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TheStreet Open House

AXIS Capital Reports Third Quarter Operating Income Of $201 Million

Stocks in this article: AXS

AXIS Capital is a Bermuda-based global provider of specialty lines insurance and treaty reinsurance with shareholders’ equity at September 30, 2012 of $5.9 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.

 
 

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED BALANCE SHEETS

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

       
2012 2011
(in thousands)
Assets
Investments:
Fixed maturities, available for sale, at fair value $ 11,794,985 $ 10,940,100
Equity securities, available for sale, at fair value 650,168 677,560
Other investments, at fair value 838,641 699,320
Short-term investments, at fair value and amortized cost 91,814   149,909  
Total investments 13,375,608 12,466,889
Cash and cash equivalents 799,585 981,849
Restricted cash and cash equivalents 69,859 100,989
Accrued interest receivable 95,654 98,346
Insurance and reinsurance premium balances receivable 1,712,025 1,413,839
Reinsurance recoverable on unpaid and paid losses 1,789,410 1,770,329
Deferred acquisition costs 460,661 407,527
Prepaid reinsurance premiums 293,684 238,623
Receivable for investments sold 7,375 3,006
Goodwill and intangible assets 98,165 99,590
Other assets 195,755   225,072  
Total assets $ 18,897,781   $ 17,806,059  
 
Liabilities
Reserve for losses and loss expenses $ 8,751,070 $ 8,425,045
Unearned premiums 2,770,889 2,454,462
Insurance and reinsurance balances payable 239,394 206,539
Senior notes 995,097 994,664
Other liabilities 180,040 129,329
Payable for investments purchased 105,023   151,941  
Total liabilities 13,041,513   12,361,980  
 
Shareholders' equity
Preferred shares - Series A, B, and C 502,843 500,000
Common shares 2,145 2,125
Additional paid-in capital 2,165,478 2,105,386
Accumulated other comprehensive income 373,199 128,162
Retained earnings 4,576,381 4,155,392
Treasury shares, at cost (1,763,778 ) (1,446,986 )
Total shareholders' equity 5,856,268   5,444,079  
Total liabilities and shareholders' equity $ 18,897,781   $ 17,806,059  
 
 

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

                   
Three months ended Nine months ended
2012 2011 2012 2011
 
(in thousands, except per share amounts)
Revenues
Net premiums earned $ 862,447 $ 839,992 $ 2,559,414 $ 2,468,207
Net investment income 103,638 49,396 294,110 260,068
Net realized investment gains 50,803 57,557 95,699 125,177
Other insurance related income 953   1,156   1,884   2,047  
Total revenues 1,017,841   948,101   2,951,107   2,855,499  
 
Expenses
Net losses and loss expenses 442,652 506,839 1,420,981 2,091,598
Acquisition costs 158,796 146,836 483,589 430,097
General and administrative expenses 134,611 114,537 419,595 349,162
Foreign exchange losses (gains) 23,927 (60,830 ) 8,212 (27,254 )
Interest expense and financing costs 15,558   15,677   46,365   46,982  
Total expenses 775,544   723,059   2,378,742   2,890,585  
 
Income (loss) before income taxes 242,297 225,042 572,365 (35,086 )
Income tax expense 10,149   3,765   15,314   7,892  
Net income (loss) 232,148 221,277 557,051 (42,978 )
Preferred shares dividends 8,741 9,219 29,487 27,656
Loss on repurchase of preferred shares     14,009    
Net income (loss) available to common shareholders $ 223,407   $ 212,058   $ 513,555   $ (70,634 )
 
Per share data
Net income (loss) per common share:
Basic net income (loss) $ 1.84 $ 1.68 $ 4.16 $ (0.58 )
Diluted net income (loss) $ 1.82 $ 1.66 $ 4.11 $ (0.58 )
Weighted average number of common shares outstanding - basic 121,127 125,971 123,568 121,197
Weighted average number of common shares outstanding - diluted 122,952 128,002 124,858 121,197
Cash dividends declared per common share $ 0.24 $ 0.23 $ 0.72 $ 0.69
 
 
AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED SEGMENTAL DATA (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
                 
2012 2011
Insurance   Reinsurance   Total Insurance   Reinsurance   Total
(in thousands)
 
Gross premiums written $ 529,678 $ 318,008 $ 847,686 $ 493,460 $ 341,596 $ 835,056
Net premiums written 332,591 318,008 650,599 331,857 341,596 673,453
Net premiums earned 398,338 464,109 862,447 370,520 469,472 839,992
Other insurance related income 953 953 1,156 1,156

Net losses and loss expenses

(185,845 ) (256,807 ) (442,652 ) (207,403 ) (299,436 ) (506,839 )
Acquisition costs (59,026 ) (99,770 ) (158,796 ) (51,753 ) (95,083 ) (146,836 )

Underwriting-related general and administrative expenses (3)

(78,029 ) (28,924 ) (106,953 ) (72,005 ) (25,439 ) (97,444 )
Underwriting income (3) $ 76,391 $ 78,608   154,999 $ 40,515   $ 49,514   $ 90,029
 
Corporate expenses (27,658 ) (17,093 )
Net investment income 103,638 49,396
Net realized investment gains 50,803 57,557
Foreign exchange (losses) gains (23,927 ) 60,830
Interest expense and financing costs (15,558 ) (15,677 )
Income before income taxes $ 242,297   $ 225,042  
 
Net loss and loss expense ratio 46.7 % 55.3 % 51.3 % 56.0 % 63.8 % 60.3 %
Acquisition cost ratio 14.8 % 21.5 % 18.4 % 14.0 % 20.3 % 17.5 %

General and administrative expense ratio

19.6 % 6.3 % 15.6 % 19.4 % 5.4 % 13.7 %
Combined ratio 81.1 % 83.1 % 85.3 % 89.4 % 89.5 % 91.5 %

3Underwriting-related general and administrative expenses and consolidated underwriting income (loss) are "non-GAAP financial measures", as defined in SEC Regulation G. Reconciliations of these amounts to the nearest GAAP financial measures (total general and administrative expenses and income (loss) before taxes, respectively) are provided in this release, as are discussions of the rationale for the presentation of these items.

 
 
AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED SEGMENTAL DATA (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
             
2012 2011
Insurance   Reinsurance   Total Insurance   Reinsurance   Total
(in thousands)
 
Gross premiums written $ 1,729,365 $ 1,657,864 $ 3,387,229 $ 1,600,548 $ 1,829,101 $ 3,429,649
Net premiums written 1,176,443 1,642,917 2,819,360 1,116,222 1,808,150 2,924,372
Net premiums earned 1,175,173 1,384,241 2,559,414 1,058,042 1,410,165 2,468,207
Other insurance related income 1,884 1,884 2,047 2,047
Net losses and loss expenses (653,471 ) (767,510 ) (1,420,981 ) (692,255 ) (1,399,343 ) (2,091,598 )
Acquisition costs (178,834 ) (304,755 ) (483,589 ) (145,075 ) (285,022 ) (430,097 )

Underwriting-related general and administrative expenses

(233,243 ) (86,057 ) (319,300 ) (209,960 ) (80,900 ) (290,860 )
Underwriting income (loss) $ 111,509   $ 225,919   337,428 $ 12,799   $ (355,100 ) $ (342,301 )
 
Corporate expenses (100,295 ) (58,302 )
Net investment income 294,110 260,068
Net realized investment gains 95,699 125,177
Foreign exchange (losses) gains (8,212 ) 27,254
Interest expense and financing costs (46,365 ) (46,982 )
Income (loss) before income taxes $ 572,365   $ (35,086 )
 
Net loss and loss expense ratio 55.6 % 55.4 % 55.5 % 65.4 % 99.2 % 84.7 %
Acquisition cost ratio 15.2 % 22.0 % 18.9 % 13.7 % 20.2 % 17.4 %

General and administrative expense ratio

19.9 % 6.3 % 16.4 % 19.9 % 5.8 % 14.2 %
Combined ratio 90.7 % 83.7 % 90.8 % 99.0 % 125.2 % 116.3 %
 
 
AXIS CAPITAL HOLDINGS LIMITED
NON-GAAP FINANCIAL MEASURE RECONCILIATION (UNAUDITED)
OPERATING INCOME, OPERATING RETURN ON AVERAGE COMMON EQUITY
AND UNDERWRITING-RELATED GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
         
Three months ended Nine months ended
2012 2011 2012 2011
(in thousands, except per share amounts)
 
Net income (loss) available to common shareholders $ 223,407 $ 212,058 $ 513,555 $ (70,634 )
Net realized investment gains, net of tax (1) (46,241 ) (56,610 ) (86,305 ) (123,334 )
Foreign exchange losses (gains), net of tax (2) 23,474 (60,721 ) 7,948 (27,112 )
Loss on repurchase of preferred shares, net of tax (3)     14,009    
Operating income (loss) $ 200,640   $ 94,727   $ 449,207   $ (221,080 )
 
 
Earnings (loss) per common share - diluted $ 1.82 $ 1.66 $ 4.11 $ (0.58 )
Net realized investment gains, net of tax (0.38 ) (0.44 ) (0.69 ) (1.02 )
Foreign exchange losses (gains), net of tax 0.19 (0.48 ) 0.07 (0.22 )
Loss on repurchase of preferred shares, net of tax     0.11    
Operating income (loss) per common share - diluted $ 1.63   $ 0.74   $ 3.60   $ (1.82 )

 

Weighted average common shares and common share equivalents - diluted

122,952   128,002   124,858   121,197  
 
Average common shareholders' equity $ 5,274,211 $ 4,845,022 $ 5,148,752 $ 4,991,038
 
Annualized return on average common equity 16.9 % 17.5 % 13.3 % (1.9 %)
 
Annualized operating return on average common equity 15.2 % 7.8 % 11.6 % (5.9 %)
 
 
(1)   Tax cost of $4,562 and $947 for the three months ended September 30, 2012 and 2011, respectively, and $9,394 and $1,843 for the nine months ended September 30, 2012 and 2011, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the ability to utilize capital losses.
(2) Tax benefit (cost) of $453 and ($109) for the three months ended September 30, 2012 and 2011, respectively, and $264 and ($142) for the nine months ended September 30, 2012 and 2011, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the tax status of specific foreign exchange transactions.
(3) Tax impact is nil.
 

In addition to underwriting-related general and administrative expenses, our total general and administrative expenses of $134,611 and $114,537 for the three months ended September 30, 2012 and 2011, respectively, and $419,595 and $349,162 for the nine months ended September 30, 2012 and 2011, respectively, include corporate expenses.

Cautionary Note Regarding Forward-Looking Statements

This release contains forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements contained in this release include our expectations regarding market conditions and information regarding our estimates of losses related to natural disasters. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause actual events or results to be materially different from our expectations include (1) the occurrence and magnitude of natural and man-made disasters, (2) actual claims exceeding our loss reserves, (3) general economic, capital, and credit market conditions, (4) the failure of any of the loss limitation methods we employ, (5) the effects of emerging claims, coverage and regulatory issues, (6) the failure of our cedants to adequately evaluate risks, (7) inability to obtain additional capital on favorable terms, or at all, (8) the loss of one or more key executives, (9) a decline in our ratings with rating agencies, (10) the loss of business provided to us by our major brokers, (11) changes in accounting policies or practices, (12) the use of industry catastrophe models and changes to these models, (13) changes in governmental regulations, (14) increased competition, (15) changes in the political environment of certain countries in which we operate or underwrite business, (16) fluctuations in interest rates, credit spreads, equity prices and/or currency values, and (17) the other factors set forth in our most recent report on Form 10-K, Form 10-Q and other documents on file with the Securities and Exchange Commission. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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