating subsidiaries of AXIS Capital Holdings. In addition, Fitch has affirmed AXIS Capital’s ‘A-’ Issuer Default Rating [IDR]. The Rating Outlook is Negative.

The ratings agency said, “AXIS Capital’s ratings continue to be supported by a strong business profile and very strong capitalization. Operating results have improved through the first half of 2018 after material deterioration in 2017 due to heavy catastrophe losses from Hurricanes Harvey, Irma and Maria as well as two earthquakes in Mexico and California wildfires.

“The Negative Outlook reflects adverse earnings trends that reached a nadir in 2017 with heavy catastrophe losses resulting in a decline in capital adequacy. Improved capital metrics along with continued positive earnings trends could lead to a return to a Stable Rating Outlook.

“AXIS Capital’s ‘Strong’ Business Profile considers the company’s market position and size/scale based on premiums and stockholders’ equity metrics. Over the last several years, AXIS Capital has taken strategic actions in an effort to adapt to challenging market dynamics and offset its exposure to catastrophe-related losses. The company is differentiated from reinsurance peers by its balance between direct insurance business and reinsurance business.

“AXIS Capital returned to profitability in the first half of 2018, reporting a combined ratio of 92%, which is somewhat favorably influenced by purchase accounting used with the Novae acquisition. This year-to-date result does not reflect losses from Hurricane Florence, but does represent a significant improvement from full year 2017. AXIS Capital reported a greater than 113% combined ratio and net loss of $416 million in 2017 following three hurricanes, two earthquakes and wildfires.

“AXIS Capital scored ‘Strong’ on Fitch’s Prism factor-based capital model, which is below historical ‘Very Strong’ results. Prism results reflect lost equity from catastrophes and rising interest rates as well as increased required capital from the Novae Insurance Group Plc acquisition.

“AXIS Capital bolstered its catastrophe reinsurance coverage using both traditional and ILS reinsurance markets, reducing PML’s to levels reported before the Novae acquisition. Management estimates that the new reinsurance program would have lowered its retained losses from hurricanes Harvey and Irma by as much as 20%.

“AXIS Capital temporarily suspended its share repurchase activity in order to replenish capital following its acquisition of Novae. The company has not reported share repurchases since the Novae acquisition was announced in the second quarter of 2017.”

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