AXIS Capital Holdings Limited — Q1 2021 Form 10-Q
Period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. AXIS Capital is a global specialty insurer and treaty reinsurer, operating through Insurance and Reinsurance segments. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenues | $1.250 billion | $1.110 billion |
| Net premiums earned | $1.104 billion | $1.089 billion; up 1% |
| Net income (loss) | $123 million; $1.37 per common share, $1.36 diluted | Loss of $178 million; loss of $2.20 per share |
| Operating income (non-GAAP) | $83 million; $0.97 per diluted share | Operating loss of $164 million; loss of $1.94 per diluted share |
| Underwriting income and combined ratio | $40 million; 98.9% | Underwriting loss of $197 million; 119.8% |
| Net investment income | $114 million | $93 million; up 23% |
| Net investment gains (losses) | $30 million | Loss of $63 million |
| Operating cash flow | $145 million provided | $50 million used |
Catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, were $110 million, or 10.1 points of the current accident-year loss ratio, mainly from Winter Storms Uri and Viola and other weather. Q1 2020 losses were $300 million. Prior-year reserve development was $5 million favorable, versus $6 million favorable in Q1 2020.
Insurance gross premiums written rose 17% to $1.103 billion, while Reinsurance gross premiums written fell 4% to $1.432 billion. Segment combined ratios were 93.8% for Insurance and 100.2% for Reinsurance. The consolidated combined ratio improved by 20.9 percentage points year over year.
Financial position and liquidity
- Total assets were $27.1 billion at March 31, 2021, versus $25.9 billion at year-end 2020. Total shareholders’ equity was $5.18 billion; common equity was $4.63 billion.
- Cash, cash equivalents and restricted cash totaled $1.56 billion; investments totaled approximately $14.41 billion. Fixed maturities, cash and short-term investments had an average credit rating of AA-.
- Gross loss reserves were $14.03 billion, with $5.0 billion of reinsurance recoverables on paid and unpaid losses. Debt was $1.31 billion; debt to total capital was 20.2%, compared with 19.8% at year-end.
- Book value per diluted common share was $53.03. Common equity declined $119 million during the quarter, principally reflecting a $201 million after-tax decline in unrealized available-for-sale investment gains and dividends, partly offset by net income.
Changes, outlook and risks
Results improved substantially from Q1 2020, reflecting lower catastrophe losses, improved underwriting results, investment gains versus losses, and positive equity-method investment income. Fixed-maturity investment income nevertheless fell 23% as yields declined. Total comprehensive loss was $76 million, primarily due to unrealized investment losses; net unrealized gains on fixed maturities declined $227 million as yields rose.
Management reported improving insurance and reinsurance pricing, rates, terms and conditions, and expects further pricing improvement in many specialty segments during 2021. It intends to prioritize adequately priced business and profitability over growth where returns are insufficient; no numerical earnings or premium guidance was provided. Management said operating cash flows and portfolio liquidity should cover foreseeable cash outflows and commitments.
Key uncertainties include COVID-19 claims and coverage issues, catastrophe frequency and severity, climate-related risks, reserve adequacy, reinsurance recoverability, market and foreign-exchange movements, and investment valuations. Management cautioned that estimates for catastrophe events—including 2021 winter storms and COVID-19—may differ materially from ultimate losses. The filing reports no material change to previously disclosed risk factors and no material legal proceedings outside the ordinary course.
During the quarter, $405 million of securities was transferred from available-for-sale to held-to-maturity classification. The secured letter-of-credit facility’s maximum utilization capacity was reduced from $750 million to $650 million, with the $250 million component reduced to $150 million and extended to March 31, 2022. The company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether catastrophe, COVID-19 and other loss estimates—and the related $5.0 billion of reinsurance recoverables—remain adequate as claims develop.
- Whether pricing and underwriting improvements persist, particularly in Reinsurance, whose Q1 combined ratio remained above 100%.
- How higher yields, credit spreads and equity-market movements affect investment income, unrealized gains and book value.
- The liquidity, valuation timing and commitment demands of private funds and other less-liquid investments, including unfunded commitments.
- The amended letter-of-credit facility’s available capacity and collateral and covenant requirements.