(Source: Business Wire)
AXIS Capital Holdings Limited ("AXIS Capital") (NYSE: AXS) today reported net income available to common shareholders for the second quarter of 2009 of $159 million, or $1.06 per diluted common share, compared with $231 million, or $1.47 per diluted common share, for the second quarter of 2008. Net income for the six months ended June 30, 2009 was $275 million, or $1.84 per diluted share, compared with $469 million, or $2.95 per diluted share, for the corresponding period in 2008.
Operating income for the second quarter of 2009 was $183 million, or $1.22 per diluted share, compared with $229 million, or $1.45 per diluted common share, for the second quarter of 2008. This same item excluding foreign exchange gains/losses, net of tax, for the second quarter of 2009 was $208 million, or $1.39 per diluted common share, compared with $236 million, or $1.50 per diluted common share, for the second quarter of 2008.
Operating income for the first six months of 2009 was $338 million, or $2.26 per diluted share, compared with $434 million, or $2.73 per diluted common share, for the first six months of 2008. This same item excluding foreign exchange gains/losses, net of tax, for the first six months of 2009 was $363 million, or $2.43 per diluted common share, compared with $421 million, or $2.65 per diluted common share, for the first six months of 2008.
Second Quarter Highlights
Operating income of $183 million;
Annualized operating return on average common equity of 17.4%;
Gross premiums written of $915 million, an increase of 5%;
Combined ratio of 80.4%, including net favorable reserve development of 13.7 percentage points;
Underwriting income of $141 million, an increase of 2%;
A reduction in the net unrealized losses on our available for sale investments of $239 million;
Strong operating cash flows of $207 million;
Shareholders' equity of $4.9 billion, an increase of 10% from December 31, 2008; and
Diluted book value per common share of $28.72, an increase of 9% from March 31, 2009 and 11% from December 31, 2008.
Commenting on the second quarter 2009 financial results, John Charman, Chief Executive Officer and President of AXIS Capital, stated: "We are pleased to report that we have delivered strong diluted book value growth of 9% and an annualized operating return on average common equity of 17.4% during this second quarter of 2009. Both our insurance and reinsurance segments converted the best opportunities they found against the backdrop of a mixed market. The result was an overall increase in gross premiums written and net premiums written of 5% and 2% respectively during the second quarter.
I am disappointed that the insurance market has failed to harden more broadly when it is so blindingly obvious that is the path it should and must take. The need for change is obvious, but the courage to change is lacking.
The reinsurance market continues to show strong leadership and disciplined pricing overall. A stratification is occurring in this market and we are perfectly positioned to reap the benefits."
Segment Highlights
Insurance Segment
Our insurance segment reported underwriting income for the quarter of $16 million, down $35 million, or 69%, from the second quarter of 2008. The segment's combined ratio was 89.8% compared with 80.3% in the prior year quarter. The increase in the combined ratio was driven by increased claims activity impacting our credit and political risk line of business, partially offset by a lower frequency and severity of property per risk losses. Net favorable prior period development was $47 million, or 15.7 points, this quarter compared with $46 million, or 15.5 points, in the second quarter of 2008. The current quarter's underwriting result also included a reduction of $15 million in the fair value of an insurance derivative contract, which is included in other insurance related income. This compared with a $7 million reduction in the same quarter last year.
Our insurance segment reported gross premiums written in the quarter of $527 million, down 5% from the second quarter of 2008, and net premiums written of $313 million, down 14% from the second quarter of 2008. These reductions primarily emanate from our credit and political risk line of business, where we continued to see limited underwriting opportunities due to contracting global lending and trading activity. Ceded premiums were 41% of gross premiums written in the current quarter compared with 34% in the second quarter of 2008. The increase reflects the impact of business mix changes, increased costs and the expansion of our reinsurance coverage during the year.
Reinsurance Segment
Our reinsurance segment reported underwriting income for the quarter of $125 million, a 43% increase compared with the second quarter of 2008. The segment's combined ratio was 69.5% compared with 77.3% in the prior year quarter. The improvement in the combined ratio was driven by a lower level of catastrophe and other large loss activity. Net favorable prior period development was $50 million, or 12.2 points, this quarter compared with $41 million, or 10.6 points, in the second quarter of 2008.
Our reinsurance segment reported gross premiums written in the quarter of $388 million, up 22% from the second quarter of 2008, reflecting rate increases, increased participation on certain treaties and new business opportunities. These factors were significant in the growth of our catastrophe, property and professional liability reinsurance lines of business.
Investments
Net investment income for the quarter of $112 million represented an increase of $13 million, or 13%, relative to the first quarter of this year and a decrease of $25 million, or 18%, relative to the second quarter of 2008. Net investment income from fixed maturities and cash and cash equivalents was $103 million this quarter compared with $95 million in the first quarter of this year and $116 million in the second quarter of 2008. The increase relative to the first quarter of 2009 reflects the impact of higher average invested balances as well as redeployment of cash and cash equivalents into higher yielding high-grade fixed income investments. Net investment income from cash and cash equivalents decreased over the prior year period however as a result of lower short-term and intermediate interest rates. Net investment income from our alternative investment portfolio ("other investments") was $12 million. This represented an increase of $5 million relative to the first quarter of this year and a decrease of $8 million relative to the same period last year.
Effective April 1, 2009, we adopted the new FASB guidance for the recognition of other-than-temporary impairments (OTTI) of fixed maturity securities, resulting in a $38 million net after-tax increase to our April 1, 2009 retained earnings and accumulated other comprehensive loss. This adjustment reflects the non-credit portion of $86 million in previously recognized OTTI for fixed maturity securities held at March 31, 2009. The adoption of this new guidance had no impact to our book value per share. For the current quarter, we recorded a further $1 million in net after-tax OTTI charges through other comprehensive income.
During the quarter, we incurred net realized investment losses of $24 million compared to net realized investment gains of $2 million in the prior year quarter. Net realized investment losses for the quarter included $21 million of OTTI charges on certain mortgage-backed, corporate debt and equity securities.
At June 30, 2009, net unrealized losses within our available for sale investment portfolio were $529 million, a reduction of $239 million in the quarter. The improvement in asset valuation experienced during the quarter was primarily due to credit spread tightening on corporate debt and structured credit securities.
During the quarter, we reduced U.S. agency residential mortgage-backed securities and invested the proceeds primarily in U.S. agency debt securities and high-grade corporate debt. This shift has resulted in reduced extension risk while maintaining our investment portfolio yield levels. At June 30, 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 81% of total cash and investments, is well diversified, has a weighted average credit quality of AA+, and has an average duration of approximately 3.13 years. Our other investments represent 5% of our cash and investments portfolio at June 30, 2009.
Supplementary information relating to our investment portfolio at June 30, 2009 is available in the Investor Information section of our website.
Capitalization / Shareholders' Equity
Total capitalization at June 30, 2009 was $5.4 billion, including $0.5 billion of long-term debt and $0.5 billion of preferred equity, compared to $5.0 billion at December 31, 2008. At June 30, 2009, diluted book value per common share, on a treasury stock basis, was $28.72 and book value per common share was $32.02, compared to $25.79 and $29.08 respectively, as of December 31, 2008.
Conference Call
We will host a conference call on Tuesday, August 4, 2009 at 8:00 AM (Eastern) to discuss the second 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 9677789 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.
In addition, a financial supplement relating to our financial results for the quarter ended June30, 2009 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, 2009 of $4.9 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 JUNE 30, 2009 (UNAUDITED) AND DECEMEBER 31, 2008 2009 2008 Assets (in thousands, except per share amounts) Investments: Fixed maturities, available for sale, at fair value $ 8,872,839 $ 7,750,654 Equity securities, available for sale, at fair value 96,875 107,283 Other investments, at fair value 539,545 492,082 Short-term investments 165,197 261,879 Total investments 9,674,456 8,611,898 Cash and cash equivalents 1,380,863 1,820,673 Accrued interest receivable 87,361 79,232 Insurance and reinsurance premium balances receivable 1,707,677 1,185,785 Reinsurance recoverable balances 1,381,076 1,304,551 Reinsurance recoverable balances on paid losses 62,764 74,079 Deferred acquisition costs 374,849 273,096 Prepaid reinsurance premiums 296,994 279,553 Securities lending collateral 146,350 412,823 Goodwill and intangible assets 95,058 60,417 Other assets 171,437 180,727 Total assets $ 15,378,885 $ 14,282,834 Liabilities Reserve for losses and loss expenses $ 6,561,894 $ 6,244,783 Unearned premiums 2,671,025 2,162,401 Insurance and reinsurance balances payable 178,372 202,145 Securities lending payable 149,288 415,197 Senior notes 499,422 499,368 Other liabilities 253,198 233,082 Net payable for investments purchased 156,567 64,817 Total liabilities 10,469,766 9,821,793 Shareholders' Equity Preferred shares - Series A and B 500,000 500,000 Common shares 1,900 1,878 Additional paid-in capital 1,989,503 1,962,779 Accumulated other comprehensive (loss) income (528,261 ) (706,499 ) Retained earnings 3,447,511 3,198,492 Treasury shares, at cost (501,534 ) (495,609 ) Total shareholders' equity 4,909,119 4,461,041 Total liabilities and shareholders' equity $ 15,378,885 $ 14,282,834 -------------------------------------------------------------------------------
AXIS CAPITAL HOLDINGS LIMITED CONSOLIDATED SEGMENTAL DATA (UNAUDITED) FOR THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008 Three months ended Six months ended 2009 2008 2009 2008 (in thousands, except per share amounts) Revenues Net premiums earned $ 706,770 $ 680,291 $ 1,372,129 $ 1,338,925 Net investment income 112,220 137,015 211,512 222,666 Other insurance related loss (14,261 ) (7,269 ) (23,656 ) (5,267 ) Net realized investment gains (losses): Other-than-temporary impairment losses (22,896 ) (645 ) (52,796 ) (16,141 ) Portion of impairment losses transferred to other comprehensive income 1,443 - 1,443 - Other realized investment (losses) gains (2,225 ) 2,197 (12,922 ) 53,378 Total net realized investment (losses) gains (23,678 ) 1,552 (64,275 ) 37,237 Total revenues 781,051 811,589 1,495,710 1,593,561 Expenses Net losses and loss expenses 378,252 371,717 766,251 733,398 Acquisition costs 103,309 97,780 205,285 192,260 General and administrative expenses 86,949 82,953 173,506 161,703 Foreign exchange losses (gains) 24,184 6,564 23,795 (13,733 ) Interest expense and financing costs 7,971 7,890 15,892 15,848 Total expenses 600,665 566,904 1,184,729 1,089,476 Income before income taxes 180,386 244,685 310,981 504,085 Income tax expense 12,006 4,199 17,703 16,658 Net income 168,380 240,486 293,278 487,427 Preferred shares dividends 9,219 9,219 18,438 18,438 Net income available to common shareholders $ 159,161 $ 231,267 $ 274,840 $ 468,989 Weighted average common shares and common share equivalents: Basic 137,849 142,333 137,586 142,786 Diluted 149,861 157,602 149,448 158,893 Earnings per common share: Basic $ 1.15 $ 1.62 $ 2.00 $ 3.28 Diluted $ 1.06 $ 1.47 $ 1.84 $ 2.95 Cash dividends declared per common share $ 0.20 $ 0.185 $ 0.40 $ 0.37 -------------------------------------------------------------------------------
AXIS CAPITAL HOLDINGS LIMITED CONSOLIDATED SEGMENTAL DATA (UNAUDITED) FOR THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008 2009 2008 Insurance Reinsurance Total Insurance Reinsurance Total Gross premiums written $ 526,764 $ 387,877 $ 914,641 $ 555,464 $ 318,705 $ 874,169 Net premiums written 313,136 387,877 701,013 365,511 318,705 684,216 Net premiums earned 298,975 407,795 706,770 297,429 382,862 680,291 Other insurance related (loss) income (14,956) 695 (14,261) (7,509) 240 (7,269) Net losses and loss expenses (187,211) (191,041) (378,252) (159,696) (212,021) (371,717) Acquisition costs (28,306) (75,003) (103,309) (31,120) (66,660) (97,780) General and administrative expenses (52,893) (17,525) (70,418) (48,141) (17,077) (65,218) Underwriting income $ 15,609 $ 124,921 140,530 $ 50,963 $ 87,344 138,307 Corporate expenses (16,531) (17,735) Net investment income 112,220 137,015 Net realized investment (losses) gains (23,678) 1,552 Foreign exchange losses (24,184) (6,564) Interest expense and financing costs (7,971) (7,890) Income before income taxes $ 180,386 $ 244,685 Net loss and loss expense ratio 62.6% 46.8% 53.5% 53.7% 55.4% 54.6% Acquisition cost ratio 9.5% 18.4% 14.6% 10.4% 17.4% 14.4% General and administrative expense ratio 17.7% 4.3% 12.3% 16.2% 4.5% 12.2% Combined ratio 89.8% 69.5% 80.4% 80.3% 77.3% 81.2% -------------------------------------------------------------------------------
AXIS CAPITAL HOLDINGS LIMITED CONSOLIDATED SEGMENTAL DATA (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 2009 2008 Insurance Reinsurance Total Insurance Reinsurance Total Gross premiums written $ 890,922 $ 1,347,214 $ 2,238,136 $ 990,321 $ 1,148,029 $ 2,138,350 Net premiums written 525,151 1,338,163 1,863,314 637,243 1,138,748 1,775,991 Net premiums earned 574,598 797,531 1,372,129 596,986 741,939 1,338,925 Other insurance related (loss) income (24,761) 1,105 (23,656) (6,322) 1,055 (5,267) Net losses and loss expenses (339,915) (426,336) (766,251) (319,146) (414,252) (733,398) Acquisition costs (54,509) (150,776) (205,285) (62,834) (129,426) (192,260) General and administrative expenses (103,374) (35,796) (139,170) (95,960) (34,447) (130,407) Underwriting income $ 52,039 $ 185,728 237,767 $ 112,724 $ 164,869 277,593 Corporate expenses (34,336) (31,296) Net investment income 211,512 222,666 Net realized investment (losses) gains (64,275) 37,237 Foreign exchange (losses) gains (23,795) 13,733 Interest expense and financing costs (15,892) (15,848) Income before income taxes $ 310,981 $ 504,085 Net loss and loss expense ratio 59.2% 53.5% 55.8% 53.5% 55.8% 54.8% Acquisition cost ratio 9.4% 18.9% 15.0% 10.5% 17.5% 14.3% General and administrative expense ratio 18.0% 4.5% 12.6% 16.1% 4.6% 12.1% Combined ratio 86.6% 76.9% 83.4% 80.1% 77.9% 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 AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 Three months ended Six months ended 2009 2008 2009 2008 Net income available to common shareholders $ 159,161 $ 231,267 $ 274,840 $ 468,989 Adjustment for net realized investment losses (gains) 23,678 (1,552) 64,275 (37,237) Adjustment for associated tax impact (205) (563) (670) 2,179 Operating income 182,634 229,152 338,445 433,931 Adjustment for foreign exchange losses (gains) 24,184 6,564 23,795 (13,733) Adjustment for associated tax impact 1,112 (53) 473 1,155 Operating income excluding foreign exchange losses (gains), net of tax $ 207,930 $ 235,663 $ 362,713 $ 421,353 Net income per share - diluted $ 1.06 $ 1.47 $ 1.84 $ 2.95 Adjustment for net realized investment losses (gains) 0.16 (0.01) 0.42 (0.23) Adjustment for associated tax impact - (0.01) - 0.01 Operating income per share - diluted $ 1.22 $ 1.45 $ 2.26 $ 2.73 Adjustment for foreign exchange losses (gains) 0.16 0.05 0.16 (0.09) Adjustment for associated tax impact 0.01 - 0.01 0.01 Operating income excluding foreign exchange losses (gains), net of tax $ 1.39 $ 1.50 $ 2.43 $ 2.65 Weighted average common shares and common share equivalents - diluted 149,861 157,602 149,448 158,893 -------------------------------------------------------------------------------
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) the failure of any of the loss limitation methods we employ, (4) the effects of emerging claims and coverage issues, (5) the failure of our cedants to adequately evaluate risks, (6) the loss of one or more key executives, (7) a decline in our ratings with rating agencies, (8) the loss of business provided to us by our major brokers, (9) changes in governmental regulations, (10) increased competition, (11) interest rate and/or currency value fluctuations, (12) general economic conditions 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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