AXIS Capital Holdings Limited — 2021 Form 10-K Summary
Business context and reporting period
AXIS is a Bermuda-based global specialty insurance and treaty reinsurance group, operating through Insurance and Reinsurance segments. This filing covers the fiscal year ended December 31, 2021, with comparisons to full-year 2020 and 2019; it does not provide a standalone fourth-quarter financial summary.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Gross premiums written | $7.686 billion | $6.827 billion |
| Net premiums written | $4.927 billion | $4.336 billion |
| Net premiums earned | $4.710 billion | $4.371 billion |
| Net income (loss) attributable to common shareholders | $588 million | $(151) million |
| Diluted earnings (loss) per common share | $6.90 | $(1.79) |
| Operating income (loss), non-GAAP | $436 million | $(174) million |
| Underwriting income (loss), non-GAAP | $266 million | $(326) million |
| Combined ratio | 97.5% | 109.6% |
| Net investment income | $454 million | $350 million |
| Net investment gains | $134 million | $129 million |
Insurance gross premiums written rose 21% to $4.863 billion, led by professional lines, liability and property. Reinsurance gross premiums written were nearly flat at $2.823 billion. Insurance produced $224 million of underwriting income and a 91.6% combined ratio; Reinsurance produced $41 million and a 99.0% combined ratio.
Catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, were $443 million in 2021, or 9.5 points on the current accident-year loss ratio, compared with $774 million in 2020. Prior-year reserve development was favorable by $32 million, versus $16 million favorable in 2020. Current accident-year losses excluding catastrophe and weather events improved to 55.1% from 57.7%.
Net cash provided by operating activities was $1.115 billion, compared with $344 million in 2020. Investing activities used $1.114 billion and financing activities used $186 million; cash and cash equivalents, including restricted cash, decreased by $186 million to $1.318 billion. Total cash and investments were $16.5 billion. Management estimated $13.3 billion of cash and invested assets could be available within one to three business days under normal market conditions, including $5.4 billion of restricted assets.
Total assets were $27.4 billion; common shareholders’ equity was $4.861 billion and total shareholders’ equity was $5.411 billion, including $550 million of preferred shares. Debt was $1.311 billion; debt to total capital was 19.5%. The gross reserve for losses and loss expenses was $14.653 billion, with $5.018 billion of reinsurance recoverables on unpaid losses. Book value per diluted common share was $55.78, versus $55.09 in 2020. Return on average common equity was 12.2%; operating return on average common equity, a non-GAAP measure, was 9.1%.
Material changes versus 2020
- AXIS returned to profitability, with common-shareholder net income of $588 million after a $151 million loss in 2020; underwriting income recovered to $266 million from a $326 million loss.
- Premium growth was driven by Insurance: gross premiums written increased 13% overall, while Insurance rose 21% and Reinsurance rose 1%.
- The combined ratio improved by 12.1 percentage points, primarily reflecting lower catastrophe and weather-related losses. Favorable prior-year reserve development increased to $32 million.
- Net investment income rose 30%, including a sharp increase in income from other investments. However, the portfolio recorded a $405 million pre-tax change in unrealized fixed-maturity gains (losses), versus a $270 million gain in 2020; pre-tax total return on cash and investments fell to 1.3% from 4.8%.
- Gross loss reserves rose $726 million to $14.653 billion. Reinsurance recoverables on unpaid losses rose $521 million to $5.018 billion.
Outlook, risks, contingencies and unusual items
Management said insurance pricing and terms remained favorable through the fourth quarter and expected pricing improvements to continue into 2022 and beyond. It intends to pursue growth where pricing supports adequate profitability and within its risk and volatility limits. Management considered reinsurance pricing to be improving but said further increases were needed for price adequacy. No quantified earnings or premium-growth guidance was provided.
- Underwriting and reserves: Results remain exposed to unpredictable catastrophes, pandemics, climate-related losses, inflation, long-tail claims, changing interpretations of coverage, and estimation/model risk. Management considers reserves adequate, but actual ultimate losses may differ materially. The auditor identified loss reserves as a critical audit matter.
- COVID-19: Pandemic claims and potential coverage disputes remain uncertain; the filing notes possible impacts on claims, premiums, liquidity, counterparties and investments.
- Investments and interest rates: Fixed maturities had a 1.9% book yield and 3.0-year average duration. A hypothetical 100-basis-point yield increase plus specified credit-spread widening would reduce their fair value by an estimated $684 million pre-tax. Most fixed maturities were available for sale, so market-value changes affect other comprehensive income and equity.
- Liquidity and capital access: Claims can create substantial and uneven cash demands; regulatory restrictions may limit movement of funds and subsidiary distributions. At year-end, $5.368 billion of investments and cash were restricted. Subsidiary dividend capacity was estimated at $0.9 billion, subject to regulatory and other limits.
- Concentration and counterparties: Three brokers generated 45% of gross premiums written. Reinsurance recoverables are subject to collection and dispute risk; 85.7% of recoverables on paid and unpaid losses were due from reinsurers rated A- or better.
- Other exposures: Brexit-related U.K. branch authorization remained pending under a temporary permissions regime. The filing also cites cyber, foreign-exchange, LIBOR transition, regulatory, tax and geopolitical risks. It describes ordinary-course legal matters but no material legal proceedings outside the ordinary course.
- Capital actions and unusual items: AXIS authorized a new share repurchase plan of up to $100 million, effective January 1, 2022, through December 31, 2022. It paid $176 million in common and preferred dividends in 2021. A $405 million fair value transfer of securities from available-for-sale to held-to-maturity classification occurred in 2021; it was a non-cash transaction.
Key facts for investors to verify
- Review the durability of underwriting improvement, including rate adequacy, the segment combined ratios, catastrophe losses and the impact of portfolio repositioning.
- Assess reserve development by line, especially adverse development in Insurance professional lines and liability, and the sensitivity of long-tail reserves to assumptions.
- Track COVID-19 claims and recoveries, catastrophe estimates, and the collectability and concentration of reinsurance recoverables.
- Evaluate investment returns beyond the unusually strong 2021 other-investment income, alongside fixed-income valuation sensitivity, liquidity restrictions and alternative-investment commitments.
- Confirm the status of U.K. regulatory authorization, capital and dividend restrictions, ratings outlooks, and the execution of the 2022 repurchase plan and dividend policy.
The financial statements received an unqualified audit opinion, and the auditor also reported effective internal control over financial reporting. Non-GAAP measures, including operating income and underwriting income, are company-defined and should be assessed alongside GAAP results.