AXIS Capital Reports 2012 Operating Income of $422 Million, or $3.41 Per Diluted Common Share

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AXIS Capital Reports 2012 Operating Income of $422 Million, or $3.41 Per Diluted Common Share

Company reports 2012 return on average common equity of 9.7%, operating return on average common equity of 8.2% and 13% growth in diluted book value per share to $42.97 at December 31, 2012

PEMBROKE, Bermuda--(BUSINESS WIRE)-- AXIS Capital Holdings Limited ("AXIS Capital") (NYS: AXS) today reported a net loss to common shareholders for the fourth quarter of 2012 of $19 million, or $0.16 per diluted common share, compared with net income of $80 million, or $0.63 per diluted common share, for the fourth quarter of 2011. Net income available to common shareholders for the full year 2012 was $495 million, or $4.00 per diluted common share, compared with $9 million, or $0.07 per diluted common share, for 2011. The improvement in our annual results was largely due to a reduction in net-after tax losses from natural catastrophe and weather events, which totaled $398 million in 2012 and $910 million in 2011.


Our operating loss1 for the fourth quarter of 2012 was $28 million, or $0.23 per diluted common share, compared with operating income of $67 million, or $0.53 per diluted common share, for the fourth quarter of 2011. For the full year 2012, AXIS Capital reported operating income of $422 million, or $3.41 per diluted common share, compared with an operating loss of $154 million, or $1.26 per diluted common share, for 2011.

Full Year Highlights2

  • Gross premiums written increased 1% to $4.1 billion, with growth of $188 million, or 9%, in our insurance segment offset by a reduction of $144 million, or 7% in our reinsurance segment;
  • Net premiums written decreased 2% to $3.3 billion and net premiums earned increased 3% to $3.4 billion;
  • Combined ratio of 96.2% (including 12.7 points related to 2012 natural catastrophe and weather losses and 1.0 point for senior leadership transition costs), compared with 112.3% (including 28.2 points related to numerous 2011 catastrophe and weather events);
  • No material change in our aggregate estimate for losses related to 2011 and 2010 calendar year natural catastrophe events during 2012;
  • Net favorable prior year reserve development of $245 million (benefiting the combined ratio by 7.1 points), compared to $257 million (benefiting the combined ratio by 7.8 points);
  • Net investment income increased 5% to $381 million;
  • Pre-tax total return on cash and investments of 5.4%, compared to 3.4%;
  • Net income available to common shareholders of $495 million and return on average common equity of 9.7%, compared to $9 million and 0.2%;
  • Operating income of $422 million, representing an operating return on average common equity of 8.2%, compared to an operating loss of $154 million;
  • Net cash flows from operations of $1.1 billion, compared to $1.2 billion; and
  • Diluted book value per common share of $42.97, a 13% increase from December 31, 2011.

Fourth Quarter Highlights2

  • Gross premiums written increased 13% to $752 million;
  • Net premiums written increased 5% to $518 million and net premiums earned increased 1% to $856 million;
  • Significant catastrophe and weather-related losses impacting the fourth quarter's results included:
    • Estimated pre-tax net losses (net of reinstatement premiums) of $331 million in relation to Storm Sandy; and
    • An aggregate $28 million reduction in our estimate of pre-tax net losses (net of reinstatement premiums) for events of the first three quarters of 2012, including Hurricane Isaac, U.S. weather events in the first and second quarters, and the impact of severe drought conditions on U.S. crops;
  • Net financial impact of Storm Sandy of $301 million, after consideration of reinstatement premiums, ceding commissions and the associated income tax benefit;
  • Net favorable prior year reserve development of $64 million (benefiting the combined ratio by 7.5 points) compared to $78 million (benefiting the combined ratio by 9.2 points);
  • Net investment income declined 15% to $87 million;
  • Net cash flows from operations of $233 million, compared to $199 million; and
  • Quarterly common share dividend declared increased 4% to $0.25 per share.

Commenting on the fourth quarter 2012 financial results, Albert Benchimol, President and CEO of AXIS Capital said "We experienced strong results across most parts of our Company in the fourth quarter, but our performance was clearly offset by the impact of Storm Sandy, which led to a small loss for the period. Given 2012 included one of the largest U.S. storm events in history, we believe our operating income of $422 million for the year, representing an operating ROE of 8.2%, was an acceptable result. We returned nearly all of our earnings to shareholders, increased our dividend for the 9th year in a row, and ended 2012 with diluted book value per share of $42.97, which represents a 13% increase over the prior year.

"Looking beyond the financial impact of Storm Sandy, we made significant progress across many facets of our Company. We grew meaningfully in lines and markets that experienced some of the strongest price corrections in a steadily improving insurance market. Additionally, we advanced a number of important business initiatives including renewable energy and global accident and health, while at the same time continuing to lay the groundwork for further profitable growth. We have added more balance to our overall portfolio, and expect that our pursuit of new opportunities in 2013 - including our new agriculture and marine reinsurance initiatives and re-entry into select casualty markets - will lead to a larger and more diversified portfolio of risks. We are entering 2013 on a positive note, based on our expectations for continued pricing improvement, our positioning for diversified growth and our excellent financial strength."

Segment Highlights

Insurance Segment

Our insurance segment reported gross premiums written of $580 million in the quarter, up 11% from the fourth quarter of 2011. Growth was largely associated with new initiatives in our global professional lines business outside the U.S. and improvements in the U.S. excess and surplus umbrella market benefiting our liability line. For the full year, gross premiums written were $2.3 billion, with the 9% growth attributable to a number of lines of business, including professional lines, liability and accident & health. The segment's ceded premium ratio increased by seven percentage points in the quarter, with two points attributable to an increase in costs to reinstate our reinsurance protection, largely due to Storm Sandy. The remaining increase, as well as the increase for the full year, was largely due to changes in certain of our reinsurance programs on renewal in the second quarter and business mix changes. Net premiums earned increased 3% and 9%, respectively, for the quarter and year. Recent growth in gross premiums written, most notably in our accident & health line of business, drove the increases; however, this growth was partially offset by the aforementioned reinstatement premiums in the fourth quarter.

Our insurance segment reported an underwriting loss of $46 million for the quarter, compared to underwriting income of $22 million for the fourth quarter of 2011. The current quarter's underwriting results reflected a combined ratio of 112.2%, compared with 94.1% in the prior year quarter. The segment's current accident year loss ratio increased from 68.9% in the fourth quarter of 2011 to 88.9% this quarter, driven by a higher level of natural catastrophe losses. The current quarter's result includes aggregate pre-tax net losses (inclusive of premiums to reinstate reinsurance protection) of $178 million, or 44.9 points, for Storm Sandy; in addition, we recognized an aggregate $13 million, or 3.4 point, reduction in our estimate for events of the first nine months (including Hurricane Isaac and U.S. weather events in the first half of the year). Comparatively, the fourth quarter 2011 result included $28 million, or 7.6 points, of catastrophe and weather-related losses (inclusive of premiums to reinstate reinsurance protection), primarily related to the Thai Floods. Exclusive of these amounts, the fourth quarter current accident year loss ratio decreased in 2012, driven by a number of factors. Most notable was a reduction in property and energy losses, the frequency of which was high in the fourth quarter of 2011.

Net favorable prior year reserve development was $40 million, or 10.5 points, this quarter compared with $29 million, or 7.8 points, in the fourth quarter of 2011.

The reduction in the segment's acquisition cost ratio for the quarter was driven by the aforementioned changes in reinsurance programs at the second quarter renewal, as well as commissions associated with the reinstatement of our reinsurance protection. The increase in fourth quarter general and administrative expenses was the result of higher performance-related compensation costs.

For the full year, underwriting income was $65 million compared with $35 million in 2011. Growth in net premiums earned, an improved current accident year attritional loss ratio and an increase in favorable prior year reserve development more than offset a higher level of natural catastrophe-related losses.

Reinsurance Segment

Our reinsurance segment reported gross premiums written of $172 million and $1.8 billion in the quarter and full year 2012, respectively, compared to $145 million and $2.0 billion in the corresponding periods of 2011. The full-year reduction was largely due to the repositioning of our catastrophe reinsurance portfolio.

Underwriting losses in our reinsurance segment were $28 million and $7 million in the fourth quarters of 2012 and 2011, respectively and reflected combined ratios of 106.0% and 101.5%. The current accident year loss ratios of 84.4% and 85.3% in the fourth quarters of 2012 and 2011, respectively, were both significantly impacted by natural-catastrophe losses. The current quarter's ratio includes aggregate pre-tax net losses (net of reinstatement premiums) of $153 million, or 33.6 points, related to Storm Sandy and an aggregate $15 million, or 3.3 point, reduction in our estimate for events of the first nine months (primarily Hurricane Isaac and second quarter U.S. weather events). Comparatively, the ratio for the fourth quarter of 2011 included aggregate pre-tax net losses (net of reinstatement premiums) of $111 million, or 24.0 points, related to the Thai floods and an aggregate increase in our estimate for catastrophe and weather-related events of the first nine months. Exclusive of these amounts, the primary driver of the reduction in the fourth quarter current accident year loss ratio was reduced exposure and loss experience related to aggregate property reinsurance of regional insurance companies in the U.S.

Net favorable prior period reserve development was $24 million, or 5.2 points, this quarter compared with $49 million, or 10.3 points, in the fourth quarter of 2011. The increase in fourth quarter general and administrative expenses was the result of higher performance-related compensation costs.

For the full year, our reinsurance segment reported underwriting income of $198 million, compared to an underwriting loss of $362 million for 2011. The significant decrease in the level of natural catastrophe activity was the primary driver of this variance.

Investments

Net investment income of $87 million for the quarter represented a $16 million decrease from the fourth quarter of 2011 and a $17 million decrease from the third quarter of 2012, with the variances primarily driven by the market value of our alternative investments ("other investments"). These investments generated $15 million of income in the fourth quarter of 2012, compared to income of $25 million and $34 million, respectively, in the fourth quarter of 2011 and the third quarter of 2012.

For the full year, net investment income increased by $19 million, or 5%, in 2012. A $56 million increase in income from our other investments more than offset a $33 million reduction from fixed maturities due to lower reinvestment yields, notwithstanding higher investment balances.

Net realized investment gains for the quarter were $32 million, compared to $51 million in the prior quarter and $4 million of net realized investment losses in the prior year quarter.

Capitalization / Shareholders' Equity

Our total capital at December 31, 2012 was $6.8 billion, including $1.0 billion of long-term debt and $0.5 billion of preferred equity, as compared to $6.4 billion at December 31, 2011.

Diluted book value per common share, calculated on a treasury stock basis, declined by 1% to $42.97 in the fourth quarter, driven by the impact of Storm Sandy. On a year-to-date basis, diluted book value per common share increased by $4.89, or 13%, driven by operating income, valuation improvements for our available-for-sale investment portfolio and, to a lesser extent, share repurchases.

On December 17, 2012, our Board of Directors authorized a new $750 million share common share repurchase plan, which replaced our existing plan set to expire at the end of 2012. As of February 4, 2013 we had $750 million of remaining authorization for common share repurchases through December 31, 2014.

Conference Call

We will host a conference call on Tuesday, February 5, 2013 at 8:00 AM (Eastern) to discuss the fourth quarter and year-end financial results and related matters. The teleconference can be accessed by dialing (888) 317-6003 (U.S. callers) or (412) 317-6061 (international callers) approximately ten minutes in advance of the call and entering the code 5-5-0-9-8-4-7. A live, listen-only webcast of the call will also be available via the Investor Information section of the Company's website at www.axiscapital.com. A replay of the teleconference will be available for three weeks by dialing (877) 344-7529 (U.S. callers) or (412) 317-0088 (international callers) and entering the code 1-0-0-2-3-4-3-3. The webcast will be archived in the Investor Information section of our website.

In addition, a financial supplement relating to our financial results for the quarter ended December 31, 2012 is available in the Investor Information section of our website.

AXIS Capital is a Bermuda-based global provider of specialty lines insurance and treaty reinsurance with shareholders' equity at December 31, 2012 of $5.8 billion and locations in Bermuda, the United States, Europe, Singapore, Canada, Australia and Latin America. Its operating subsidiaries have been assigned a rating of "A+" ("Strong") by Standard & Poor's and "A" ("Excellent") with a positive outlook by A.M. Best. AXIS Capital and AXIS Specialty Finance LLC have been assigned senior unsecured debt ratings of A- (stable) by Standard & Poor's and Baa1 (stable) by Moody's Investors Service. For more information about AXIS Capital, visit our website at www.axiscapital.com.

1 Operating income (loss) and operating return on average common equity are "non-GAAP financial measures" as defined in Regulation G. A reconciliation of operating income (loss) to net income (loss) available to common shareholders (the nearest GAAP financial measure) and the calculation of operating return on average common equity are provided in this release, as is a discussion of the rationale for the presentation of these items.

2All comparisons are with the same period of the prior year, unless otherwise stated.

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2012 (UNAUDITED) AND DECEMBER 31, 2011

 
  2012 2011
 
(in thousands)
Assets
Investments:
Fixed maturities, available for sale, at fair value$11,928,049$10,940,100
Equity securities, available for sale, at fair value666,548677,560
Other investments, at fair value843,437699,320
Short-term investments, at fair value and amortized cost108,860 149,909 
Total investments13,546,89412,466,889
Cash and cash equivalents759,817981,849
Restricted cash and cash equivalents90,733100,989
Accrued interest receivable97,22098,346
Insurance and reinsurance premium balances receivable1,474,8211,413,839
Reinsurance recoverable on unpaid and paid losses1,863,8191,770,329
Deferred acquisition costs389,248407,527
Prepaid reinsurance premiums315,676238,623
Receivable for investments sold1,2543,006
Goodwill and intangible assets97,49399,590
Other assets215,369 225,072 
Total assets$18,852,344 $17,806,059 
 
Liabilities
Reserve for losses and loss expenses$9,058,731$8,425,045
Unearned premiums2,454,6922,454,462
Insurance and reinsurance balances payable270,739206,539
Senior notes995,245994,664
Payable for investments purchased64,553151,941
Other liabilities228,623 129,329 
Total liabilities13,072,583 12,361,980 
 
Shareholders' equity
Preferred shares - Series A, B, and C502,843500,000
Common shares2,1462,125
Additional paid-in capital2,179,0342,105,386
Accumulated other comprehensive income362,622128,162
Retained earnings34,497,7894,155,392
Treasury shares, at cost(1,764,673)(1,446,986)
Total shareholders' equity5,779,761 5,444,079 
Total liabilities and shareholders' equity$18,852,344 $17,806,059 

3Common share dividends were historically recognized as a reduction of retained earnings when paid. During the fourth quarter of 2012, we recognized a $31 million adjustment in order to recognize dividends when declared.

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE QUARTERS AND YEARS ENDED DECEMBER 31, 2012 AND 2011

 
  Three months ended Years ended
2012 20112012 2011
 
(in thousands, except per share amounts)
Revenues
Net premiums earned$856,049$846,753$3,415,463$3,314,961
Net investment income86,847102,362380,957362,430
Net realized investment gains (losses)31,771(3,738)127,469121,439
Other insurance related income791 351 2,676 2,396 
Total revenues975,458 945,728 3,926,565 3,801,226 
 
Expenses
Net losses and loss expenses675,047583,4542,096,0282,675,052
Acquisition costs144,063157,372627,653587,469
General and administrative expenses141,386109,990560,981459,151
Foreign exchange losses (gains)21,300(17,328)29,512(44,582)
Interest expense and financing costs15,498 15,616 61,863 62,598 
Total expenses997,294 849,104 3,376,037 3,739,688 
 
Income (loss) before income taxes(21,836)96,624550,52861,538
Income tax expense (benefit)(12,026)7,341 3,287 15,233 
Net income (loss)(9,810)89,283547,24146,305
Preferred shares dividends8,7419,21938,22836,875
Loss on repurchase of preferred shares  14,009  
Net income (loss) available to common shareholders$(18,551)$80,064 $495,004 $9,430 
 
Per share data
Net income (loss) per common share:
Basic net income (loss)$(0.16)$0.63$4.05$0.08
Diluted net income (loss)$(0.16)$0.63$4.00$0.07
Weighted average number of common shares outstanding - basic117,918126,360122,148122,499
Weighted average number of common shares outstanding - diluted117,918127,686123,654128,122
Cash dividends declared per common share$0.25$0.24$0.97$0.93

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED SEGMENTAL DATA (UNAUDITED)

FOR THE QUARTERS ENDED DECEMBER 31, 2012 AND 2011

 
 2012 2011
Insurance Reinsurance TotalInsurance Reinsurance Total
    
(in thousands)
Gross premiums written$580,116$172,298$752,414$521,281$145,223$666,504
Net premiums written345,802172,294518,096349,912145,151495,063
Ne
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