(Source: Business Wire)
AXIS Capital Holdings Limited ("AXIS Capital") (NYSE: AXS) today reported net income available to common shareholders of $116 million, or $0.78 per diluted common share for the first quarter of 2009, compared with net income of $238 million, or $1.48 per diluted common share, for the first quarter of 2008.
Operating income for the first quarter of 2009 was $156 million, or $1.05 per diluted share, compared with $205 million, or $1.28 per diluted common share, for the first quarter of 2008. This same item excluding foreign exchange gains, net of tax, for the first quarter of 2009 was $155 million, or $1.04 per diluted common share, compared with $186 million, or $1.16 per diluted common share, for the corresponding period of 2008.
First Quarter Highlights
Annualized return on average common shareholders' equity of 11.6%;
Gross premiums written of $1.3 billion, an increase of 5%;
Net premiums earned of $665 million, an increase of 1%;
Consolidated combined ratio of 86.6%, including 12.7 points of net favorable prior period reserve development;
Pre-tax net investment income of $99 million, an increase of 16%;
Strong operating cash flows of $245 million;
Shareholders' equity of $4.5 billion, an increase of 1% from December 31, 2008; and
Diluted book value per common share of $26.35, an increase of 2% from December 31, 2008.
Commenting on the first quarter 2009 financial results, John Charman, Chief Executive Officer and President of AXIS Capital, stated: "I am pleased to report that we have delivered growth in book value during this first quarter of 2009. Contributing to this improved performance relative to the last few quarters of 2008 was the welcome stabilization in asset valuations for our fixed maturity portfolio and improvement in liquidity in the credit markets overall. Our combined ratio of 86.6% is a very respectable result in light of the conservatism embedded in our underwriting and reserving philosophies, especially given our belief that in 2009, we are at the bottom of the earnings cycle across all lines.
We remain broadly defensive throughout our underwriting and investment activities. Whilst we have seen the green shoots of recovery, we do not believe the risk-reward characteristics have sufficiently swung in our favor to mobilize ourselves for a full offensive. We believe that, by year-end, our market-leading diversification by product and geography, together with our strong underwriting skills and risk management framework, will be fully mobilized across both our insurance and reinsurance segments to deliver high-quality outperformance."
Segment Highlights
Insurance Segment
Our insurance segment reported underwriting income for the quarter of $36 million, down 41%, from the first quarter of 2008. The decrease was primarily due to a lower level of favorable reserve development, which was $36 million, or 13.0 points, in the current quarter, compared to $55 million, or 18.2 ratio points, in the first quarter of 2008. The segment reported a current year loss ratio of 68.4%, an improvement of 3.0 points from the prior year quarter. The reduction was primarily due to a lower frequency and severity of property per risk losses, partially offset by increased claims activity impacting our credit and political risk line of business. The current quarter's underwriting result also included a reduction of $10 million in the fair value of an insurance derivative contract, which is included in other insurance related income.
Our insurance segment reported gross premiums written in the quarter of $364 million, a decrease of 16% from the prior year quarter. The decrease was primarily driven by a reduction in our credit and political risk business, due to a contraction of global lending and trade activity which has resulted in fewer underwriting opportunities.
Reinsurance Segment
Our reinsurance segment reported underwriting income of $61 million, down 22% from the first quarter of 2008. The reduction was driven by an increase in the segment's current year loss ratio from 65.6% in the first quarter of 2008 to 72.8% this quarter. The deterioration was largely related to the impact of the economic downturn on our trade credit and bond reinsurance lines of business. We also experienced higher catastrophe losses this quarter, driven by losses on European Windstorm Klaus. Net favorable prior period development was $48 million, or 12.4 points, this quarter compared with $34 million, or 9.3 points, in the first quarter of 2008.
Our reinsurance segment reported gross premiums written in the quarter of $959 million, an increase of 16% from the prior year quarter. Excluding the impact of exchange rate movements, gross premiums written increased 19% reflecting both rate increases and growth opportunities within several of our lines of business.
Investments
Net investment income increased $14 million, or 16%, to $99 million. The increase was primarily due to net investment income from our alternative investment portfolio ("other investments") of $7 million compared to net investment losses of $36 million in the prior year quarter. The total return on other investments increased from negative 5.6% in the first quarter of 2008 to positive 1.4% this quarter. The increase mostly related to our investment in credit funds, and to a lesser extent, hedge funds. Partially offsetting the increase in net investment income from other investments, net investment income from fixed maturities and cash and cash equivalents decreased $25 million this quarter, reflecting the impact of lower short-term and intermediate interest rates.
We experienced net realized investment losses of $41 million, compared to net realized investment gains of $36 million in the prior year quarter. The current quarter included other than temporary impairment charges of $30 million.
At March 31, 2009, net unrealized losses within our investment portfolio, after foreign currency hedges, were $767 million, an increase of $59 million in the quarter. The increase primarily reflected the impact of widening spreads on the medium-term notes in our corporate bond portfolio.
At March 31, 2009, we held cash and cash equivalent balances of $1.4 billion, or 13%, of total cash and investments. Our fixed maturity investment portfolio, which represents 78% of total cash and investments, is well diversified, has a weighted average credit quality of AA+ (with 80% of securities rated AA- or better), and has a short average duration of approximately 2.4 years. At March 31, 2009, our fixed maturity investment portfolio included $3.5 billion in mortgage-backed securities. $2.5 billion, or 71%, of these securities carry the full faith and credit guarantee of the U.S. government. Of the remaining mortgage-backed securities, 96% had a credit quality of AAA. At March 31, 2009, we also held $0.4 billion in asset-backed securities, of which 85% had a credit quality of AAA.
With respect to sub-prime and Alternative-A exposures in our fixed maturity investment portfolio, this remains a negligible portion of our total cash and investments at $120 million, or less than 1.1%, with the vast majority rated AAA by major rating agencies. Our fixed maturity investment portfolio at March 31, 2009 also includes $2.3 billion of corporate debt with a weighted average credit quality of A.
We did not avail of the early adoption permitted by FASB's recent additional guidance regarding fair valuation (FAS 157) and other than temporary impairments (FAS 115). We are presently evaluating the impact of adopting these changes, which become effective in the second quarter of 2009.
Supplementary information relating to our investment portfolio at March 31, 2009 is available in the Investor Information section of our website.
Capitalization / Shareholders' Equity
Total capitalization at March 31, 2009 was $5.0 billion, including $0.5 billion of long-term debt and $0.5 billion of preferred equity. Common shareholders' equity increased $32 million, or 1%, to $4.0 billion, during the quarter. At March 31, 2009, diluted book value per common share, on a treasury stock basis, was $26.35 and book value per common share was $29.01, compared to $25.79 and $29.08 respectively, as of December 31, 2008.
Conference Call
We will host a conference call on Tuesday April 28th, 2009 at 8:00 AM (Eastern) to discuss the first quarter financial results and related matters. The teleconference can be accessed by dialing (866) 843-0890 (U.S. callers) or (412) 317-9250 (international callers) and entering the pass-code 3610732 approximately ten minutes in advance of the call. 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 financial supplement relating to our financial results for the quarter ended March31, 2009 is available in the Investor Information section of our website. Supplementary information relating to our investment portfolio at March 31, 2009 is available in an additional supplement.
AXIS Capital is a Bermuda-based global provider of specialty lines insurance and treaty reinsurance with shareholders' equity at March 31, 2009 of $4.5 billion and locations in Bermuda, the United States, Europe, Singapore, Canada and Australia. Its operating subsidiaries have been assigned a rating of "A+" ("Strong") by Standard & Poor's and "A" ("Excellent") by A.M. Best. AXIS Capital has been assigned a senior unsecured debt rating 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.
AXIS CAPITAL HOLDINGS LIMITED CONSOLIDATED BALANCE SHEETS MARCH 31, 2009 (UNAUDITED) AND DECEMBER 31, 2008 2009 2008 Assets (in thousands, except per share amounts) Investments: Fixed maturities, available for sale, at fair value $ 8,238,175 $ 7,750,654 Equity securities, available for sale, at fair value 78,527 107,283 Other investments, at fair value 494,405 492,082 Short-term investments, available for sale, at fair value 225,583 261,879 Total investments 9,036,690 8,611,898 Cash and cash equivalents 1,411,551 1,820,673 Accrued interest receivable 80,746 79,232 Insurance and reinsurance premium balances receivable 1,581,743 1,185,785 Reinsurance recoverable balances 1,375,143 1,304,551 Reinsurance recoverable balances on paid losses 57,507 74,079 Deferred acquisition costs 375,774 273,096 Prepaid reinsurance premiums 266,789 279,553 Securities lending collateral 312,364 412,823 Goodwill and intangible assets 95,380 60,417 Other assets 183,679 180,727 Total assets $ 14,777,366 $ 14,282,834 Liabilities Reserve for losses and loss expenses $ 6,392,278 $ 6,244,783 Unearned premiums 2,646,578 2,162,401 Insurance and reinsurance balances payable 154,763 202,145 Securities lending payable 317,310 415,197 Senior notes 499,395 499,368 Other liabilities 222,832 233,082 Net payable for investments purchased 51,373 64,817 Total liabilities 10,284,529 9,821,793 Shareholders' Equity Preferred shares - Series A and B 500,000 500,000 Common shares 1,899 1,878 Additional paid-in capital 1,977,144 1,962,779 Accumulated other comprehensive loss (767,182 ) (706,499 ) Retained earnings 3,282,392 3,198,492 Treasury shares, at cost (501,416 ) (495,609 ) Total shareholders' equity 4,492,837 4,461,041 Total liabilities and shareholders' equity $ 14,777,366 $ 14,282,834 -------------------------------------------------------------------------------
AXIS CAPITAL HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 2009 2008 (in thousands, except per share amounts) Revenues Net premiums earned $ 665,359 $ 658,634 Net investment income 99,292 85,651 Net realized investment (losses) gains (40,597 ) 35,685 Other insurance related (loss) income (9,395 ) 2,002 Total revenues 714,659 781,972 Expenses Net losses and loss expenses 387,999 361,681 Acquisition costs 101,976 94,480 General and administrative expenses 86,557 78,750 Foreign exchange gains (389 ) (20,297 ) Interest expense and financing costs 7,921 7,958 Total expenses 584,064 522,572 Income before income taxes 130,595 259,400 Income tax expense 5,697 12,459 Net income 124,898 246,941 Preferred share dividends (9,219 ) (9,219 ) Net income available to common shareholders $ 115,679 $ 237,722 Weighted average common shares and common share equivalents: Basic 137,316 143,239 Diluted 149,023 160,184 Earnings per common share: Basic $ 0.84 $ 1.66 Diluted $ 0.78 $ 1.48 Cash dividends declared per common share $ 0.200 $ 0.185 -------------------------------------------------------------------------------
AXIS CAPITAL HOLDINGS LIMITED CONSOLIDATED SEGMENT DATA (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2009 2009 Insurance Reinsurance Total Gross premiums written $ 364,158 $ 959,337 $ 1,323,495 Net premiums written 212,015 950,286 1,162,301 Net premiums earned 275,623 389,736 665,359 Other insurance related (loss) income (9,805 ) 410 (9,395 ) Net losses and loss expenses (152,704 ) (235,295 ) (387,999 ) Acquisition costs (26,203 ) (75,773 ) (101,976 ) General and administrative expenses (50,481 ) (18,271 ) (68,752 ) Underwriting income $ 36,430 $ 60,807 97,237 Corporate expenses (17,805 ) Net investment income 99,292 Net realized investment losses (40,597 ) Foreign exchange gains 389 Interest expense and financing costs (7,921 ) Income before income taxes $ 130,595 Net loss and loss expense ratio 55.4 % 60.4 % 58.3 % Acquisition cost ratio 9.5 % 19.4 % 15.3 % General and administrative expense ratio 18.3 % 4.7 % 13.0 % Combined ratio 83.2 % 84.5 % 86.6 % -------------------------------------------------------------------------------
AXIS CAPITAL HOLDINGS LIMITED CONSOLIDATED SEGMENT DATA (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2008 2008 Insurance Reinsurance Total Gross premiums written $ 434,857 $ 829,324 $ 1,264,181 Net premiums written 271,732 820,043 1,091,775 Net premiums earned 299,557 359,077 658,634 Other insurance related income 1,187 815 2,002 Net losses and loss expenses (159,450 ) (202,231 ) (361,681 ) Acquisition costs (31,714 ) (62,766 ) (94,480 ) General and administrative expenses (47,819 ) (17,370 ) (65,189 ) Underwriting income $ 61,761 $ 77,525 139,286 Corporate expenses (13,561 ) Net investment income 85,651 Net realized investment gains 35,685 Foreign exchange gains 20,297 Interest expense and financing costs (7,958 ) Income before income taxes $ 259,400 Net loss and loss expense ratio 53.2 % 56.3 % 54.9 % Acquisition cost ratio 10.6 % 17.5 % 14.3 % General and administrative expense ratio 16.0 % 4.8 % 12.0 % Combined ratio 79.8 % 78.6 % 81.2 % -------------------------------------------------------------------------------
AXIS CAPITAL HOLDINGS LIMITED NON-GAAP FINANCIAL MEASURE RECONCILIATION OPERATING INCOME AND OPERATING INCOME EXCLUDING FOREIGN EXCHANGE GAINS, NET OF TAX FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 2009 2008 Net income available to common shareholders $ 115,679 $ 237,722 Adjustment for net realized investment losses (gains) 40,597 (35,685 ) Adjustment for associated tax impact (465 ) 2,742 Operating income 155,811 204,779 Adjustment for foreign exchange gains (389 ) (20,297 ) Adjustment for associated tax impact (639 ) 1,208 Operating income excluding foreign exchange gains, net of tax $ 154,783 $ 185,690 Net income per share - diluted $ 0.78 $ 1.48 Adjustment for net realized investment (losses) gains, net of tax 0.27 (0.20 ) Operating income per share - diluted 1.05 1.28 Adjustment for foreign exchange gains, net of tax (0.01 ) (0.12 ) Operating income excluding foreign exchange gains, net of tax $ 1.04 $ 1.16 Weighted average common shares and common share equivalents - diluted 149,023 160,184 -------------------------------------------------------------------------------
Cautionary Note Regarding Forward-Looking Statements
This release contains forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements contained in this release include our expectations regarding market conditions and information regarding our estimates of losses related to natural disasters. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause actual events or results to be materially different from our expectations include (1) the occurrence of natural and man-made disasters, (2) actual claims exceeding our loss reserves, (3) general economic, capital and credit market conditions, (4) the failure of any of the loss limitation methods we employ, (5) the effects of emerging claims and coverage issues, (6) the failure of our cedants to adequately evaluate risks, (7) the loss of one or more key executives, (8) a decline in our ratings with rating agencies, (9) the loss of business provided to us by our major brokers, (10) changes in governmental regulations, (11) increased competition, (12), interest rate and/or currency value fluctuations, and (13) the other factors set forth in our most recent report on Form 10-K, Form 10-Q and other documents on file with the Securities and Exchange Commission. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Non-GAAP Financial Measures
In this release, we have presented the following non-GAAP financial measures:
1. Operating income. This represents net income available to common shareholders, before the after tax impact of net realized gains and losses on investments;
2. Operating income, excluding the after tax impact of foreign exchange gains and losses.
We have included these measures as we believe that security analysts, rating agencies and investors believe that realized gains and losses and foreign exchange, where an actively managed foreign exchange program is not in place, are largely opportunistic and are a function of economic and interest rate conditions. As a result, we believe that they evaluate earnings before realized gains and losses and foreign exchange, adjusted for tax, to make performance comparisons with our industry peers.
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