AXIS Capital Holdings Limited — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. AXIS is a global specialty insurer and treaty reinsurer, reporting Insurance and Reinsurance segments. Amounts below are U.S. dollars.
Financial results and condition
| Metric | 2020 | 2019 |
|---|---|---|
| Gross premiums written | $6.83 billion | $6.90 billion |
| Net premiums earned | $4.37 billion | $4.59 billion |
| Net investment income | $349.6 million | $478.6 million |
| Net investment gains | $129.1 million | $91.2 million |
| Net income (loss) attributable to common shareholders | $(150.7) million; $(1.79) per share | $282.4 million; $3.37 per share |
| Operating income (loss), non-GAAP | $(174.2) million; $(2.08) per diluted share | $213.4 million; $2.52 per diluted share |
| Underwriting result and combined ratio | $(325.5) million; 109.6% | $28.5 million; 102.6% |
| Operating cash flow | $343.5 million | $199.0 million |
Catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, were $774 million, or 17.7 percentage points of the combined ratio. This included $360 million attributed to COVID-19 and $414 million from other catastrophe and weather events. Prior-year reserve development was favorable by $15.9 million, versus $78.9 million favorable in 2019.
Insurance gross premiums written rose 9% to $4.02 billion, while Reinsurance gross premiums written fell 13% to $2.81 billion. Segment underwriting losses were $235.7 million for Insurance and $89.8 million for Reinsurance; both segments had underwriting income in 2019.
At year-end, total assets were $25.9 billion, total cash and investments were $15.8 billion, and common shareholders’ equity was $4.75 billion. Book value per diluted common share was $55.09, down from $55.79; book value per diluted share adjusted for dividends increased $0.95. Debt was $1.31 billion, and debt to total capital was 19.8%, compared with 24.6% in 2019. The company reported $1.50 billion of cash and cash equivalents, including $600 million restricted cash, and $4.91 billion of restricted investments. Management estimated about $13.0 billion of cash and invested assets could be available within one to three business days under normal market conditions, including restricted assets.
Material changes and notable items
- Net premiums earned declined 5%; net investment income fell 27%, reflecting lower yields and a smaller fixed-maturity allocation. Net investment gains increased to $129 million from $91 million.
- The combined ratio deteriorated by 7.0 percentage points, mainly because catastrophe and weather losses rose to $774 million from $336 million. Excluding catastrophe and weather losses, the current accident-year loss ratio improved to 57.7% from 60.6%.
- Net foreign-exchange losses were $81.1 million, versus a $12.0 million gain in 2019.
- Cash from operations increased. Financing cash outflows included repayment of $500 million of senior notes, redemption of $225 million of Series D preferred shares, and $173 million of common and preferred dividends paid.
- Common dividends declared were $1.65 per share, versus $1.61 in 2019. The board had not authorized a 2021 common-share repurchase plan; reported repurchases were primarily employee tax-withholding shares.
Outlook, risks and contingencies
Management reported improving pricing, terms and conditions across many insurance and reinsurance markets through the fourth quarter of 2020 and expected further improvement in some specialty markets in 2021. The company said it would prioritize adequately priced business and profitable returns over growth where pricing remained insufficient; it provided no specific earnings or premium guidance.
Management estimated $360 million of ultimate direct COVID-19 losses incurred through year-end and considered reserves adequate, but stressed that the estimate is highly uncertain and that indirect losses, coverage disputes, legal or regulatory actions, and economic effects may take quarters or years to emerge. The company expected pandemic-related disruption to premium volume to continue in 2021. It also disclosed first-quarter 2021 severe winter weather in North America, with the financial impact not yet estimable.
Other material risks include catastrophe frequency and severity, climate-related exposure, loss-reserve uncertainty and social inflation, reinsurance collectability, investment and interest-rate risk, low reinvestment yields, foreign exchange, broker concentration, and regulatory restrictions on subsidiary distributions. Brexit-related U.K. branch authorization remained pending, with temporary permissions supporting continued operations. A.M. Best revised the operating subsidiaries’ financial-strength rating to A (Stable) in May 2020; S&P and Moody’s outlooks were Negative. Three brokers generated 47% of 2020 gross premiums written. No material legal proceedings outside the ordinary course were reported. Deloitte issued an unqualified opinion on the financial statements and internal control; reserves were identified as a critical audit matter.
Important facts for investors to verify
- How COVID-19 claims, coverage interpretations and indirect casualty or professional-line losses develop relative to the $360 million estimate.
- Whether reserve assumptions remain adequate, especially for long-tail professional and liability business; the filing’s sensitivity analysis shows material reserve exposure to changes in loss ratios and development patterns.
- Whether improving rates translate into underwriting profitability, given the 109.6% combined ratio and segment underwriting losses in 2020.
- Reinsurance recoverable balances and counterparty quality: year-end recoverables on unpaid losses were $4.50 billion, with a $24 million expected-credit-loss allowance.
- Progress on U.K. regulatory authorization after Brexit, rating outlooks, broker concentration and the availability of subsidiary dividends to fund holding-company obligations.
- The effect of first-quarter 2021 winter-weather losses and subsequent developments on capital, liquidity and reserves.