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Press release from Business Wire

AXIS Capital Reports Third Quarter Operating Income of $201 Million

<p class='bwalignc'> <b>Company reports quarterly diluted operating income per common share of $1.63 and annualized operating return on average common equity of 15.2%</b> </p>

Wednesday, October 31, 2012

AXIS Capital Reports Third Quarter Operating Income of $201 Million16:05 EDT Wednesday, October 31, 2012 PEMBROKE, Bermuda (Business Wire) -- AXIS Capital Holdings Limited (“AXIS Capital”) (NYSE: AXS) today reported net income available to common shareholders for the third quarter of 2012 of $223 million, or $1.82 per diluted common share, compared with $212 million, or $1.66 per diluted common share, for the third quarter of 2011. For the nine months ended September 30, 2012, AXIS Capital reported net income available to common shareholders of $514 million, or $4.11 per diluted common share. During the first nine months of 2011, we recognized a net loss to common shareholders of $71 million, or $0.58 per diluted common share. Our results for the first nine months of 2011 were adversely impacted by $775 million of net-after tax losses from numerous natural catastrophe and weather events. Operating income1 for the third quarter of 2012 was $201 million, or $1.63 per diluted common share, compared with $95 million, or $0.74 per diluted common share, for the third quarter of 2011. For the nine months ended September 30, 2012, AXIS Capital reported operating income of $449 million, or $3.60 per diluted common share, compared with an operating loss of $221 million, or $1.82 per diluted common share, for the first nine months of 2011. 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. Third Quarter Highlights2 Gross premiums written increased 2% to $848 million; Net premiums written decreased 3% to $651 million; Net premiums earned increased 3% to $862 million; Combined ratio of 85.3%, compared to 91.5% for the same period last year; Notable catastrophe and weather-related losses in the quarter included: Estimated pre-tax net losses (net of reinstatement premiums) of $40 million resulting from the impact of severe drought conditions on U.S. crops and $20 million for Hurricane Isaac; and An aggregate $27 million reduction in our estimate of pre-tax net losses (net of reinstatement premiums) for first and second quarter 2012 U.S. weather events. No material change in our aggregate estimate for losses related to 2011 and 2010 calendar year natural catastrophe events during 2012; Net favorable prior year reserve development of $60 million, pre-tax, benefiting the combined ratio by 7.0 points, compared with $78 million in the prior year quarter, benefiting the combined ratio by 9.4 points; Net investment income of $104 million, with our alternative investments driving a $54 million increase; Total return on cash and investments of 2.1% (pre-tax), compared to (0.4%) for the same period last year; Net cash flows from operations of $424 million; Operating income of $201 million, representing an annualized operating return on average common equity of 15.2%; Share repurchases in the quarter totaling $179 million; and Diluted book value per common share of $43.57 at September 30, 2012, an increase of 7% during the quarter, 14% from December 31, 2011 and 18% over the last 12 months. 2 All comparisons are with the same period last year unless otherwise stated. Commenting on the third quarter 2012 financial results, Albert Benchimol, President and CEO of AXIS said “AXIS delivered a strong third quarter, with an annualized operating return on average common equity of 15.2%, and 7.4% growth in diluted book value per share. This built upon the strong performance in earlier quarters to achieve a 17.6% increase in diluted book value per share over the last twelve months, reaching a new all-time high of $43.57 per share. We benefited in the quarter from the low level of catastrophe and large loss activity and the favorable impact of strong equity markets on our overall investment returns. Generally, pricing conditions continued to improve across almost all of our lines of business, underwriting results across all of our units showed good fundamentals and shifts in our mix of business favored lines showing ongoing improvement. We also continued to show good progress in a number of business initiatives we've been cultivating for some time.” Separately, Mr. Benchimol added “Our thoughts and prayers go out to all who suffered the wrath of Superstorm Sandy. We stand ready to respond promptly and professionally to our clients' needs in the aftermath of this highly unusual weather event. It will be some time before the full scope of damage and overall impacts are fully realized. From what we know at this time, this is an earnings event that will not affect our progress.” Segment HighlightsInsurance Segment Our insurance segment reported gross premiums written of $530 million in the quarter, up 7% from the third quarter of 2011. Growth was driven by a number of lines of business, including liability, professional lines and accident & health. However, this was partially offset by a reduction in property business, driven by the non-renewal of certain catastrophe-exposed business written through managing general agents. Changes in certain of our reinsurance programs on renewal in the second quarter of 2012, as well as business mix changes, drove an increase in the third quarter ceded premium ratio; as a result, net premiums written were comparable to the third quarter of 2011. For the nine months ended September 30, 2012, gross premiums written were $1.7 billion, up 8% from same period of 2011, with growth emanating primarily from our professional lines, accident & health and liability lines of business. Net premiums written increased 5% year to date, with the second quarter reinsurance purchasing changes having a lesser impact. Net premiums earned increased 8% and 11%, respectively, for the third quarter and year to date; recent growth in our accident & health and property businesses were the primary driver of this increase, with professional lines also contributing to the nine-month growth. Our insurance segment reported underwriting income of $76 million for the quarter, compared to $41 million for the third quarter of 2011. The current quarter's underwriting result reflected a combined ratio of 81.1%, compared with 89.4% in the prior year quarter. The segment's current accident year loss ratio decreased from 64.8% in the third quarter of 2011 to 54.6% this quarter, with the difference largely attributable to a reduction in the level of natural catastrophe-related losses. Third quarter 2011 results included aggregate pre-tax net losses of $38 million, or 10.1 points, for Hurricane Irene and Tropical Storm Lee. Comparatively, we recognized aggregate pre-tax net losses of $10 million for Hurricane Isaac and a $5 million reduction in our estimate for second quarter 2012 U.S. weather events during the third quarter of 2012; in aggregate, this contributed 1.2 points to the ratio. Net favorable prior year reserve development was $32 million, or 7.9 points, this quarter compared with $33 million, or 8.8 points, in the third quarter of 2011. For the nine months ended September 30, 2012, we recognized underwriting income of $112 million, compared with $13 million for the first nine months of 2011; the difference was largely attributable to a significantly lower level of natural catastrophe activity. Reinsurance Segment Our reinsurance segment reported gross premiums written of $318 million in the quarter, down 7% from the third quarter of 2011 and driven by our catastrophe and property lines of business. For the nine months ended September 30, 2012, gross premiums written were $1.7 billion, down 9% from the comparable period in 2011 largely as a result of the repositioning of our catastrophe reinsurance portfolio throughout the year. Our reinsurance segment reported underwriting income of $79 million for the quarter, compared to $50 million for the third quarter of 2011. The segment's combined ratio decreased from 89.5% in the third quarter of 2011 to 83.1% for the current quarter. This included a reduction in the current accident year loss ratio from 73.5% in the third quarter of 2011 to 61.6% this quarter, with the difference largely attributable to a significant decrease in the level of natural catastrophe-related losses. Third quarter 2011 results included aggregate pre-tax net losses (net of reinstatement premiums) of $50 million, or 10.8 points, related to Danish flooding, Hurricane Irene and first half 2011 catastrophe events. Comparatively, during the third quarter of 2012, we recognized aggregate pre-tax net losses (net of reinstatement premiums) of $40 million resulting from the impact of severe drought conditions on U.S. crops, $10 million for Hurricane Isaac and a combined $22 million reduction in our estimate for first and second quarter 2012 U.S. weather events; in aggregate, this contributed 6.1 points to the ratio. The remaining decrease in the third quarter current accident year loss ratio was driven by reduced exposure and loss experience related to aggregate property reinsurance of regional insurance companies in the U.S. Net favorable prior period reserve development was $29 million, or 6.3 points, this quarter compared with $46 million, or 9.7 points, in the third quarter of 2011. For the nine months ended September 30, 2012, our reinsurance segment reported underwriting income of $226 million, compared with an underwriting loss of $355 million for the comparable period of 2011. The significant decrease in the level of natural catastrophe activity was the primary driver of this variance. Investments Net investment income of $104 million for the quarter represented a $54 million increase from the third quarter of 2011 and a $29 million increase from the second quarter of 2012, with the variances primarily driven by the market value of our alternative investments ("other investments"). These investments generated $34 million of income in the third quarter of 2012, compared to losses of $30 million and $2 million, respectively, in the third quarter of 2011 and the second quarter of 2012. Partially offsetting these improvements were reductions in income from our fixed maturity portfolio of $10 million, or 12%, in comparison to the prior year quarter and $4 million, or 6%, in comparison to the second quarter of 2012; these declines were primarily due to lower reinvestment yields, though partially offset by an increase in the average investment balance. Net realized investment gains were $51 million, compared to $30 million in the prior quarter and $58 million in the prior year quarter. Capitalization / Shareholders' Equity Our total capital at September 30, 2012 was $6.9 billion, including $1.0 billion of long-term debt and $503 million of preferred equity. At September 30, 2012, diluted book value per common share on a treasury stock basis was $43.57, up $3.02 in the quarter, with growth driven by operating income, valuation improvements for our available-for-sale investment portfolio and, to a lesser extent, share repurchases. During the quarter we repurchased 5.2 million common shares at an average price of $34.21 per share, for a total cost of $179 million. As of October 31, 2012, we had $236 million of remaining authorization for common share repurchases through December 31, 2012. Conference Call We will host a conference call on Thursday, November 1, 2012 at 10:00 AM (Eastern) to discuss the third quarter financial results and related matters. The teleconference can be accessed by dialing (866) 843-0890 (U.S. callers) or (412) 317-9250 (international callers) approximately ten minutes in advance of the call and entering the code 3-8-0-3-5-1-8. 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 1-0-0-1-8-9-8-4. 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 September 30, 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 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 LIMITEDCONSOLIDATED BALANCE SHEETSSEPTEMBER 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011         20122011(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 liabilities13,041,513   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' equity5,856,268   5,444,079   Total liabilities and shareholders' equity$18,897,781   $ 17,806,059       AXIS CAPITAL HOLDINGS LIMITEDCONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011                     Three months endedNine months ended2012201120122011   (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 revenues1,017,841   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 expenses775,544   723,059   2,378,742   2,890,585     Income (loss) before income taxes242,297 225,042 572,365 (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 LIMITEDCONSOLIDATED SEGMENTAL DATA (UNAUDITED)FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011                   20122011Insurance   Reinsurance   TotalInsurance   Reinsurance   Total(in thousands)   Gross premiums written $529,678$318,008$847,686 $ 493,460 $ 341,596 $ 835,056 Net premiums written 332,591318,008650,599 331,857 341,596 673,453 Net premiums earned 398,338464,109862,447 370,520 469,472 839,992 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 ratio81.1%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 LIMITEDCONSOLIDATED SEGMENTAL DATA (UNAUDITED)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011               20122011Insurance   Reinsurance   TotalInsurance   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 1,176,4431,642,9172,819,360 1,116,222 1,808,150 2,924,372 Net premiums earned 1,175,1731,384,2412,559,414 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 ratio90.7%83.7%90.8% 99.0 % 125.2 % 116.3 %     AXIS CAPITAL HOLDINGS LIMITEDNON-GAAP FINANCIAL MEASURE RECONCILIATION (UNAUDITED)OPERATING INCOME, OPERATING RETURN ON AVERAGE COMMON EQUITYAND UNDERWRITING-RELATED GENERAL AND ADMINISTRATIVE EXPENSESFOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011           Three months endedNine months ended2012201120122011(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. Non-GAAP Financial Measures In this release, we present operating income (loss), consolidated underwriting income (loss) and underwriting-related general and administrative expenses, which are “non-GAAP financial measures” as defined in Regulation G. Operating income (loss) represents after-tax operational results without consideration of after-tax net realized investment gains (losses), foreign exchange losses (gains) and losses on the repurchase of preferred shares. We also present diluted operating earnings (loss) per share and operating return on average common equity ("operating ROACE"), which are derived from the non-GAAP operating income (loss) measure. Reconciliations of operating income (loss), diluted operating earnings (loss) per share and operating ROACE to the nearest GAAP financial measures (based on net income (loss) available to common shareholders) are included above. Consolidated underwriting income (loss) is a pre-tax measure of underwriting profitability that takes into account net premiums earned and other insurance related income as revenues and net losses and loss expenses, acquisition costs and underwriting-related general and administrative costs as expenses. Underwriting-related general and administrative expenses include those general and administrative expenses that are incremental and/or directly attributable to our individual underwriting operations. While these measures are presented in the Segment Information footnote to our Consolidated Financial Statements, they are considered non-GAAP financial measures when presented elsewhere on a consolidated basis. A reconciliation of consolidated underwriting income (loss) to income before income taxes (the nearest GAAP financial measure) is included in the 'Consolidated Segmental Data' section of this release. Our total general and administrative expenses (the nearest GAAP financial measure to underwriting-related general and administrative expenses) also includes corporate expenses; the two components are separately presented in the 'Consolidated Segmental Data' section of this release. We present our results of operations in the way we believe will be most meaningful and useful to investors, analysts, rating agencies and others who use our financial information to evaluate our performance. This includes the presentation of “operating income (loss)” (in total and on a per share basis), “annualized operating return on average common equity” (which is based on the “operating income (loss)” measure) and "consolidated underwriting income (loss)", which incorporates "underwriting-related general and administrative expenses". Operating Income (Loss) Although the investment of premiums to generate income and realized investment gains (or losses) is an integral part of our operations, the determination to realize investment gains (or losses) is independent of the underwriting process and is heavily influenced by the availability of market opportunities. Furthermore, many users believe that the timing of the realization of investment gains (or losses) is somewhat opportunistic for many companies. Foreign exchange losses (gains) in our Consolidated Statements of Operations are primarily driven by the impact of foreign exchange rate movements on net insurance-related liabilities. However, this movement is only one element of the overall impact of foreign exchange rate fluctuations on our financial position. In addition, we recognize unrealized foreign exchange losses (gains) on our available-for-sale investments in other comprehensive income and foreign exchange losses (gains) realized upon the sale of these investments in net realized investment gains (losses). These unrealized and realized foreign exchange movements generally offset a large portion of the foreign exchange losses (gains) reported separately in earnings, thereby minimizing the impact of foreign exchange rate movements on total shareholders' equity. As such, the Statement of Operations foreign exchange losses (gains) in isolation are not a fair representation of the performance of our business. Losses on repurchase of preferred shares arise from capital transactions and, therefore, are not reflective of underlying business performance. In this regard, certain users of our financial statements evaluate earnings excluding after-tax net realized investment gains (losses), foreign exchange losses (gains) and losses on repurchase of preferred shares to understand the profitability of recurring sources of income. We believe that showing net income available to common shareholders exclusive of net realized gains (losses), foreign exchange losses (gains) and losses on repurchase of preferred shares reflects the underlying fundamentals of our business. In addition, we believe that this presentation enables investors and other users of our financial information to analyze performance in a manner similar to how our management analyzes the underlying business performance. We also believe this measure follows industry practice and, therefore, facilitates comparison of our performance with our peer group. We believe that equity analysts and certain rating agencies that follow us, and the insurance industry as a whole, generally exclude these items from their analyses for the same reasons. Consolidated Underwriting Income (Loss)/Underwriting-Related General and Administrative Expenses Corporate expenses include holding company costs necessary to support our worldwide (re)insurance operations and costs associated with operating as a publicly-traded company. As these costs are not incremental and/or directly attributable to our individual underwriting operations, we exclude them from underwriting-related general and administrative expenses and, therefore, consolidated underwriting income (loss). Interest expense and financing costs primarily relate to interest payable on our senior notes and are excluded from consolidated underwriting income (loss) for the same reason. We evaluate our underwriting results separately from the performance of our investment portfolio. As such, we believe it appropriate to exclude net investment income and net realized investment gains (losses) from our underwriting profitability measure. As noted above, foreign exchange losses (gains) in our Consolidated Statement of Operations primarily relate to our net insurance-related liabilities. However, we manage our investment portfolio in such a way that unrealized and realized foreign exchange rate gains (losses) on our investment portfolio generally offset a large portion of the foreign exchange losses (gains) arising from our underwriting portfolio. As a result, we believe that foreign exchange losses (gains) are not a meaningful contributor to our underwriting performance and, therefore, exclude them from consolidated underwriting income (loss). We believe that presentation of underwriting-related general and administrative expenses and consolidated underwriting income (loss) provides investors with an enhanced understanding of our results of operations, by highlighting the underlying pre-tax profitability of our underwriting activities. Investor ContactAXIS Capital Holdings LimitedLinda Ventrescainvestorrelations@axiscapital.com441-405-2727orMedia ContactKekst and CompanyMichael Herleymichael-herley@kekst.com212-521-4897