Axis Capital Holdings Limited Q2 2010 Earnings Call Transcript

Axis Capital Holdings Limited Q2 2010 Earnings Call Transcript
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Axis Capital Holdings Limited (AXS)

Q2 2010 Earnings Call Transcript

August 4, 2010 8:00 am ET

Executives

Linda Ventresca – EVP, Corporate Development Officer

John Charman – CEO and President

David Greenfield – CFO

Analysts

Vinay Misquith – Credit Suisse

Beth Malone – Wunderlich

Brian Meredith – UBS

Keith Alexander – JPMorgan

Sam Hoffman – Lincoln Square Capital

Greg Locraft – Morgan Stanley

Brett Shirreffs – KBW

Presentation

Operator

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Previous Statements by AXS
» Axis Capital Holdings Limited Q1 2010 Earnings Call Transcript
» Axis Capital Holdings Limited Q3 2009 Earnings Call Transcript
» AXIS Capital Holdings Limited Q4 2008 Earnings Call Transcript

Good morning and welcome to the second quarter 2010 Axis Capital Holdings Limited earnings conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask a question. (Operator Instructions). Please note, this event is being recorded.

I would now like to turn over the conference to Linda Ventresca. Please go ahead, ma'am.

Linda Ventresca

Thank you, Andrea. Good morning, ladies and gentlemen. I am happy to welcome you to our conference call to discuss the financial results for Axis Capital for the quarter ended June 30th, 2010.

Our earnings press release, financial supplement, and quarterly investment supplement were issued yesterday evening after the market closed. If you would like copies, please visit the Investor Information section of our website, www.axiscapital.com. We set aside an hour for today's call, which is also available as an audio webcast through the Investor Information section of our website. A replay of the teleconference will be available by dialing 877-344-7529 in the U.S. The international number is 412-317-0088. The conference code for both replay dial-in numbers is 442139.

With me on today's call are John Charman, our CEO and President; and David Greenfield, our CFO. Before I turn the call over to John, I will remind everyone that statements made during this call, including the question-and-answer session, which are not historical facts, may be forward-looking statements within the meaning of the U.S. federal securities laws.

Forward-looking statements contained in this presentation, include, but are not necessarily limited to, information regarding our estimate of losses related to catastrophes, policies, and other loss events; general economic, capital, and credit market conditions; future growth prospects and financial results; evaluation of losses and loss reserves; investment strategies, investment portfolio, and market performance; impact to the marketplace with respect to changes in pricing models; and our expectations regarding pricing and other market conditions. These statements involve risks, uncertainties, and assumptions, which could cause actual results to differ materially from our expectations.

For a discussion of these matters, please refer to the Risk Factor section in our most recent Form 10-K 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. In addition, this presentation contains information regarding operating income, which is a non-GAAP financial measure within the meaning of the U.S. federal securities laws. For a reconciliation of this item to the most directly comparable GAAP financial measure, please refer to our press release, which could be found on our website.

With that, I would like to turn the call over to John.

John Charman

Thank you, Linda, and happy birthday to you and David. Good morning, everyone and thank you for joining us. Given the historically low investment yield environment coupled with extremely challenging property and casualty market conditions, we are pleased with our performance during the second quarter.

For the quarter, we reported net income available to common shareholders of 2010 of $205 million or $1.51 per share, as well as operating income of $180 million or $1.33 per share. Our diluted book value per common share increased by 6% during the quarter and 9% from year-end to $36.57. The annualized return on average common equity for the second quarter of 2010 was 16.6% and the annualized operating return on average common equity was 14.6%.

Our consolidated combined ratio for the quarter, an important measure of profitability in our core property and casualty underwriting operations, was 86.2%. These underwriting results reflect current period underwriting profits and continued favorable reserve development, offset by a $24 million increase in our estimated net losses from the Chilean earthquake. Our underwriting results have continued to reflect the favorable impact of recovery from the global financial crisis, as well as more normal expectations for losses in credit related lines of business.

Finally, for the quarter, our total cash and investments portfolio delivered a total return of 1.3%, including net investment income of $83 million. As part of our long-term strategic capital management plan, we bought back $121 million of shares in the open market during the second quarter at an average valuation of 86% of diluted book value per share for the period. Given the current insurance and reinsurance market outlook, we feel buying back shares when they trade at these levels is an effective use of excess capital.

With that, I will now turn the call over to David to discuss these financial results in more detail.

David Greenfield

Thank you, John and good morning, everyone. As John mentioned, we are pleased with our results for the quarter. Our diluted book value per share increased 6% this quarter to an all-time high of $36.57, bolstered by net income, the continued execution of share repurchases at a discount to diluted book value, and further improvements in the valuations for our fixed maturity portfolio.

We also delivered a strong annualized operating return on average common equity of 14.6% for the quarter. Net income available to common shareholders for the quarter was $205 million or $1.51 per diluted share compared with $159 million or $1.06 per diluted share for the second quarter of 2009. Operating income, which excludes the impact of realized gains and losses on investments, was $180 million or $1.33 per diluted share compared with $183 million or $1.22 per diluted share for the second quarter of 2009.

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