Business context and reporting period
AXIS Capital Holdings Limited is a global specialty insurer and reinsurer operating through AXIS Insurance and AXIS Re. This unaudited Form 10-Q covers the three and nine months ended September 30, 2023; financial comparisons are with the corresponding 2022 periods unless otherwise noted. Amounts below are U.S. dollars.
Financial performance and condition
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net premiums earned | $1.323 billion | $1.285 billion | $3.819 billion | $3.820 billion |
| Net income | $188 million | $(9) million | $519 million | $175 million |
| Net income available to common shareholders | $181 million | $(17) million | $496 million | $152 million |
| Diluted earnings per common share | $2.10 | $(0.20) | $5.77 | $1.77 |
| Operating income (non-GAAP) | $202 million | $3 million | $593 million | $331 million |
| Net investment income | $154 million | $88 million | $425 million | $272 million |
| Net investment gains (losses) | $(53) million | $(146) million | $(98) million | $(414) million |
| Combined ratio | 92.7% | 104.3% | 91.7% | 96.4% |
Q3 underwriting income was $147 million, versus a $29 million loss a year earlier. Nine-month underwriting income was $435 million, compared with $226 million. The Q3 combined ratio improved mainly because catastrophe and weather losses were lower; the ratio below 100% indicates an underwriting profit for the periods shown.
For the first nine months, operating cash flow was $949 million, versus $917 million. Investing activities used $690 million and financing activities used $150 million. Cash, cash equivalents and restricted cash totaled $1.267 billion at September 30, 2023, compared with $1.175 billion at year-end 2022.
At September 30, total assets were $29.5 billion, total liabilities $24.4 billion and shareholders’ equity $5.0 billion. Debt was $1.313 billion; debt to total capital was 20.7%, down from 22.0% at year-end 2022. Common equity was $4.483 billion and book value per diluted common share was $51.17, compared with $43.50 at year-end 2022. Total cash and investments were approximately $16.1 billion; fixed maturities, short-term investments and cash and cash equivalents had an average credit rating of AA-.
Material changes versus the prior comparable period
- Q3 gross premiums written rose 12% to $1.906 billion, while net premiums written fell 6% to $975 million. Nine-month gross premiums written rose 2% to $6.572 billion, while net premiums written declined 3% to $4.030 billion.
- Insurance segment gross premiums written grew 11% in both Q3 and the nine-month period. Reinsurance gross premiums written rose 15% in Q3 but fell 14% for nine months, reflecting the exit from catastrophe and property reinsurance lines in 2022 and portfolio repositioning.
- Q3 net investment income rose 75%; nine-month net investment income rose 56%, principally reflecting higher fixed-maturity yields. Investment losses narrowed substantially year over year, though remained losses.
- Foreign-exchange gains were $51 million in Q3 and $12 million for nine months, versus $136 million and $237 million, respectively, in 2022.
- Q3 catastrophe and weather-related losses, net of reinsurance, were $42 million, versus $212 million in Q3 2022. Nine-month catastrophe and weather-related losses were $112 million, versus $339 million.
- Accumulated other comprehensive loss was $775 million at quarter-end. Available-for-sale fixed maturities had $863 million of gross unrealized losses; management attributed these to non-credit factors and said it did not intend, and was not more likely than not required, to sell before recovery.
Outlook, commentary, risks and unusual items
Management expected pricing to continue improving but moderate across most lines, and described insurance market conditions as generally favorable, particularly in specialty and excess-and-surplus lines. It said it would pursue targeted, disciplined growth where pricing supports profitability and risk guidelines. For reinsurance, management cited strong pricing momentum in non-proportional business and rate increases in underlying proportional business. The filing provides no specific earnings or premium guidance.
On September 22, AXIS entered a retrocession agreement with Monarch Point Re, effective January 1, 2023, covering prospective and retroactive casualty reinsurance. The retroactive element included $119 million of premiums, $33 million of acquisition costs and a $7 million loss expense; AXIS recognized $76 million of recoverables on unpaid losses and $4 million on paid losses. For the nine months, AXIS ceded $244 million of prospective premiums. AXIS also advanced Monarch Point Re $156 million; $127 million remained receivable at quarter-end, with repayment expected by November 15, 2025 and interest at 5.7%. The company has an 18% equity interest in the reinsurer; the filing states the transaction was conducted at market rates.
Reorganization expenses were $29 million in Q3 and for the nine-month period, mainly software impairments and severance under the “How We Work” program. AXIS estimated $47 million of pre-tax net losses from the Russia-Ukraine war and cautioned that the estimate is materially uncertain. It reported no direct Russia or Ukraine investment exposure. Loss reserves remain subject to uncertainty from catastrophe events, claims development, inflation and other factors; the filing notes actual event losses may differ materially from estimates. Other disclosed risks include market and credit conditions, commercial real estate, interest rates, foreign exchange, reinsurance recoverability, regulation, and operational and cyber risks.
AXIS reported no material legal proceedings outside ordinary business, no material changes to its previously disclosed risk factors, and effective disclosure controls. A $150 million secured letter-of-credit facility expired in March 2023; the company said its remaining $500 million facility was sufficient. It also reported $100 million of remaining share-repurchase authorization at November 1, 2023. The filing includes no formal liquidity shortfall warning.
Important facts for investors to verify
- Whether improved underwriting results and the sub-100% combined ratio persist as catastrophe activity, pricing and business mix change.
- Reserve adequacy, especially for casualty liability and professional lines, where adverse development in certain prior accident years partly offset favorable development elsewhere.
- The performance and collectability of the Monarch Point Re retrocession, including the $127 million loan receivable, ceded balances and related recoverables.
- Investment portfolio sensitivity to interest rates and credit conditions, the unrealized fixed-maturity losses, and commercial mortgage exposure; two collateral-dependent loans led to a $4 million credit-loss allowance.
- That operating income, operating earnings per share and related return measures are non-GAAP; review the filing’s reconciliation to GAAP results.
- Cash-flow and liquidity needs, including investment commitments, dividends, debt maturities and the remaining letter-of-credit capacity.