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AXIS Capital Reports Second Quarter Operating Income of $50 Million, or $0.43 Per Diluted Common Share

<p> <b>For the first six months of 2013, company reports:</b> </p> <ul> <li class='bwlistitemmargb'> <b>Earnings per diluted common share of $3.19</b> </li> <li class='bwlistitemmargb'> <b>Operating earnings per diluted common share of $2.36</b> </li> <li class='bwlistitemmargb'> <b>Annualized return on average common equity of 14.7%</b> </li> <li class='bwlistitemmargb'> <b>Annualized operating return on average common equity of 10.9%</b> </li> </ul>

Tuesday, July 30, 2013

AXIS Capital Reports Second Quarter Operating Income of $50 Million, or $0.43 Per Diluted Common Share

16:05 EDT Tuesday, July 30, 2013

PEMBROKE, Bermuda (Business Wire) -- AXIS Capital Holdings Limited (“AXIS Capital”) (NYSE: AXS) today reported net income available to common shareholders for the second quarter of 2013 of $72 million, or $0.62 per diluted common share, compared with $168 million, or $1.35 per diluted common share, for the second quarter of 2012. For the six months ended June 30, 2013, AXIS Capital reported net income available to common shareholders of $375 million, or $3.19 per diluted common share, compared with $290 million, or $2.31 per diluted common share, for the corresponding period of 2012.

Operating income1 for the second quarter of 2013 was $50 million, or $0.43 per diluted common share, compared with $113 million, or $0.90 per diluted common share, for the second quarter of 2012. For the six months ended June 30, 2013, AXIS Capital reported operating income of $278 million, or $2.36 per diluted common share, compared with $249 million, or $1.98 per diluted common share, for the first six months of 2012.

Second Quarter Highlights 2

  • Gross premiums written increased 20% to $1.2 billion, with growth of 29% in our reinsurance segment and 16% in our insurance segment;
  • Net premiums written increased 24% to $993 million;
  • Net premiums earned increased 11% to $946 million;
  • Combined ratio of 101.7%, compared to 92.3%;
  • Current accident year loss ratio of 72.4%, compared to 63.7%;
  • Estimated natural catastrophe and weather-related pre-tax net losses (net of reinstatement premiums) of $140 million; tornadoes and hailstorms in the U.S. made the largest contribution to this amount, with flooding in Canada, Europe and Argentina also significant;
  • Net favorable prior year reserve development of $42 million (benefiting the combined ratio by 4.4 points), compared with $75 million (benefiting the combined ratio by 8.7 points);
  • Net investment income increased 12% to $83 million;
  • Pre-tax total return on cash and investments of (1.3%), compared to 0.5%;
  • Net income available to common shareholders of $72 million, compared to $168 million;
  • Operating income of $50 million, compared to $113 million;
  • Net cash flows from operations of $236 million, compared to $288 million;
  • Share repurchases in the quarter totaling $228 million;
  • Issued $225 million of 5.50% Series D preferred shares and redeemed the $100 million of 7.25% Series A preferred shares outstanding; and
  • Diluted book value per common share of $42.67, a 4% decrease during the quarter and a 5% increase over the last 12 months.

Commenting on the second quarter 2013 financial results, Albert Benchimol, President and CEO of AXIS Capital said "For the year-to-date, we have delivered a very healthy annualized operating ROACE of 10.9%. This year-to-date result is indicative of the ability of our portfolio to absorb volatility including that presented by a quarter like this one, which was marked by a very high frequency of unrelated small and mid-sized cat and weather events around the globe.

Benchimol continued, "We continue to make good progress in expanding our franchise with growth in attractive lines and markets, most notably in agriculture, accident & health, and our international operations, as we build a broader, more diversified portfolio. Our results still do not reflect the full leverage of all of the various strategic initiatives in progress at AXIS. These initiatives, combined with market conditions that present good opportunities in longstanding specialty lines at AXIS, position us well to continue to drive shareholder value."

Segment Highlights

Insurance Segment

Our insurance segment reported gross premiums written of $781 million in the quarter, up $106 million, or 16%, from the second quarter of 2012. Our accident & health line contributed $50 million of this increase; our liability and professional lines business also contributed meaningfully. Improvements in the U.S. wholesale excess casualty market continued to benefit our liability line this quarter. Continued expansion in Europe, Canada and Australia drove growth in our professional lines book, with renewal timing also contributing. These lines were also the primary driver of the 15% increase in gross premiums written for the first six months of 2013 to $1.4 billion.

Net premiums written were up 20% for the second quarter and 18% for the year to date. Growth rates exceeded those for gross premiums written primarily due to business mix, including a greater proportion of accident & health business for which we did not purchase significant reinsurance. Changes in certain of our ceded reinsurance programs also contributed to the reductions in the ceded premium ratio, more significantly for the second quarter than for the year to date. Net premiums earned increased 9% and 6%, respectively, for the second quarter and year to date; recent growth in our accident & health line was the primary driver.

Our insurance segment reported an underwriting loss of $55 million for the quarter, compared to underwriting income of $25 million for the second quarter of 2012. The current quarter's underwriting result reflected a combined ratio of 113.2%, compared with 93.7% in the prior year quarter. The segment's current accident year loss ratio increased from 67.6% in the second quarter of 2012 to 80.0% this quarter, driven by a higher frequency of natural catastrophe and weather-related losses. The current quarter's result includes aggregate pre-tax net losses emanating from such events (inclusive of premiums to reinstate reinsurance protection) of $90 million, or 21.1 points, primarily arising from tornadoes and hailstorms in the U.S. and flooding in Argentina and Canada. Comparatively, the second quarter 2012 result included $35 million, or 9.2 points, related to second quarter U.S. weather events. Net favorable prior year reserve development was $7 million, or 1.6 points, this quarter compared with $35 million, or 9.2 points, in the second quarter of 2012.

The segment's acquisition cost ratio decreased for both the quarter and year to date, due to a number of factors, including changes in certain reinsurance programs executed in 2012 and the recent reduction in the volume of business sourced through managing general agents. The increases in general and administrative expenses reflect the continued build-out of the segment's global platform over the past year.

For the six months ended June 30, 2013, we recognized an underwriting loss of $14 million, compared with underwriting income of $35 million for the same period of 2012; approximately $44 million of the variance was attributable to natural catastrophe and weather-related activity.

Reinsurance Segment

Our reinsurance segment reported gross premiums written of $439 million in the quarter, up $99 million, or 29%, from the second quarter of 2012. Half of this increase was driven by our agriculture initiative. The remainder was largely attributable to an increase in liability business, as we increased our participation in the excess umbrella market in a more attractive rate environment.

For the six months ended June 30, 2013, gross premiums written were $1.6 billion, up 19% from the comparable period of 2012. Growth was evident in nearly all lines of business, with our agriculture initiative contributing half of the $249 million increase. In addition to the increase in liability for the second quarter, expansion of our European portfolio contributed on a year-to-date basis. We increased our participation in European catastrophe business, as well as in the U.K. motor market (primarily on a quota share basis); foreign exchange rate movements also contributed significantly to the increase in motor premiums. Growth for our property line of business primarily related to select new business opportunities in the U.S.

Net premiums earned increased 13% and 8%, respectively, for the quarter and year to date, primarily attributable to our agriculture expansion.

Our reinsurance segment reported underwriting income of $65 million for the quarter, compared to $95 million for the second quarter of 2012. The segment's combined ratio increased from 79.5% in the second quarter of 2012 to 87.5% for the current quarter. This included an increase in the current accident year loss ratio from 60.5% in the second quarter of 2012 to 66.3% this quarter, driven by a higher level of natural catastrophe and weather-related losses. The current quarter's result includes aggregate pre-tax net losses emanating from such events (net of reinstatement premiums) of $50 million, or 9.7 points, primarily arising from flooding in Europe and Canada. Comparatively, the second quarter 2012 result included $20 million, or 4.2 points, related to second quarter U.S. weather events. Net favorable prior year reserve development was $35 million, or 6.7 points, this quarter compared with $39 million, or 8.4 points, in the second quarter of 2012.

For the six months ended June 30, 2013, we recognized underwriting income of $195 million compared with $147 million for the same period of 2012; the favorable variance was driven by a number of factors, including portfolio expansion, a higher level of net favorable prior year reserve development and a lower acquisition cost ratio driven by loss-sensitive features in reinsurance contracts.

Investments

Net investment income of $83 million for the quarter represented a $26 million decrease from the first quarter of 2013 and a $9 million year-over-year increase from the second quarter of 2012, with the variances primarily driven by changes in the fair value of our alternative investments ("other investments"). These investments generated $12 million of income in the current quarter, compared to income of $43 million in the first quarter of 2013 and a loss of $2 million in the second quarter of 2012.

Net realized investment gains were $16 million, compared to $44 million last quarter and $30 million in the second quarter of 2012.

Capitalization / Shareholders' Equity

Our total capital at June 30, 2013 was $6.6 billion, including $1.0 billion of long-term debt and $0.6 billion of preferred equity, as compared to $6.8 billion at December 31, 2012.

During the quarter, we issued $225 million of 5.50% Series D preferred shares and used a portion of the net proceeds from this issuance to redeem the $100 million of 7.25% Series A preferred shares outstanding. The execution of these transactions reduced the weighted average annual dividend rate on our preferred equity capital base by 57 basis points.

Diluted book value per common share, calculated on a treasury stock basis, decreased by $2.00, or 4%, to $42.67 in the current quarter; the reduction was primarily driven by a decline in the fair value of our available-for-sale fixed maturity portfolio, following an upward shift in sovereign yield curves. Over the past twelve months, diluted book value per common share increased by $2.12, or 5%; growth was driven by operating income, with share repurchase activity also contributing.

During the quarter we repurchased 5.1 million common shares at an average price of $44.57 per share, for a total cost of $228 million. At July 30, 2013, we had $409 million of remaining authorization for common share repurchases through December 31, 2014.

Conference Call

We will host a conference call on Wednesday, July 31, 2013 at 8:00 AM (Eastern) to discuss the second quarter 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 7-8-4-7-0-7-0. 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 1-0-0-3-0-8-5-0. 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 June 30, 2013 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 June 30, 2013 of $5.6 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 and operating return on average common equity are “non-GAAP financial measures” as defined in Regulation G. A reconciliation of operating income to net income 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.

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

 

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2013 (UNAUDITED) AND DECEMBER 31, 2012

     
2013 2012
(in thousands)
Assets
Investments:
Fixed maturities, available for sale, at fair value $ 11,644,912 $ 11,928,049
Equity securities, available for sale, at fair value 618,795 666,548
Other investments, at fair value 962,315 843,437
Short-term investments, at fair value and amortized cost 45,904   108,860  
Total investments 13,271,926 13,546,894
Cash and cash equivalents 1,010,805 759,817
Restricted cash and cash equivalents 105,443 90,733
Accrued interest receivable 95,098 97,220
Insurance and reinsurance premium balances receivable 2,166,982 1,474,821
Reinsurance recoverable on unpaid and paid losses 1,981,441 1,863,819
Deferred acquisition costs 543,069 389,248
Prepaid reinsurance premiums 331,528 315,676
Receivable for investments sold 1,399 1,254
Goodwill and intangible assets 91,370 97,493
Other assets 247,252   215,369  
Total assets $ 19,846,313   $ 18,852,344  
 
Liabilities
Reserve for losses and loss expenses $ 9,342,817 $ 9,058,731
Unearned premiums 3,209,055 2,454,692
Insurance and reinsurance balances payable 292,572 270,739
Senior notes 995,546 995,245
Payable for investments purchased 234,001 64,553
Other liabilities 210,375   228,623  
Total liabilities 14,284,366   13,072,583  
 
Shareholders' equity
Preferred shares - Series A, B, C and D 627,843 502,843
Common shares 2,172 2,146
Additional paid-in capital 2,213,204 2,179,034
Accumulated other comprehensive income 24,755 362,622
Retained earnings 4,813,687 4,497,789
Treasury shares, at cost (2,119,714 ) (1,764,673 )
Total shareholders' equity 5,561,947   5,779,761  
Total liabilities and shareholders' equity $ 19,846,313   $ 18,852,344  
 

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012

 
      Three months ended   Six months ended
2013   2012 2013   2012
(in thousands, except per share amounts)
Revenues
Net premiums earned $ 945,873 $ 850,603 $ 1,819,911 $ 1,696,968
Net investment income 83,112 74,449 192,019 190,472
Net realized investment gains 16,235 30,405 60,713 44,896
Other insurance related income 435   299   1,030   931  
Total revenues 1,045,655   955,756   2,073,673   1,933,267  
 
Expenses
Net losses and loss expenses 642,899 467,637 1,081,313 978,328
Acquisition costs 169,719 156,397 315,209 324,793
General and administrative expenses 149,034 161,331 290,508 284,984
Foreign exchange gains (10,320 ) (36,162 ) (45,201 ) (15,715 )
Interest expense and financing costs 15,260   15,170   31,095   30,807  
Total expenses 966,592   764,373   1,672,924   1,603,197  
 
Income before income taxes 79,063 191,383 400,749 330,070
Income tax expense (benefit) (4,662 ) 2,317   5,469   5,165  
Net income 83,725 189,066 395,280 324,905
Preferred shares dividends 8,197 11,527 16,938 20,746
Loss on repurchase of preferred shares 3,081   9,387   3,081   14,009  
Net income available to common shareholders $ 72,447   $ 168,152   $ 375,261   $ 290,150  
 
Per share data
Net income per common share:
Basic net income $ 0.63 $ 1.36 $ 3.23 $ 2.32
Diluted net income $ 0.62 $ 1.35 $ 3.19 $ 2.31
Weighted average number of common shares outstanding - basic 115,163 123,823 116,088 124,802
Weighted average number of common shares outstanding - diluted 116,671 124,983 117,660 125,825
Cash dividends declared per common share $ 0.25 $ 0.24 $ 0.50 $ 0.48
 

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED SEGMENTAL DATA (UNAUDITED)

FOR THE THREE MONTHS ENDED JUNE 30, 2013 AND 2012

 
  2013   2012
Insurance   Reinsurance   Total Insurance   Reinsurance   Total
(in thousands)
 
Gross premiums written $ 781,055   $ 438,750   $ 1,219,805 $ 675,009   $ 339,366   $ 1,014,375
Net premiums written 559,584 433,823 993,407 465,238 336,337 801,575
Net premiums earned 422,345 523,528 945,873 386,580 464,023 850,603
Other insurance related income 435 435 299 299
Net losses and loss expenses (330,992 ) (311,907 ) (642,899 ) (225,900 ) (241,737 ) (467,637 )
Acquisition costs (58,749 ) (110,970 ) (169,719 ) (58,654 ) (97,743 ) (156,397 )
Underwriting-related general and
administrative expenses(3) (88,526 ) (35,243 ) (123,769 ) (77,770 ) (29,359 ) (107,129 )
Underwriting income (loss) (3) $ (55,487 ) $ 65,408   9,921 $ 24,555   $ 95,184   119,739
 
Corporate expenses (25,265 ) (54,202 )
Net investment income 83,112 74,449
Net realized investment gains 16,235 30,405
Foreign exchange gains 10,320 36,162
Interest expense and financing costs (15,260 ) (15,170 )
Income before income taxes $ 79,063   $ 191,383  
 
Net loss and loss expense ratio 78.4 % 59.6 % 68.0 % 58.4 % 52.1 % 55.0 %
Acquisition cost ratio 13.9 % 21.2 % 17.9 % 15.2 % 21.1 % 18.4 %
General and administrative
expense ratio 20.9 % 6.7 % 15.8 % 20.1 % 6.3 % 18.9 %
Combined ratio 113.2 % 87.5 % 101.7 % 93.7 % 79.5 % 92.3 %

3Underwriting-related general and administrative expenses and consolidated underwriting income 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 before 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 SIX MONTHS ENDED JUNE 30, 2013 AND 2012

 
  2013   2012
Insurance   Reinsurance   Total Insurance   Reinsurance   Total
(in thousands)
 
Gross premiums written $ 1,377,769   $ 1,588,518   $ 2,966,287 $ 1,199,689   $ 1,339,856   $ 2,539,545
Net premiums written 992,264 1,571,582 2,563,846 843,853 1,324,909 2,168,762
Net premiums earned 824,224 995,687 1,819,911 776,837 920,131 1,696,968
Other insurance related income 1,030 1,030 931 931
Net losses and loss expenses (548,328 ) (532,985 ) (1,081,313 ) (467,623 ) (510,705 ) (978,328 )
Acquisition costs (116,009 ) (199,200 ) (315,209 ) (119,808 ) (204,985 ) (324,793 )
Underwriting-related general and
administrative expenses (175,415 ) (68,283 ) (243,698 ) (155,214 ) (57,133 ) (212,347 )
Underwriting income (loss) $ (14,498 ) $ 195,219   180,721 $ 35,123   $ 147,308   182,431
 
Corporate expenses (46,810 ) (72,637 )
Net investment income 192,019 190,472
Net realized investment gains 60,713 44,896
Foreign exchange gains 45,201 15,715
Interest expense and financing costs (31,095 ) (30,807 )
Income before income taxes $ 400,749   $ 330,070  
 
Net loss and loss expense ratio 66.5 % 53.5 % 59.4 % 60.2 % 55.5 % 57.7 %
Acquisition cost ratio 14.1 % 20.0 % 17.3 % 15.4 % 22.3 % 19.1 %
General and administrative
expense ratio 21.3 % 6.9 % 16.0 % 20.0 % 6.2 % 16.8 %
Combined ratio 101.9 % 80.4 % 92.7 % 95.6 % 84.0 % 93.6 %
 

AXIS CAPITAL HOLDINGS LIMITED

NON-GAAP FINANCIAL MEASURE RECONCILIATION (UNAUDITED)

OPERATING INCOME, OPERATING RETURN ON AVERAGE COMMON EQUITY

AND UNDERWRITING-RELATED GENERAL AND ADMINISTRATIVE EXPENSES

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012

       
Three months ended Six months ended
2013 2012 2013 2012
(in thousands, except per share amounts)
 
 
Net income available to common shareholders $ 72,447 $ 168,152 $ 375,261 $ 290,150
Net realized investment gains, net of tax(1) (14,604 ) (28,854 ) (55,674 ) (40,064 )
Foreign exchange gains, net of tax(2) (10,879 ) (35,853 ) (45,132 ) (15,526 )
Loss on repurchase of preferred shares, net of tax(3) 3,081   9,387   3,081   14,009  
Operating income $ 50,045   $ 112,832   $ 277,536   $ 248,569  
 
 
Earnings per common share - diluted $ 0.62 $ 1.35 $ 3.19 $ 2.31
Net realized investment gains, net of tax (0.13 ) (0.23 ) (0.48 ) (0.32 )
Foreign exchange gains, net of tax (0.09 ) (0.29 ) (0.38 ) (0.12 )
Loss on repurchase of preferred shares, net of tax 0.03   0.07   0.03   0.11  
Operating income per common share - diluted $ 0.43   $ 0.90   $ 2.36   $ 1.98  
 
Weighted average common shares and common share
equivalents - diluted 116,671   124,983   117,660   125,825  
 
Average common shareholders' equity $ 5,160,346 $ 5,172,088 $ 5,105,511 $ 5,069,538
 
Annualized return on average common equity 5.6 % 13.0 % 14.7 % 11.4 %
 
Annualized operating return on average common equity 3.9 % 8.7 % 10.9 % 9.8 %

(1) Tax cost of $1,631 and $1,551 for the three months ended June 30, 2013 and 2012, respectively, and $5,039 and $4,832 for the six months ended June 30, 2013 and 2012, 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 cost (benefit) of ($559) and $309 for the three months ended June 30, 2013 and 2012, respectively, and $69 and $189 for the six months ended June 30, 2013 and 2012, 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 $149,034 and $161,331 for the three months ended June 30, 2013 and 2012, respectively, and $290,508 and $284,984 for the six months ended June 30, 2013 and 2012, 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, including uncertainty related to coverage definitions, limits, terms and conditions, (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, consolidated underwriting income and underwriting-related general and administrative expenses, which are “non-GAAP financial measures” as defined in Regulation G.

Operating income 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 per share and operating return on average common equity ("operating ROACE"), which are derived from the non-GAAP operating income measure. Reconciliations of operating income, diluted operating earnings per share and operating ROACE to the nearest GAAP financial measures (based on net income available to common shareholders) are included above.

Consolidated underwriting income 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 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” (in total and on a per share basis), “annualized operating ROACE” (which is based on the “operating income” measure) and "consolidated underwriting income", which incorporates "underwriting-related general and administrative expenses".

Operating Income

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/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. Interest expense and financing costs primarily relate to interest payable on our senior notes and are excluded from consolidated underwriting income 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.

We believe that presentation of underwriting-related general and administrative expenses and consolidated underwriting income provides investors with an enhanced understanding of our results of operations, by highlighting the underlying pre-tax profitability of our underwriting activities.

Investor
Linda Ventresca
AXIS Capital Holdings Limited
investorrelations@axiscapital.com
(441) 405-2727
or
Media
Michael Herley
Kekst and Company
michael-herley@kekst.com
(212) 521-4897

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