CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed AXIS Capital Holdings, Limited's (AXIS Capital) 'A' Issuer Default Rating (IDR) and 'A-' senior debt rating. Additionally, Fitch has affirmed the 'A+' Insurer Financial Strength (IFS) ratings of AXIS Capital's operating subsidiaries. The Rating Outlook is Stable. A full list of ratings follows at the end of this release.
KEY RATING DRIVERS
The ratings reflect AXIS Capital's diverse revenue stream, solid history of underwriting results, strong capitalization, and conservative reserving practices and investment profile. Offsetting factors include the company's significant natural catastrophe exposure.
AXIS Capital reported net earnings of $512 million for the nine-months ending Sept. 30, 2013, flat with the prior-year period. Excluding foreign exchange and realized investment gains/losses, net operating earnings increased by 6% to $474 million for the same period. AXIS Capital continues to generate solid underwriting results in both its insurance and reinsurance segments.
The company reported a combined ratio of 90.5% for the first nine months of 2013 compared with 90.8% for the prior-year period. A modestly higher loss ratio, driven by catastrophe losses and a slightly reduced benefit from favorable reserve development, was offset by lower acquisition and expense ratios.
AXIS Capital reported net written premium growth of 16% for the first nine months of 2013 to $3.3 billion, largely driven by growth in its new business lines: accident & health and agriculture. Also contributing to increased premiums were higher premium rates and exposure growth through geographic expansion in its liability, professional lines, and property book. Additionally, business mix changes led to a reduction in the ceded premiums ratio.
Fitch views AXIS Capital's catastrophe exposure as significant but in line with peer companies. Among other measures, the company manages its exposure to catastrophic events by zone and return period, such that a one-in-250-year single event within a single zone is estimated at no more than 25% of prior quarter-end common stockholders' equity. Catastrophe losses totaled $203 million pretax (net of reinstatements) for the first nine months of 2013, primarily driven by U.S. tornadoes and hailstorms along with flooding in Canada, Argentina and Europe. Comparatively, the company recognized $133 million of pretax losses including crop losses (net of reinstatements) during the prior-year period.
AXIS Capital's history of favorable reserve development has benefited earnings; however, Fitch expects favorable development to diminish going forward as underwriting experience from recent soft market accident years mature. For the first nine months of 2013, AXIS Capital reported $177 million of favorable reserve development on prior policy years compared with $180 million in the prior-year period.
Fitch views AXIS Capital's capitalization as solid with operating leverage (as measured by prior 12 months net premiums written to shareholders' equity) of 0.66x as of Sept. 30, 2013. The company's shareholders' equity was flat at $5.8 billion as of Sept. 30, 2013. Earnings were returned to shareholders in the form of share repurchases and dividends, a strategy Fitch expects to continue in the near term. AXIS Capital's financial leverage remains moderate at 14.7% as of Sept. 30, 2013.
The company maintains a relatively high-quality investment portfolio with moderate exposure to risky asset classes, defined as equities, below-investment-grade bonds, and alternative investments (i.e.: hedge funds, etc.). These investments have increased over the past several years but remain within Fitch's rating guidelines.
RATING SENSITIVITIES
Key rating triggers that may lead to a downgrade include a significant loss of capital resulting from a major catastrophic event that is worse than expectations or industry and peer company results; an inability to raise capital following a large loss event; a failure to maintain an underwriting profit for an extended period; an increase in operating leverage above a 1.0x net written premiums-to-equity ratio; significant reserve deficiencies; GAAP fixed charge coverage (including preferred dividends) below 7.0x for a sustained period; or a financial leverage ratio above 25%.
Key rating triggers that may lead to an upgrade include a significant increase in capital that meaningfully reduces operating leverage, and reduced exposure to catastrophe losses. However, given publicly traded companies' sensitivity around managing capital, Fitch believes the company is unlikely to move toward this level of overcapitalization.
Fitch has affirmed the following ratings:
AXIS Capital Holdings, Ltd.
--IDR at 'A';
--5.75% senior debt rating at 'A-';
--Series B 7.5% preferred securities rating at 'BBB';
--Series C 6.875% preferred securities rating at 'BBB';
--Series D 5.5% 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
--IFS ratings at 'A+'.
Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the rating process other than through the medium of its public disclosure.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (August 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715468
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=807545
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