AXIS Capital Holdings Limited — Q1 2022 Form 10-Q
Business context and period. Global specialty insurer and treaty reinsurer, reporting the unaudited three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Amounts are U.S. dollars.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Gross premiums written | $2.635 billion | $2.535 billion | Up 4% |
| Net premiums earned | $1.258 billion | $1.104 billion | Up 14% |
| Total revenues | $1.262 billion | $1.250 billion | Included net investment losses in 2022 |
| Net income | $149.2 million | $123.3 million | Up 21% |
| Net income available to common shareholders | $141.6 million | $115.7 million | EPS $1.67; diluted EPS $1.65 |
| Operating income (non-GAAP) | $179.8 million | $82.7 million | Diluted operating EPS $2.09 vs. $0.97 |
| Underwriting income (non-GAAP) | $138.8 million | $40.2 million | Combined ratio 91.4% vs. 98.9% |
| Net investment income | $91.4 million | $114.2 million | Down 20% |
| Net investment gains (losses) | $(94.5) million | $29.6 million | Realized losses on fixed maturities and unrealized equity-security losses |
| Operating cash flow | $133.3 million | $145.1 million | Down $11.8 million |
Financial position, liquidity and capital
- Total assets were $27.8 billion at March 31, 2022; total liabilities were $22.7 billion.
- Cash, cash equivalents and restricted cash totaled $1.707 billion, up from $1.318 billion at year-end. Total cash and investments were approximately $16.0 billion.
- Debt was $1.311 billion, essentially unchanged from year-end. Debt to total capital was 20.4%, compared with 19.5% at December 31, 2021.
- Common shareholders’ equity was $4.571 billion; book value per diluted common share was $51.97, down from $53.03 at year-end. The decline reflected investment-related accumulated other comprehensive losses and dividends, partly offset by net income.
- Net cash from investing activities was $322.6 million, versus $24.2 million used in Q1 2021; financing activities used $60.3 million, mainly for dividends. Management said operating cash flows and portfolio liquidity should cover foreseeable outflows and commitments.
- Available-for-sale fixed maturities had net unrealized losses of $384 million, versus net unrealized gains of $71 million at year-end, principally as interest rates rose. Management attributed the losses to non-credit factors and said it did not intend, and was not likely to be required, to sell the securities before recovery.
- Fixed maturities, short-term investments and cash equivalents had an average credit rating of AA- and an average duration of 2.8 years.
Material changes and segment performance
- Insurance gross premiums written increased 20% to $1.327 billion, driven principally by professional lines, liability and property. Segment underwriting income rose to $94.4 million from $38.8 million; its combined ratio improved to 87.5% from 93.8%.
- Reinsurance gross premiums written declined 9% to $1.307 billion, largely reflecting portfolio repositioning and lower catastrophe, motor and property writings. Segment underwriting income rose to $44.4 million from $1.4 million; its combined ratio improved to 92.5% from 100.2%.
- Consolidated catastrophe and weather-related losses, net of reinsurance, were $60 million, or 4.7 combined-ratio points, compared with $110 million in Q1 2021. The 2022 amount included $30 million related to the Russia-Ukraine war; most of the remainder related to Eastern Australia floods and other weather events.
- Net favorable prior-year reserve development was $9.0 million, compared with $5.3 million. Favorable developments were partly offset by adverse development, notably in professional lines and liability.
- Foreign exchange produced a $44.3 million gain, compared with a $4.1 million loss, mainly from U.S. dollar strengthening against currencies underlying insurance liabilities. This contributed to GAAP net income and is excluded from the company’s operating-income measure.
Outlook, risks and unusual items
- Management reported favorable pricing and terms across virtually all insurance lines and geographies, and expects pricing improvements in many specialty segments to continue into 2023 and beyond. It intends to grow selectively where pricing supports adequate returns and within risk and volatility limits; no numerical earnings or revenue guidance was provided.
- Management described reinsurance pricing as improving but said strong industry capitalization and market volatility remain, with further improvement needed for price adequacy.
- The Russia-Ukraine war is an evolving underwriting and reserving risk. The company recorded $30 million of related catastrophe losses, reported no direct investment exposure to Russia or Ukraine, and said actual losses could differ materially from estimates. It had not increased credit-loss allowances for related receivables at quarter-end, but said later adjustments could be material.
- Other stated risks include catastrophe and climate-related losses, reserve uncertainty, inflation and market movements, reinsurance recoverability, sanctions and regulatory changes, and the effects of COVID-19. Fixed-income price declines affected accumulated other comprehensive income and book value. The filing reported no material changes to previously disclosed risk factors.
- Routine insurance and reinsurance legal proceedings were disclosed; the company reported no material legal proceedings outside the ordinary course of business. A $150 million portion of its secured letter-of-credit facility was extended to March 31, 2023.
Important facts for investors to verify
- How interest rates, credit spreads and any asset sales affect fixed-maturity valuations, investment income and book value.
- Whether Russia-Ukraine war and other catastrophe claims develop differently from current reserve estimates, and whether receivable credit allowances require revision.
- Whether favorable pricing translates into durable underwriting margins, especially given reinsurance portfolio mix changes and adverse development in selected long-tail lines.
- The sustainability of investment income and the extent to which reported earnings depend on foreign-exchange gains and other items excluded from non-GAAP operating income.
- Liquidity needs and the timing of unfunded investment commitments; the filing reports commitments across private equity, real estate, direct-lending and other funds, which may be illiquid.