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AXIS Capital Reports Second Quarter Operating Income Of $113 Million

Conference Call

We will host a conference call on Wednesday, August 1, 2012 at 8:00 AM (Eastern) to discuss the second quarter financial results and related matters. The teleconference can be accessed by dialing (866) 843-0890 (U.S. callers) or (412) 317-9250 (international callers) approximately ten minutes in advance of the call and entering the code 7-0-3-6-8-3-7. A live, listen-only webcast of the call will also be available via the Investor Information section of the Company’s website at www.axiscapital.com. A replay of the teleconference will be available for three weeks by dialing (877) 344-7529 (U.S. callers) or (412) 317-0088 (international callers) and entering the code 1-0-0-1-5-7-5-0. The webcast will be archived in the Investor Information section of our website.

In addition, a financial supplement relating to our financial results for the quarter ended June 30, 2012 is available in the Investor Information section of our website.

AXIS Capital is a Bermuda-based global provider of specialty lines insurance and treaty reinsurance with shareholders’ equity at June 30, 2012 of $5.7 billion and locations in Bermuda, the United States, Europe, Singapore, Canada, Australia and Latin America. Its operating subsidiaries have been assigned a rating of “A+” (“Strong”) by Standard & Poor’s and “A” (“Excellent”) by A.M. Best. AXIS Capital and AXIS Specialty Finance LLC have been assigned senior unsecured debt ratings of A- (stable) by Standard & Poor’s and Baa1 (stable) by Moody’s Investors Service. For more information about AXIS Capital, visit our website at www.axiscapital.com.

1 Operating income (loss) available to common shareholders and operating return on average common equity are “non-GAAP financial measures” as defined in Regulation G. The reconciliation of operating income (loss) to net income (loss) available to common shareholders (the most directly comparable GAAP financial measure) and the calculation of operating return on average common equity are provided in this release, as is a discussion of the rationale for the presentation of these items.

2 All comparisons are with the same period last year unless otherwise stated.

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011

 
  2012   2011
(in thousands)
Assets
Investments:
Fixed maturities, available for sale, at fair value $ 11,504,448 $ 10,940,100
Equity securities, available for sale, at fair value 631,731 677,560
Other investments, at fair value 798,233 699,320
Short-term investments, at fair value and amortized cost 71,277   149,909  
Total investments 13,005,689 12,466,889
Cash and cash equivalents 751,011 981,849
Restricted cash and cash equivalents 121,740 100,989
Accrued interest receivable 97,417 98,346
Insurance and reinsurance premium balances receivable 1,888,238 1,413,839
Reinsurance recoverable on unpaid and paid losses 1,792,358 1,770,329
Deferred acquisition costs 502,413 407,527
Prepaid reinsurance premiums 271,262 238,623
Receivable for investments sold 596 3,006
Goodwill and intangible assets 98,203 99,590
Other assets 192,485   225,072  
Total assets $ 18,721,412   $ 17,806,059  
 
Liabilities
Reserve for losses and loss expenses $ 8,600,651 $ 8,425,045
Unearned premiums 2,958,223 2,454,462
Insurance and reinsurance balances payable 211,704 206,539
Senior notes 994,951 994,664
Other liabilities 145,188 129,329
Payable for investments purchased 112,855   151,941  
Total liabilities 13,023,572   12,361,980  
 
Shareholders' equity
Preferred shares - Series A, B, and C 502,843 500,000
Common shares 2,141 2,125
Additional paid-in capital 2,153,467 2,105,386
Accumulated other comprehensive income 240,939 128,162
Retained earnings 4,383,405 4,155,392
Treasury shares, at cost (1,584,955 ) (1,446,986 )
Total shareholders' equity 5,697,840   5,444,079  
Total liabilities and shareholders' equity $ 18,721,412   $ 17,806,059  

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

 
  Three months ended   Six months ended
2012   2011 2012   2011
(in thousands, except per share amounts)
 
Revenues
Net premiums earned $ 850,603 $ 840,014 $ 1,696,968 $ 1,628,215
Net investment income 74,449 100,018 190,472 210,673
Net realized investment gains 30,405 37,477 44,896 67,621
Other insurance related income 299   126   931   889  
Total revenues 955,756   977,635   1,933,267   1,907,398  
 
Expenses
Net losses and loss expenses 467,637 564,959 978,328 1,584,759
Acquisition costs 156,397 147,905 324,793 283,262
General and administrative expenses 161,331 118,105 284,984 234,625
Foreign exchange losses (gains) (36,162 ) 18,517 (15,715 ) 33,575
Interest expense and financing costs 15,170   15,445   30,807   31,305  
Total expenses 764,373   864,931   1,603,197   2,167,526  
 
Income (loss) before income taxes 191,383 112,704 330,070 (260,128 )
Income tax expense 2,317   2,417   5,165   4,126  
Net income (loss) 189,066 110,287 324,905 (264,254 )
Preferred shares dividends 11,527 9,219 20,746 18,438
Loss on repurchase of preferred shares 9,387     14,009    
Net income (loss) available to common shareholders $ 168,152   $ 101,068   $ 290,150   $ (282,692 )
 
Per share data
Net income (loss) per common share:
Basic net income (loss) $ 1.36 $ 0.81 $ 2.32 $ (2.38 )
Diluted net income (loss) $ 1.35 $ 0.79 $ 2.31 $ (2.38 )
Weighted average number of common shares outstanding - basic 123,823 124,132 124,802 118,771
Weighted average number of common shares outstanding - diluted 124,983 128,369 125,825 118,771
Cash dividends declared per common share $ 0.24 $ 0.23 $ 0.48 $ 0.46

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED SEGMENTAL DATA (UNAUDITED)

FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011

 
2012   2011
Insurance   Reinsurance   Total Insurance   Reinsurance   Total
(in thousands)
 
Gross premiums written $ 675,009   $ 339,366   $ 1,014,375 $ 682,097   $ 364,066   $ 1,046,163
Net premiums written 465,238 336,337 801,575 495,049 355,090 850,139
Net premiums earned 386,580 464,023 850,603 359,875 480,139 840,014
Other insurance related income 299 299 126 126
Net losses and loss expenses (225,900 ) (241,737 ) (467,637 ) (218,219 ) (346,740 ) (564,959 )
Acquisition costs (58,654 ) (97,743 ) (156,397 ) (51,244 ) (96,661 ) (147,905 )
General and administrative expenses (77,770 ) (29,359 ) (107,129 ) (70,229 ) (28,073 ) (98,302 )
Underwriting income $ 24,555   $ 95,184   119,739 $ 20,309   $ 8,665   $ 28,974
 
Corporate expenses (54,202 ) (19,803 )
Net investment income 74,449 100,018
Net realized investment gains 30,405 37,477
Foreign exchange (losses) gains 36,162 (18,517 )
Interest expense and financing costs (15,170 ) (15,445 )
Income before income taxes $ 191,383   $ 112,704  
 
Net loss and loss expense ratio 58.4 % 52.1 % 55.0 % 60.6 % 72.2 % 67.3 %
Acquisition cost ratio 15.2 % 21.1 % 18.4 % 14.3 % 20.1 % 17.6 %
General and administrative
expense ratio 20.1 % 6.3 % 18.9 % 19.5 % 5.9 % 14.0 %
Combined ratio 93.7 % 79.5 % 92.3 % 94.4 % 98.2 % 98.9 %

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED SEGMENTAL DATA (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

 
  2012   2011
Insurance   Reinsurance   Total Insurance   Reinsurance   Total
(in thousands)
 
Gross premiums written $ 1,199,689   $ 1,339,856   $ 2,539,545 $ 1,107,088   $ 1,487,505   $ 2,594,593
Net premiums written 843,853 1,324,909 2,168,762 784,365 1,466,554 2,250,919
Net premiums earned 776,837 920,131 1,696,968 687,523 940,692 1,628,215
Other insurance related income 931 931 889 889
Net losses and loss expenses (467,623 ) (510,705 ) (978,328 ) (484,852 ) (1,099,907 ) (1,584,759 )
Acquisition costs (119,808 ) (204,985 ) (324,793 ) (93,322 ) (189,940 ) (283,262 )
General and administrative expenses (155,214 ) (57,133 ) (212,347 ) (137,956 ) (55,459 ) (193,415 )
Underwriting income (loss) $ 35,123   $ 147,308   182,431 $ (27,718 ) $ (404,614 ) $ (432,332 )
 
Corporate expenses (72,637 ) (41,210 )
Net investment income 190,472 210,673
Net realized investment gains 44,896 67,621
Foreign exchange (losses) gains 15,715 (33,575 )
Interest expense and financing costs (30,807 ) (31,305 )
Income (loss) before income taxes $ 330,070   $ (260,128 )
 
Net loss and loss expense ratio 60.2 % 55.5 % 57.7 % 70.5 % 116.9 % 97.3 %
Acquisition cost ratio 15.4 % 22.3 % 19.1 % 13.6 % 20.2 % 17.4 %
General and administrative
expense ratio 20.0 % 6.2 % 16.8 % 20.1 % 5.9 % 14.4 %
Combined ratio 95.6 % 84.0 % 93.6 % 104.2 % 143.0 % 129.1 %

AXIS CAPITAL HOLDINGS LIMITED

NON-GAAP FINANCIAL MEASURE RECONCILIATION (UNAUDITED)

OPERATING INCOME AND OPERATING RETURN ON AVERAGE COMMON EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

 
  Three months ended   Six months ended
2012   2011 2012   2011
(in thousands, except per share amounts)
 
Net income (loss) available to common shareholders $ 168,152 $ 101,068 $ 290,150 $ (282,692 )
Net realized investment gains, net of tax (1) (28,854 ) (36,583 ) (40,064 ) (66,725 )
Foreign exchange (gains) losses, net of tax (2) (35,853 ) 18,572 (15,526 ) 33,608
Loss on repurchase of preferred shares, net of tax (3) 9,387     14,009    
Operating income (loss) $ 112,832   $ 83,057   $ 248,569   $ (315,809 )
 
 
Earnings (loss) per common share - diluted $ 1.35 $ 0.79 $ 2.31 $ (2.38 )
Net realized investment gains, net of tax (0.23 ) (0.28 ) (0.32 ) (0.56 )
Foreign exchange (gains) losses, net of tax (0.29 ) 0.14 (0.12 ) 0.28
Loss on repurchase of preferred shares, net of tax 0.07     0.11    
Operating income (loss) per common share - diluted $ 0.90   $ 0.65   $ 1.98   $ (2.66 )
 

Weighted average common shares and common share equivalents - diluted

124,983   128,369   125,825   118,771  
 
Average common shareholders' equity $ 5,172,088 $ 4,761,260 $ 5,069,538 $ 4,978,955
 
Annualized return on average common equity 13.0 % 8.5 % 11.4 % (11.4 )%
 
Annualized operating return on average common equity 8.7 % 7.0 % 9.8 % (12.7 )%




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