AXIS Capital Holdings Limited — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are with December 31, 2022. AXIS is a global specialty insurance and reinsurance underwriter, operating through its Insurance and Reinsurance segments. Amounts below are U.S. dollars.
Financial performance
- Premiums and revenue: Gross premiums written were $2.382 billion, down 10% year over year; net premiums written were $1.608 billion, down 11%; net premiums earned were $1.230 billion, down 2%. Total revenue was $1.344 billion, up from $1.262 billion.
- Earnings: Net income was $180 million, compared with $149 million; net income available to common shareholders was $173 million, or $2.03 per share ($2.01 diluted), versus $142 million, or $1.67 per share ($1.65 diluted). Non-GAAP operating income was $200 million, or $2.33 per diluted share, versus $180 million, or $2.09.
- Underwriting: Underwriting income was $139 million versus $139 million. The combined ratio improved to 90.9% from 91.4%; ratios below 100% indicate underwriting profit. Net catastrophe and weather-related losses were $38 million, or 3.1 points of the current accident-year loss ratio, versus $60 million, or 4.7 points.
- Investment results: Net investment income rose 46% to $134 million, chiefly reflecting higher fixed-maturity yields. Net investment losses narrowed to $20 million from $95 million, mainly due to lower realized losses and gains on equity securities. Fixed-maturity book yield was 3.7%, compared with 3.5% at year-end 2022.
- Cash flow: Operating cash flow was $222 million, up from $133 million. Investing activities used $159 million, versus providing $323 million; financing activities used $59 million. Cash, cash equivalents and restricted cash ended at $1.179 billion.
- Capital and liquidity: Total assets were $28.565 billion and shareholders’ equity $4.960 billion. Debt was $1.313 billion; debt to total capital was 20.9%, down from 22.0%. Total cash and investments were approximately $16.0 billion. Fixed maturities, short-term investments and cash and cash equivalents represented 85% of that total and had an average credit rating of AA-. Management expects operating cash flows and investment-portfolio liquidity to cover obligations for the foreseeable future.
Material changes versus the prior comparable period
- Insurance gross premiums written increased 7% to $1.416 billion, while reinsurance gross premiums written fell 26% to $966 million. The reinsurance decrease principally reflects the June 2022 exit from catastrophe and property reinsurance, as well as portfolio non-renewals and repositioning.
- Insurance underwriting income increased to $103 million from $94 million; its combined ratio improved to 87.3% from 87.5%. Reinsurance underwriting income declined to $36 million from $44 million, while its combined ratio improved to 91.4% from 92.5%.
- Prior-year reserve development was $4 million favorable, compared with $9 million favorable. Favorable development was partly offset by adverse development in liability and professional lines in Insurance and liability and motor in Reinsurance.
- Comprehensive income was $369 million, compared with a $246 million loss. After-tax unrealized gains on available-for-sale investments were $189 million, versus $398 million of losses in Q1 2022. Net unrealized losses on fixed maturities declined to $637 million from $850 million at year-end 2022, primarily as yields fell.
- Book value per diluted common share was $50.31 versus $51.97 a year earlier; it increased during the quarter, with the filing attributing the change primarily to investment-related OCI gains and net income, partly offset by dividends.
Outlook, commentary and risks
- Management expects pricing improvement to continue through 2023 across most markets, with loss-cost trends, catastrophe activity, inflation and geopolitical uncertainty shaping rates. It plans disciplined growth in adequately priced specialty and E&S insurance and selected specialty and casualty reinsurance.
- The company is continuing its strategy to rebalance toward less volatile, attractive-return business. Its reduced catastrophe and property reinsurance exposure is reflected in the year-over-year premium decline.
- Management reviewed banking-sector underwriting and investment exposures and said they were within its risk appetite; monitoring continues. The filing reports no direct Russia or Ukraine investment exposure, but estimates $45 million of pre-tax net losses from the war. Those reserve estimates remain materially uncertain, and later credit-loss allowance adjustments could be material.
- Key risks include catastrophe severity, inflation and social inflation, reserve-estimation uncertainty, reinsurance recoverability, market and credit volatility, foreign exchange movements, liquidity, and geopolitical and regulatory developments. The company reported $38 million of catastrophe and weather losses in the quarter and described event-loss estimates as subject to change.
- No quantitative earnings guidance was provided. The $150 million secured letter-of-credit facility expired March 31; management considered its remaining $500 million facility sufficient. FHLB borrowings were $86 million, secured by investments with a fair value of $106 million.
- Routine insurance-related legal proceedings are included in loss reserves; the company reported no material legal proceedings outside the ordinary course. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether reserve assumptions remain adequate, particularly for liability and professional lines, inflation-sensitive claims, catastrophe events and the Russia-Ukraine war.
- Whether pricing and underwriting performance support profitable growth as reinsurance premiums contract following the portfolio exits and repositioning.
- How investment income, realized losses and the recovery or further movement of unrealized bond losses affect earnings, capital and book value.
- Liquidity and capital capacity, including restricted cash, fund investment redemption limits and commitments, FHLB advances, and the available letter-of-credit facility.
- Non-GAAP operating income and related measures should be assessed alongside GAAP net income; the filing notes these measures may not be comparable across companies.