Fitch Affirms AXIS Capital Holdings, Ltd.'s Ratings; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'A-' Issuer Default Rating (IDR) of AXIS Capital Holdings Ltd. (AXIS Capital) and the 'A+' Insurer Financial Strength (IFS) ratings its operating subsidiaries. The Rating Outlook is Stable. A full list of rating actions follows below.

KEY RATING DRIVERS

AXIS Capital's ratings continue to be supported by a good competitive position and strong capitalization. Operating results were challenged by catastrophe losses during the first half of 2016 but remain generally consistent with current ratings. Further, there is an expectation for continued weakness in the reinsurance sector that will challenge AXIS Capital's earnings.

Underwriting ratios remained consistent with Fitch's median guidelines for the current rating category. AXIS Capital's calendar year underwriting ratios deteriorated modestly during the first six months of 2016 as AXIS Capital reported a combined ratio of 97.2%, including 6.8 percentage points from catastrophe and weather-related losses and 8.0 points of favorable reserve development. Both reinsurance and insurance segments reported higher combined ratios relative to comparable periods.

Profitability during the first half of 2016 was below expectations for the current rating category, but ratios averaged over the past several years remain supportive of current ratings. Return on equity was 6% during the first half of 2016, down from 8.3% in the comparable period of 2015. Pre-tax operating earnings covered fixed charges by 5.4X through the first half of 2016, which was down compared to 7.0x in the comparable period of 2015.

In addition, the ratings reflect Fitch's negative sector outlook on global reinsurance, as the fundamentals of the reinsurance sector have deteriorated with declining premium pricing and weakening of terms and conditions, particularly for property catastrophe risk. This is leading to consolidation in the reinsurance sector as companies aim to enhance their relative competitive positions.

During July, reinsurance start up, Harrington Re, was capitalized with $600 million, which included a $100 million investment from AXIS and a $50 million equity investment from Blackstone affiliates. Harrington Re's book will be comprised of premiums ceded by AXIS Reinsurance Co., but it may also have access to AXIS Capital's primary book as well. Harrington Re provides AXIS Capital with additional capacity and a source of fee income.

AXIS Capital's market position and size/scale is considered 'medium' based on premiums and stockholders' equity metrics. Companies with AXIS Capital's market position and size/scale typically have IFS ratings in the 'A' category but can reach into the lower 'AA' category. It remains to be seen if recent mergers in the reinsurance sector will disadvantage small and medium-sized competitors that did not increase scale through acquisition.

AXIS Capital utilizes a reasonable amount of operating leverage relative to other Bermuda insurers with significant catastrophe exposure. The company reported an operating leverage ratio of 0.7x at June 30, 2016, which was calculated on a rolling four quarters basis. The financial leverage ratio was 14% at June 30, 2016, essentially unchanged over the last several years and quite strong relative to Fitch's median guidelines for the current rating category.

RATING SENSITIVITIES

Key rating triggers that could lead to a downgrade include:

--A significant loss of capital from a catastrophic event that is worse than expectations or industry/peer results, and/or an inability to raise capital following a large loss;

--Increased operating leverage above a 1x net written premiums-to-equity ratio or a financial leverage ratio above 25%;

--An extended period of underwriting losses or GAAP fixed-charge coverage below 7x for a sustained period;

--Significant reserve deficiencies;

--Deterioration of relative market position due to further consolidation in the reinsurance sector.

Key rating triggers that could lead to a downgrade of preferred securities only include:

--AXIS Capital Holding's hybrid securities ratings could be lowered by one notch to reflect non-performance risk should Fitch view Bermuda's regulatory environment as becoming more controlling in its supervision of (re)insurers.

Key rating triggers that could lead to an upgrade include:

--A significant increase in capital that meaningfully reduces operating leverage and reduced exposure to catastrophe losses. However, given publicly traded companies' sensitivity around managing capital, Fitch believes the company is unlikely to move toward this level of overcapitalization.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings with a Stable Outlook:

AXIS Capital Holdings, Ltd.

--Long-term IDR at 'A-';

--Series C 6.875% preferred securities rating at 'BBB';

--Series D 5.5% preferred securities rating at 'BBB'.

AXIS Specialty Finance LLC

--$500 million 5.875% senior debt rating at 'BBB+'.

AXIS Specialty Finance PLC

--$250 million 2.65% senior notes due 2019 at 'BBB+';

--$250 million 5.15% senior notes due 2045 at 'BBB+'.

AXIS Specialty Limited (Bermuda)

AXIS Reinsurance Company

AXIS Insurance Company

AXIS Surplus Insurance Company

AXIS Specialty Insurance Company

--IFS ratings at 'A+'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 17 May 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881564

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1010603

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010603

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160819005703/en/

Fitch Ratings
Primary Analyst
Douglas M. Pawlowski, CFA
Senior Director
+1-312-368-2054
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
or
Secondary Analyst
Martha M. Butler, CFA
Senior Director
+1-312-368-3191
or
Committee Chairperson
Jeff A. Mohrenweiser, FSA, CFA
Senior Director
+1-312-368-3182
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
[email protected]
Elizabeth Fogerty, New York, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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