AXIS Capital Holdings Limited — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Amounts are in U.S. dollars. The company is a global specialty insurer and reinsurer operating through AXIS Insurance and AXIS Re.
Financial results and condition
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net premiums earned | $1.277bn | $1.157bn | $2.535bn | $2.261bn |
| Net income | $34.8m | $235.5m | $184.0m | $358.8m |
| Net income available to common shareholders | $27.2m | $227.9m | $168.9m | $343.6m |
| Diluted EPS | $0.32 | $2.67 | $1.97 | $4.04 |
| Underwriting income | $116.7m | $148.3m | $255.5m | $188.5m |
| Combined ratio | 93.4% | 90.6% | 92.4% | 94.7% |
| Net investment income | $92.2m | $104.7m | $183.6m | $218.8m |
| Net investment gains (losses) | $(173.3)m | $73.3m | $(267.8)m | $102.9m |
Management reported Q2 operating income, a non-GAAP measure, of $149.0m, or $1.74 per diluted share, versus $170.5m, or $2.00, a year earlier. Six-month operating income was $328.8m, or $3.83 per diluted share, versus $253.2m, or $2.98.
- Premiums and underwriting: Q2 gross written premiums rose 9% to $2.113bn, led by Insurance, while Reinsurance gross written premiums fell 4%. The combined ratio worsened year over year in Q2, primarily as catastrophe and weather losses increased; for the first half it improved year over year.
- Catastrophe losses and reserves: Q2 catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, were $67m, or 5.3 points of combined ratio. First-half losses were $127m, including $30m attributed to the Russia-Ukraine war. Prior-year reserve development was favorable by $4m in Q2 and $13m for the first half.
- Cash flow and liquidity: Operating cash flow was $513.8m for the first half, compared with $534.9m in 2021. Cash, cash equivalents and restricted cash totaled $1.498bn at June 30. Management stated operating cash flows and portfolio liquidity should cover foreseeable outflows and commitments.
- Debt and capital: Debt was $1.312bn. Debt to total capital was 21.8%, up from 19.5% at year-end 2021; debt plus preferred equity to total capital was 31.0%, versus 27.7%. Shareholders’ equity was $4.703bn, including common equity of $4.153bn.
- Investment and book value: Fixed-maturity fair value fell as yields rose and credit spreads widened. First-half other comprehensive loss was $780.7m, mostly unrealized available-for-sale investment losses. Book value per diluted common share declined to $47.62 from $55.50 at year-end 2021.
Material changes and management outlook
- On June 7, 2022, AXIS announced it would exit property reinsurance to reduce exposure to volatile catastrophe risk. Q2 reorganization expenses were $15.7m, mainly employee termination-related costs.
- Management described insurance pricing as strong across most lines and geographies, though rate increases were decelerating in some markets. It expected pricing improvements to continue into 2023 and said it would pursue growth where pricing supports adequate returns.
- Management saw favorable reinsurance conditions, particularly in specialty and casualty, and emphasized portfolio balance, disciplined risk limits, and reduced volatility. No specific earnings or revenue forecast was provided.
- Moody’s and S&P revised their outlooks from negative to stable, citing underwriting improvement and reduced catastrophe exposure. The S&P revision occurred after quarter-end, on July 20.
Risks, contingencies, and unusual items
- Loss reserves and reinsurance recoverables involve significant estimation judgment; actual catastrophe, weather, pandemic, and war-related losses may differ materially from current estimates. The Russia-Ukraine war remains an evolving exposure, and the company said future credit-loss allowance adjustments could be material.
- Investment results were materially affected by market movements. The company recorded large realized and unrealized investment losses while reporting substantial unrealized fixed-maturity losses in other comprehensive income.
- Management identified inflation, interest rates, credit spreads, foreign exchange, climate-related catastrophe frequency and severity, claims exceeding reserves, reinsurance recoverability, and market capacity/pricing as important risks.
- Unfunded commitments to investment funds include $198m for direct lending, $178m for private equity, and $155m for real estate. Fund valuations generally use a one-quarter reporting lag.
- The company reported no material legal proceedings outside ordinary business and no material changes to its previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether the property-reinsurance exit proceeds as planned and reduces catastrophe volatility without materially impairing profitable growth.
- How reserve estimates develop, especially for catastrophe events, liability and professional-lines claims, and the Russia-Ukraine war.
- Whether fixed-income market losses recover or translate into realized losses, and how investment income responds to higher yields and changing credit conditions.
- Whether premium growth and underwriting margins remain adequate as pricing decelerates and the business mix changes.
- Liquidity, capital ratios, and the collectability of reinsurance recoverables; also monitor the remaining $65m share-repurchase authorization through year-end 2022.