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

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

KEY RATING DRIVERS

AXIS Capital's ratings continue to be supported by a good competitive position and strong capitalization. Operating results showed some deterioration through the first nine months of 2015, but remain generally consistent with current ratings. In addition, there is an expectation for continued weakness in the reinsurance sector that will challenge AXIS Capital's earnings.

AXIS Capital's underwriting ratios deteriorated moderately during the first nine months of 2015 as the company reported a combined ratio of 95.7%, including 3.3 percentage points (pp) from catastrophe and weather-related losses and 6.0pp of favorable reserve development. Both reinsurance and insurance segments reported higher combined ratios relative to comparable periods.

Return on equity (ROE) was 11.8% during the first three quarters of 2015, down from 15.6% in the comparable period of 2014. ROE benefited from the $280 million PartnerRe break-up fee following the termination of the acquisition agreement and would have fallen to an estimated 7.1% without it. Similarly, pre-tax operating earnings covered fixed charges by 9.7x through the first nine months before falling to 5.6x after adjusting for 'one-time' charges such as the break-up fee and reorganization charges.

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.

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 Sept. 30, 2015, which is down moderatetly from the comparable period in 2014 due to the impact of multi-year reinsurance agreements. The financial leverage ratio was 14% at Sept. 30, 2015, essentially unchanged from year-end 2014.

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;

--Significant reserve deficiencies;

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

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

The following ratings were affirmed with a Stable Outlook:

AXIS Capital Holdings, Ltd.

--IDR at 'A-';

--Series B 7.5% preferred securities rating at 'BBB';

--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. 16 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=996775

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=996775

Endorsement Policy

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

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View source version on businesswire.com: http://www.businesswire.com/news/home/20151215006777/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
Hannah James, New York, +1-646-582-4947
[email protected]

Source: Fitch Ratings

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