AXIS Capital Holdings Limited — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. AXIS is a Bermuda-based global specialty insurer and reinsurer, reporting Insurance and Reinsurance segments. Financial statements were audited under U.S. GAAP; the auditor gave an unqualified opinion and identified loss reserves as a critical audit matter.
Key financial and operating metrics
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Gross premiums written | $8.21 billion | $7.69 billion |
| Net premiums written | $5.26 billion | $4.93 billion |
| Net premiums earned | $5.16 billion | $4.71 billion |
| Underwriting income; combined ratio | $359 million; 95.8% | $266 million; 97.5% |
| Net investment income | $419 million | $454 million |
| Net investment gains (losses) | $(457) million | $134 million |
| Net income available to common shareholders | $193 million; $2.25 diluted EPS | $588 million; $6.90 diluted EPS |
| Operating income (non-GAAP) | $498 million; $5.81 per diluted share | $436 million; $5.12 per diluted share |
| Net cash from operating activities | $692 million | $1.11 billion |
- Insurance segment gross premiums written rose 15% to $5.59 billion; underwriting income increased to $327 million and the combined ratio improved to 89.6% from 91.6%.
- Reinsurance gross premiums written fell 7% to $2.63 billion, reflecting the planned run-off and exit of catastrophe and property reinsurance. Underwriting income was $31 million; the combined ratio was 99.1%, versus 99.0%.
- Catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, were $403 million, or 7.8 points on the current accident-year loss ratio. Net favorable prior-year reserve development was $26 million.
- At year-end, assets were $27.6 billion, total shareholders’ equity $4.64 billion, common shareholders’ equity $4.09 billion, and cash and investments approximately $15.5 billion. Book value per diluted common share was $46.95, down from $55.78.
- Debt was $1.31 billion; debt-to-total-capital was 22.0%, compared with 19.5%. Gross loss reserves were $15.17 billion and reinsurance recoverables on unpaid and paid losses totaled approximately $6.37 billion.
Material changes and notable items
- Premium growth and improved underwriting results were offset in reported earnings by a sharp investment reversal: net investment losses were $457 million versus gains of $134 million in 2021. The losses included realized fixed-maturity losses and unrealized equity-security losses.
- Higher interest rates and wider credit spreads drove a $909 million pre-tax decline in unrealized gains on available-for-sale fixed maturities. Net other comprehensive loss was $817 million, and common equity fell during the year. Management said the fixed-maturity unrealized losses were primarily non-credit-related and did not expect to have to sell the securities before recovery.
- Operating cash flow declined to $692 million from $1.11 billion, mainly due to increased loss payments and premiums paid to reinsurers. Cash and cash equivalents, including restricted amounts, decreased by $143 million.
- AXIS announced its exit from catastrophe and property reinsurance in June 2022 to reduce volatility; related reorganization expenses were $31 million. It also exited reinsurance aviation effective January 1, 2023.
- In December 2022, AXIS entered into loss portfolio transfer agreements covering approximately $400 million of net reserves, with a stated policy limit of $605 million. The transaction generated a net loss of $11 million in 2022, including acquisition costs; future retroactive-reinsurance gains, if any, are deferred and amortized over claims settlement.
- Common dividends declared were $1.73 per share. AXIS repurchased 897,000 shares for $49 million and authorized a new repurchase program of up to $100 million through December 31, 2023.
Outlook, risks and contingencies
- Management expects pricing improvements to continue through 2023 across most markets, with opportunities in specialty, excess-and-surplus, and casualty reinsurance lines. It plans disciplined growth only where pricing supports adequate profitability; the filing provides no quantitative earnings or revenue guidance.
- Management expects operating cash flows and the investment portfolio to cover foreseeable obligations. It estimated approximately $12.3 billion of cash and invested assets could be available within one to three business days under normal market conditions; $5.2 billion of that amount was restricted.
- Loss-reserve adequacy is a key uncertainty, particularly for long-tail liability and professional-lines claims, inflation and social/judicial trends, catastrophe losses, COVID-19, and Russia-Ukraine-related claims. The company recorded $43 million of estimated pre-tax net losses for the Russia-Ukraine war and cautioned that ultimate losses could differ materially.
- Other significant exposures include catastrophe and climate risks despite the reinsurance exits; cyber and other emerging claims; investment-market volatility; reinsurer and broker credit risk; and regulatory, geopolitical, tax, and foreign-exchange risks. Three brokers generated 43% of 2022 gross premiums written.
- AXIS reported $857 million of gross unrealized losses on available-for-sale fixed maturities at year-end, versus $94 million in 2021. A hypothetical parallel 100-basis-point yield increase plus specified 100-basis-point spread widening was estimated to reduce their fair value by about $609 million, pre-tax.
- CEO Vincent Tizzio was appointed to succeed Albert Benchimol effective at the close of the May 4, 2023 annual meeting. The auditor also highlighted the judgment and uncertainty involved in estimating loss reserves, including IBNR and catastrophe claims.
Important facts for investors to verify
- Review reserve-development trends and the sensitivity of long-tail reserves to loss inflation, claim emergence, and revised actuarial assumptions.
- Assess the LPT reinsurer’s credit quality, coverage limits, claims-management arrangements, and subsequent reserve adjustments.
- Track investment-portfolio performance, realized-loss decisions, interest-rate sensitivity, and the potential effect of unrealized losses on book value and capital.
- Monitor whether underwriting growth after the reinsurance exits delivers sustained combined-ratio improvement without materially increasing volatility.
- Confirm liquidity and capital available after restricted assets, subsidiary dividend limits, debt service, and reinsurance collateral needs; assess broker concentration and renewal pricing.