AXIS Capital Reports Second Quarter Operating Income of $50 Million, or $0.43 Per Diluted Common Sha
AXIS Capital Reports Second Quarter Operating Income of $50 Million, or $0.43Per Diluted Common Share
For the first six months of 2013, company reports:
- Earnings per diluted common share of $3.19
- Operating earnings per diluted common share of $2.36
- Annualized return on average common equity of 14.7%
- Annualized operating return on average common equity of 10.9%
PEMBROKE, Bermuda--(BUSINESS WIRE)-- AXIS Capital Holdings Limited ("AXIS Capital") (NYS: AXS) today reported net income available to common shareholders for the second quarter of 2013 of $72 million, or $0.62 per diluted common share, compared with $168 million, or $1.35 per diluted common share, for the second quarter of 2012. For the six months ended June 30, 2013, AXIS Capital reported net income available to common shareholders of $375 million, or $3.19 per diluted common share, compared with $290 million, or $2.31 per diluted common share, for the corresponding period of 2012.
Operating income1 for the second quarter of 2013 was $50 million, or $0.43 per diluted common share, compared with $113 million, or $0.90 per diluted common share, for the second quarter of 2012. For the six months ended June 30, 2013, AXIS Capital reported operating income of $278 million, or $2.36 per diluted common share, compared with $249 million, or $1.98 per diluted common share, for the first six months of 2012.
Second Quarter Highlights2
- Gross premiums written increased 20% to $1.2 billion, with growth of 29% in our reinsurance segment and 16% in our insurance segment;
- Net premiums written increased 24% to $993 million;
- Net premiums earned increased 11% to $946 million;
- Combined ratio of 101.7%, compared to 92.3%;
- Current accident year loss ratio of 72.4%, compared to 63.7%;
- Estimated natural catastrophe and weather-related pre-tax net losses (net of reinstatement premiums) of $140 million; tornadoes and hailstorms in the U.S. made the largest contribution to this amount, with flooding in Canada, Europe and Argentina also significant;
- Net favorable prior year reserve development of $42 million (benefiting the combined ratio by 4.4 points), compared with $75 million (benefiting the combined ratio by 8.7 points);
- Net investment income increased 12% to $83 million;
- Pre-tax total return on cash and investments of (1.3%), compared to 0.5%;
- Net income available to common shareholders of $72 million, compared to $168 million;
- Operating income of $50 million, compared to $113 million;
- Net cash flows from operations of $236 million, compared to $288 million;
- Share repurchases in the quarter totaling $228 million;
- Issued $225 million of 5.50% Series D preferred shares and redeemed the $100 million of 7.25% Series A preferred shares outstanding; and
- Diluted book value per common share of $42.67, a 4% decrease during the quarter and a 5% increase over the last 12 months.
Commenting on the second quarter 2013 financial results, Albert Benchimol, President and CEO of AXIS Capital said "For the year-to-date, we have delivered a very healthy annualized operating ROACE of 10.9%. This year-to-date result is indicative of the ability of our portfolio to absorb volatility including that presented by a quarter like this one, which was marked by a very high frequency of unrelated small and mid-sized cat and weather events around the globe.
Benchimol continued, "We continue to make good progress in expanding our franchise with growth in attractive lines and markets, most notably in agriculture, accident & health, and our international operations, as we build a broader, more diversified portfolio. Our results still do not reflect the full leverage of all of the various strategic initiatives in progress at AXIS. These initiatives, combined with market conditions that present good opportunities in longstanding specialty lines at AXIS, position us well to continue to drive shareholder value."
Our insurance segment reported gross premiums written of $781 million in the quarter, up $106 million, or 16%, from the second quarter of 2012. Our accident & health line contributed $50 million of this increase; our liability and professional lines business also contributed meaningfully. Improvements in the U.S. wholesale excess casualty market continued to benefit our liability line this quarter. Continued expansion in Europe, Canada and Australia drove growth in our professional lines book, with renewal timing also contributing. These lines were also the primary driver of the 15% increase in gross premiums written for the first six months of 2013 to $1.4 billion.
Net premiums written were up 20% for the second quarter and 18% for the year to date. Growth rates exceeded those for gross premiums written primarily due to business mix, including a greater proportion of accident & health business for which we did not purchase significant reinsurance. Changes in certain of our ceded reinsurance programs also contributed to the reductions in the ceded premium ratio, more significantly for the second quarter than for the year to date. Net premiums earned increased 9% and 6%, respectively, for the second quarter and year to date; recent growth in our accident & health line was the primary driver.
Our insurance segment reported an underwriting loss of $55 million for the quarter, compared to underwriting income of $25 million for the second quarter of 2012. The current quarter's underwriting result reflected a combined ratio of 113.2%, compared with 93.7% in the prior year quarter. The segment's current accident year loss ratio increased from 67.6% in the second quarter of 2012 to 80.0% this quarter, driven by a higher frequency of natural catastrophe and weather-related losses. The current quarter's result includes aggregate pre-tax net losses emanating from such events (inclusive of premiums to reinstate reinsurance protection) of $90 million, or 21.1 points, primarily arising from tornadoes and hailstorms in the U.S. and flooding in Argentina and Canada. Comparatively, the second quarter 2012 result included $35 million, or 9.2 points, related to second quarter U.S. weather events. Net favorable prior year reserve development was $7 million, or 1.6 points, this quarter compared with $35 million, or 9.2 points, in the second quarter of 2012.
The segment's acquisition cost ratio decreased for both the quarter and year to date, due to a number of factors, including changes in certain reinsurance programs executed in 2012 and the recent reduction in the volume of business sourced through managing general agents. The increases in general and administrative expenses reflect the continued build-out of the segment's global platform over the past year.
For the six months ended June 30, 2013, we recognized an underwriting loss of $14 million, compared with underwriting income of $35 million for the same period of 2012; approximately $44 million of the variance was attributable to natural catastrophe and weather-related activity.
Our reinsurance segment reported gross premiums written of $439 million in the quarter, up $99 million, or 29%, from the second quarter of 2012. Half of this increase was driven by our agriculture initiative. The remainder was largely attributable to an increase in liability business, as we increased our participation in the excess umbrella market in a more attractive rate environment.
For the six months ended June 30, 2013, gross premiums written were $1.6 billion, up 19% from the comparable period of 2012. Growth was evident in nearly all lines of business, with our agriculture initiative contributing half of the $249 million increase. In addition to the increase in liability for the second quarter, expansion of our European portfolio contributed on a year-to-date basis. We increased our participation in European catastrophe business, as well as in the U.K. motor market (primarily on a quota share basis); foreign exchange rate movements also contributed significantly to the increase in motor premiums. Growth for our property line of business primarily related to select new business opportunities in the U.S.
Net premiums earned increased 13% and 8%, respectively, for the quarter and year to date, primarily attributable to our agriculture expansion.
Our reinsurance segment reported underwriting income of $65 million for the quarter, compared to $95 million for the second quarter of 2012. The segment's combined ratio increased from 79.5% in the second quarter of 2012 to 87.5% for the current quarter. This included an increase in the current accident year loss ratio from 60.5% in the second quarter of 2012 to 66.3% this quarter, driven by a higher level of natural catastrophe and weather-related losses. The current quarter's result includes aggregate pre-tax net losses emanating from such events (net of reinstatement premiums) of $50 million, or 9.7 points, primarily arising from flooding in Europe and Canada. Comparatively, the second quarter 2012 result included $20 million, or 4.2 points, related to second quarter U.S. weather events. Net favorable prior year reserve development was $35 million, or 6.7 points, this quarter compared with $39 million, or 8.4 points, in the second quarter of 2012.
For the six months ended June 30, 2013, we recognized underwriting income of $195 million compared with $147 million for the same period of 2012; the favorable variance was driven by a number of factors, including portfolio expansion, a higher level of net favorable prior year reserve development and a lower acquisition cost ratio driven by loss-sensitive features in reinsurance contracts.
Net investment income of $83 million for the quarter represented a $26 million decrease from the first quarter of 2013 and a $9 million year-over-year increase from the second quarter of 2012, with the variances primarily driven by changes in the fair value of our alternative investments ("other investments"). These investments generated $12 million of income in the current quarter, compared to income of $43 million in the first quarter of 2013 and a loss of $2 million in the second quarter of 2012.
Net realized investment gains were $16 million, compared to $44 million last quarter and $30 million in the second quarter of 2012.
Capitalization / Shareholders' Equity
Our total capital at June 30, 2013 was $6.6 billion, including $1.0 billion of long-term debt and $0.6 billion of preferred equity, as compared to $6.8 billion at December 31, 2012.
During the quarter, we issued $225 million of 5.50% Series D preferred shares and used a portion of the net proceeds from this issuance to redeem the $100 million of 7.25% Series A preferred shares outstanding. The execution of these transactions reduced the weighted average annual dividend rate on our preferred equity capital base by 57 basis points.
Diluted book value per common share, calculated on a treasury stock basis, decreased by $2.00, or 4%, to $42.67 in the current quarter; the reduction was primarily driven by a decline in the fair value of our available-for-sale fixed maturity portfolio, following an upward shift in sovereign yield curves. Over the past twelve months, diluted book value per common share increased by $2.12, or 5%; growth was driven by operating income, with share repurchase activity also contributing.
During the quarter we repurchased 5.1 million common shares at an average price of $44.57 per share, for a total cost of $228 million. At July 30, 2013, we had $409 million of remaining authorization for common share repurchases through December 31, 2014.
We will host a conference call on Wednesday, July 31, 2013 at 8:00 AM (Eastern) to discuss the second quarter 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 7-8-4-7-0-7-0. 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 1-0-0-3-0-8-5-0. 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 June 30, 2013 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 June 30, 2013 of $5.6 billion and locations in Bermuda, the United States, Europe, Singapore, Canada, Australia and Latin America. Its operating subsidiaries have been assigned a rating of "A+" ("Strong") by Standard & Poor's and "A" ("Excellent") with a positive outlook by A.M. Best. AXIS Capital and AXIS Specialty Finance LLC have been assigned senior unsecured debt ratings of A- (stable) by Standard & Poor's and Baa1 (stable) by Moody's Investors Service. For more information about AXIS Capital, visit our website at www.axiscapital.com.
1 Operating income and operating return on average common equity are "non-GAAP financial measures" as defined in Regulation G. A reconciliation of operating income to net income available to common shareholders (the nearest GAAP financial measure) and the calculation of operating return on average common equity are provided in this release, as is a discussion of the rationale for the presentation of these items.
2 All comparisons are with the same period of the prior year, unless otherwise stated.
AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2013 (UNAUDITED) AND DECEMBER 31, 2012
|Fixed maturities, available for sale, at fair value||$||11,644,912||$||11,928,049|
|Equity securities, available for sale, at fair value||618,795||666,548|
|Other investments, at fair value||962,315||843,437|
|Short-term investments, at fair value and amortized cost||45,904||108,860|
|Cash and cash equivalents||1,010,805||759,817|
|Restricted cash and cash equivalents||105,443||90,733|
|Accrued interest receivable||95,098||97,220|
|Insurance and reinsurance premium balances receivable||2,166,982||1,474,821|
|Reinsurance recoverable on unpaid and paid losses||1,981,441||1,863,819|
|Deferred acquisition costs||543,069||389,248|
|Prepaid reinsurance premiums||331,528||315,676|
|Receivable for investments sold||1,399||1,254|
|Goodwill and intangible assets||91,370||97,493|
|Reserve for losses and loss expenses||$||9,342,817||$||9,058,731|
|Insurance and reinsurance balances payable||292,572||270,739|
|Payable for investments purchased||234,001||64,553|
|Preferred shares - Series A, B, C and D||627,843||502,843|
|Additional paid-in capital||2,213,204||2,179,034|
|Accumulated other comprehensive income||24,755||362,622|
|Treasury shares, at cost||(2,119,714||)||(1,764,673||)|
|Total shareholders' equity||5,561,947||5,779,761|
|Total liabilities and shareholders' equity||$||19,846,313||$||18,852,344|
AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012
|Three months ended||Six months ended|
|(in thousands, except per share amounts)|
|Net premiums earned||$||945,873||$||850,603||$||1,819,911||$||1,696,968|
|Net investment income||83,112||74,449||192,019||190,472|
|Net realized investment gains||16,235||30,405||60,713||44,896|
|Other insurance related income||435||299||1,030||931|
|Net losses and loss expenses||642,899||467,637||1,081,313||978,328|
|General and administrative expenses||149,034||161,331||290,508||284,984|
|Foreign exchange gains||(10,320||)||(36,162||)||(45,201||)||(15,715||)|
|Interest expense and financing costs||15,260||15,170||31,095||30,807|
|Income before income taxes||79,063||191,383||400,749||330,070|
|Income tax expense (benefit)||(4,662||)||2,317||5,469||5,165|
|Preferred shares dividends||8,197||11,527||16,938||20,746|
|Loss on repurchase of preferred shares||3,081||9,387||3,081||14,009|
|Net income available to common shareholders||$||72,447||$||168,152||$||375,261||$||290,150|
|Per share data|
|Net income per common share:|
|Basic net income||$||0.63||$||1.36||$||3.23||$||2.32|
|Diluted net income||$||0.62||$||1.35||$||3.19||$||2.31|
|Weighted average number of common shares outstanding - basic||115,163||123,823||116,088||124,802|
|Weighted average number of common shares outstanding - diluted||116,671||124,983||117,660||125,825|
|Cash dividends declared per common share||$||0.25||$||0.24||$||0.50||$||0.48|
AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED SEGMENTAL DATA (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2013 AND 2012
|Gross premiums written||$||781,055||$||438,750||$||1,219,805||$||675,009||$||339,366||$||1,014,375|
|Net premiums written||559,584||433,823||993,407||465,238||336,337||801,575|
|Net premiums earned||422,345||523,528||945,873||386,580||464,023||850,603|
|Other insurance related income||435||—||435||299||—||299|
|Net losses and loss expenses||
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