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AXIS Capital Reports 2012 Operating Income Of $422 Million, Or $3.41 Per Diluted Common Share

Conference Call

We will host a conference call on Tuesday, February 5, 2013 at 8:00 AM (Eastern) to discuss the fourth quarter and year-end financial results and related matters. The teleconference can be accessed by dialing (888) 317-6003 (U.S. callers) or (412) 317-6061 (international callers) approximately ten minutes in advance of the call and entering the code 5-5-0-9-8-4-7. 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 1-0-0-2-3-4-3-3. 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 December 31, 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 December 31, 2012 of $5.8 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”) with a positive outlook 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) and operating return on average common equity are “non-GAAP financial measures” as defined in Regulation G. A reconciliation of operating income (loss) to net income (loss) available to common shareholders (the nearest 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.

2All comparisons are with the same period of the prior year, unless otherwise stated.

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED BALANCE SHEETS

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

 
    2012   2011
 
(in thousands)
Assets
Investments:
Fixed maturities, available for sale, at fair value $ 11,928,049 $ 10,940,100
Equity securities, available for sale, at fair value 666,548 677,560
Other investments, at fair value 843,437 699,320
Short-term investments, at fair value and amortized cost 108,860   149,909  
Total investments 13,546,894 12,466,889
Cash and cash equivalents 759,817 981,849
Restricted cash and cash equivalents 90,733 100,989
Accrued interest receivable 97,220 98,346
Insurance and reinsurance premium balances receivable 1,474,821 1,413,839
Reinsurance recoverable on unpaid and paid losses 1,863,819 1,770,329
Deferred acquisition costs 389,248 407,527
Prepaid reinsurance premiums 315,676 238,623
Receivable for investments sold 1,254 3,006
Goodwill and intangible assets 97,493 99,590
Other assets 215,369   225,072  
Total assets $ 18,852,344   $ 17,806,059  
 
Liabilities
Reserve for losses and loss expenses $ 9,058,731 $ 8,425,045
Unearned premiums 2,454,692 2,454,462
Insurance and reinsurance balances payable 270,739 206,539
Senior notes 995,245 994,664
Payable for investments purchased 64,553 151,941
Other liabilities 228,623   129,329  
Total liabilities 13,072,583   12,361,980  
 
Shareholders' equity
Preferred shares - Series A, B, and C 502,843 500,000
Common shares 2,146 2,125
Additional paid-in capital 2,179,034 2,105,386
Accumulated other comprehensive income 362,622 128,162
Retained earnings 3 4,497,789 4,155,392
Treasury shares, at cost (1,764,673 ) (1,446,986 )
Total shareholders' equity 5,779,761   5,444,079  
Total liabilities and shareholders' equity $ 18,852,344   $ 17,806,059  

3Common share dividends were historically recognized as a reduction of retained earnings when paid. During the fourth quarter of 2012, we recognized a $31 million adjustment in order to recognize dividends when declared.

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE QUARTERS AND YEARS ENDED DECEMBER 31, 2012 AND 2011

 
    Three months ended   Years ended
2012   2011 2012   2011
 
(in thousands, except per share amounts)
Revenues
Net premiums earned $ 856,049 $ 846,753 $ 3,415,463 $ 3,314,961
Net investment income 86,847 102,362 380,957 362,430
Net realized investment gains (losses) 31,771 (3,738 ) 127,469 121,439
Other insurance related income 791   351   2,676   2,396  
Total revenues 975,458   945,728   3,926,565   3,801,226  
 
Expenses
Net losses and loss expenses 675,047 583,454 2,096,028 2,675,052
Acquisition costs 144,063 157,372 627,653 587,469
General and administrative expenses 141,386 109,990 560,981 459,151
Foreign exchange losses (gains) 21,300 (17,328 ) 29,512 (44,582 )
Interest expense and financing costs 15,498   15,616   61,863   62,598  
Total expenses 997,294   849,104   3,376,037   3,739,688  
 
Income (loss) before income taxes (21,836 ) 96,624 550,528 61,538
Income tax expense (benefit) (12,026 ) 7,341   3,287   15,233  
Net income (loss) (9,810 ) 89,283 547,241 46,305
Preferred shares dividends 8,741 9,219 38,228 36,875
Loss on repurchase of preferred shares     14,009    
Net income (loss) available to common shareholders $ (18,551 ) $ 80,064   $ 495,004   $ 9,430  
 
Per share data
Net income (loss) per common share:
Basic net income (loss) $ (0.16 ) $ 0.63 $ 4.05 $ 0.08
Diluted net income (loss) $ (0.16 ) $ 0.63 $ 4.00 $ 0.07
Weighted average number of common shares outstanding - basic 117,918 126,360 122,148 122,499
Weighted average number of common shares outstanding - diluted 117,918 127,686 123,654 128,122
Cash dividends declared per common share $ 0.25 $ 0.24 $ 0.97 $ 0.93

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED SEGMENTAL DATA (UNAUDITED)

FOR THE QUARTERS ENDED DECEMBER 31, 2012 AND 2011

 
  2012   2011
Insurance   Reinsurance   Total Insurance   Reinsurance   Total
       
(in thousands)
Gross premiums written $ 580,116 $ 172,298 $ 752,414 $ 521,281 $ 145,223 $ 666,504
Net premiums written 345,802 172,294 518,096 349,912 145,151 495,063
Net premiums earned 382,885 473,164 856,049 371,645 475,108 846,753
Other insurance related income 791 791 351 351
Net losses and loss expenses (300,094 ) (374,953 ) (675,047 ) (227,064 ) (356,390 ) (583,454 )
Acquisition costs (48,024 ) (96,039 ) (144,063 ) (54,508 ) (102,864 ) (157,372 )
Underwriting-related general and
administrative expenses 4 (81,591 ) (30,430 ) (112,021 ) (68,187 ) (23,015 ) (91,202 )
Underwriting income (loss) 4 $ (46,033 ) $ (28,258 ) (74,291 ) $ 22,237   $ (7,161 ) $ 15,076
 
Corporate expenses (29,365 ) (18,788 )
Net investment income 86,847 102,362
Net realized investment gains (losses) 31,771 (3,738 )
Foreign exchange (losses) gains (21,300 ) 17,328
Interest expense and financing costs (15,498 ) (15,616 )
Income (loss) before income taxes $ (21,836 ) $ 96,624  
 
Net loss and loss expense ratio 78.4 % 79.2 % 78.9 % 61.1 % 75.0 % 68.9 %
Acquisition cost ratio 12.5 % 20.3 % 16.8 % 14.7 % 21.7 % 18.6 %
General and administrative
expense ratio 21.3 % 6.5 % 16.5 % 18.3 % 4.8 % 13.0 %
Combined ratio 112.2 % 106.0 % 112.2 % 94.1 % 101.5 % 100.5 %

4Underwriting-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 income 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 YEARS DECEMBER 31, 2012 AND 2011

 
  2012   2011
Insurance   Reinsurance   Total Insurance   Reinsurance   Total
       
(in thousands)
Gross premiums written $ 2,309,481 $ 1,830,162 $ 4,139,643 $ 2,121,829 $ 1,974,324 $ 4,096,153
Net premiums written 1,522,245 1,815,211 3,337,456 1,466,134 1,953,300 3,419,434
Net premiums earned 1,558,058 1,857,405 3,415,463 1,429,687 1,885,274 3,314,961
Other insurance related income 2,676 2,676 2,396 2,396
Net losses and loss expenses (953,564 ) (1,142,464 ) (2,096,028 ) (919,319 ) (1,755,733 ) (2,675,052 )
Acquisition costs (226,859 ) (400,794 ) (627,653 ) (199,583 ) (387,886 ) (587,469 )
Underwriting-related general and
administrative expenses (314,834 ) (116,487 ) (431,321 ) (278,147 ) (103,915 ) (382,062 )
Underwriting income (loss) $ 65,477   $ 197,660   263,137 $ 35,034   $ (362,260 ) $ (327,226 )
 
Corporate expenses (129,660 ) (77,089 )
Net investment income 380,957 362,430
Net realized investment gains 127,469 121,439
Foreign exchange (losses) gains (29,512 ) 44,582
Interest expense and financing costs (61,863 ) (62,598 )
Income before income taxes $ 550,528   $ 61,538  
 
Net loss and loss expense ratio 61.2 % 61.5 % 61.4 % 64.3 % 93.1 % 80.7 %
Acquisition cost ratio 14.6 % 21.6 % 18.4 % 14.0 % 20.6 % 17.7 %
General and administrative
expense ratio 20.2 % 6.3 % 16.4 % 19.4 % 5.5 % 13.9 %
Combined ratio 96.0 % 89.4 % 96.2 % 97.7 % 119.2 % 112.3 %

AXIS CAPITAL HOLDINGS LIMITED

NON-GAAP FINANCIAL MEASURE RECONCILIATION (UNAUDITED)

OPERATING INCOME (LOSS), OPERATING RETURN ON AVERAGE COMMON EQUITY

AND UNDERWRITING-RELATED GENERAL AND ADMINISTRATIVE EXPENSES

FOR THE QUARTERS AND YEARS ENDED DECEMBER 31, 2012 AND 2011

       
Three months ended Years ended
2012 2011 2012 2011
 
(in thousands, except per share amounts)
 
Net income (loss) available to common shareholders $ (18,551 ) $ 80,064 $ 495,004 $ 9,430
Net realized investment (gains) losses, net of tax (1) (29,550 ) 3,599 (115,854 ) (119,736 )
Foreign exchange losses (gains), net of tax (2) 20,416 (16,494 ) 28,364 (43,606 )
Loss on repurchase of preferred shares, net of tax (3)     14,009    
Operating income (loss) $ (27,685 ) $ 67,169   $ 421,523   $ (153,912 )
 
 
Earnings (loss) per common share - diluted $ (0.16 ) $ 0.63 $ 4.00 $ 0.07
Net realized investment (gains) losses, net of tax (0.25 ) 0.03 (0.94 ) (0.93 )
Foreign exchange losses (gains), net of tax 0.18 (0.13 ) 0.24 (0.34 )
Loss on repurchase of preferred shares, net of tax 0.11
Adjustment for anti-dilutive securities (4)       (0.06 )
Operating income (loss) per common share - diluted $ (0.23 ) $ 0.53   $ 3.41   $ (1.26 )
 
Weighted average common shares and common share
equivalents - diluted, for net income (loss) 117,918   127,686   123,654   128,122  
 
Weighted average common shares and common share
equivalents - diluted, for operating income (loss) $ 117,918   $ 127,686   $ 123,654   $ 122,499  
 
Average common shareholders' equity $ 5,315,172 $ 4,900,592 $ 5,110,499 $ 5,034,525
 
Annualized return on average common equity (1.4 %) 6.5 % 9.7 % 0.2 %
 
Annualized operating return on average common equity (2.1 %) 5.5 % 8.2 % (3.1 %)

(1) Tax cost (benefit) of $2,221 and ($140) for the quarters ended December 31, 2012 and 2011, respectively, and $11,615 and $1,703 for 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.

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