AXIS Capital Holdings Limited — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Amounts are U.S. dollars. The company provides specialty insurance and treaty reinsurance through its Insurance and Reinsurance segments.
Financial results and position
- Third quarter: Revenue was $1.34 billion, up 7% year over year. Net income was $55 million; income available to common shareholders was $47 million, or $0.56 per diluted share, versus a $73 million common-shareholder loss, or $0.87 per share, in Q3 2020. Non-GAAP operating income was $1 million, or $0.01 per diluted share.
- Nine months: Revenue was $3.93 billion, up 10%. Net income was $414 million and income available to common shareholders was $391 million, or $4.62 per diluted share, compared with a $123 million net loss and a $146 million common-shareholder loss in 2020. Non-GAAP operating income was $254 million, or $2.98 per diluted share.
- Premiums: Q3 gross written premiums rose 24% to $1.65 billion; net written premiums rose 22% to $996 million; net premiums earned rose 11% to $1.21 billion. For nine months, those measures rose 12%, 12% and 6%, respectively, to $6.12 billion, $3.98 billion and $3.47 billion.
- Underwriting: Q3 underwriting loss was $59 million and combined ratio was 107.4%, improved from 114.5% a year earlier. Nine-month underwriting income was $130 million, with a 99.1% combined ratio versus 109.6% in 2020. A combined ratio above 100% indicates an underwriting loss.
- Investments: Q3 net investment income was $107 million, up 5%, while net investment gains were $11 million versus $56 million. Nine-month investment income was $326 million, up 36%, and investment gains were $114 million versus $46 million. Nine-month results included $31 million of income from equity-method investments, versus a $14 million loss in 2020.
- Cash flow: Operating cash flow for nine months was $1.01 billion, versus $349 million in 2020. Investing activities used $869 million; financing activities used $143 million. Cash, cash equivalents and restricted cash totaled $1.50 billion at period end.
- Balance sheet and capital: Assets were $27.94 billion and shareholders’ equity $5.34 billion at September 30. Debt was $1.31 billion; debt-to-total-capital was 19.7%, compared with 19.8% at year-end 2020. Total cash and investments were approximately $16.5 billion. Common book value per diluted share was $54.86; it declined 0.4% from year-end, while book value adjusted for dividends increased 1.9%.
Material changes and drivers
- Premium growth was led by Insurance, whose nine-month gross written premiums increased 22%; Reinsurance gross written premiums were approximately flat for the nine months. Favorable pricing, new business and portfolio changes contributed to Insurance growth.
- Q3 catastrophe and weather losses, net of reinsurance and reinstatement premiums, were $250 million: $105 million in Insurance and $145 million in Reinsurance. Hurricane Ida, July European floods and other weather events were key drivers. Nine-month catastrophe and weather losses were $389 million, versus $576 million in 2020.
- Q3 Insurance underwriting income was $10 million, with a 98.5% combined ratio. Reinsurance recorded a $69 million underwriting loss and a 114.4% combined ratio, with Q3 catastrophe losses contributing to weaker results.
- Nine-month prior-year reserve development was $23 million favorable overall. Favorable development included property and motor experience; adverse development in professional lines and liability partly offset it.
- Investment portfolio unrealized gains on fixed maturities declined by $297 million from year-end, primarily as yields increased. Nine-month other comprehensive income was a loss of $264 million, contributing to lower book value.
Outlook, risks and contingencies
Management reported favorable pricing and terms across nearly all insurance lines and geographies and expects pricing improvements in specialty markets to continue into 2022 and beyond. Reinsurance pricing was improving, but management said further increases were needed for price adequacy. The company intends to pursue growth where pricing supports profitability and within its risk and volatility guidelines. No specific earnings or revenue guidance was provided.
- Loss reserves are estimates subject to uncertainty; significant event estimates include Hurricane Ida, European floods, prior catastrophe events and COVID-19. Actual losses may differ materially from current estimates.
- Key risks include catastrophe severity and frequency, climate-related exposure, reserve adequacy, reinsurance recoverability, market and foreign-exchange movements, and the continuing effects of COVID-19. Management reported no material change in previously disclosed risk factors.
- Liquidity includes restricted cash of $552 million. A portion of other investments is in funds with limited redemption terms; the company also reported substantial unfunded investment commitments. Management expects operating cash flows and investment portfolio liquidity to meet foreseeable needs.
- The secured letter-of-credit facility’s maximum aggregate utilization capacity was reduced from $750 million to $650 million. The company reported no material legal proceedings outside the ordinary course and no off-balance-sheet arrangements.
Important facts for investors to verify
- How catastrophe loss estimates, particularly for Ida and European floods, develop and affect reserves and reinsurance recoverables.
- Whether improved underwriting results and pricing persist, especially given Q3 Reinsurance’s 114.4% combined ratio.
- The quality and liquidity of investment assets, including fund valuations reported on a lag, unfunded commitments and exposure to rising yields.
- How investment-related unrealized losses and foreign-exchange movements affect equity and book value.
- The distinction between GAAP net income and management’s non-GAAP operating income, and the assumptions behind each measure.