A.M. Best Affirms Ratings of AXIS Specialty Limited and AXIS Capital Holdings Limited

A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of "a+" of AXIS Specialty Limited (AXIS) and its operating affiliates. Concurrently, A.M. Best has affirmed the ICR of "bbb+" and all existing debt ratings of AXIS Capital Holdings Limited (ACHL) (both domiciled in Hamilton, Bermuda) [NYSE: AXS]. The outlook for all ratings is stable. (See below for a detailed list of the companies and ratings.)

The ratings reflect AXIS' consistently strong operating performance, excellent risk-based capitalization, robust enterprise risk management controls and a highly experienced management team. AXIS' operating strategy has historically emphasized underwriting profitability with a balanced risk profile. The company maintains a well diversified book of business, both geographically and by line of business, with an emphasis on short to medium-tail lines, principally specialty insurance lines including property, marine and political risk, along with property catastrophe and other specialty reinsurance coverages.

AXIS' historical operating performance has been strong, with a five-year average combined ratio of approximately 85% and a five-year average return on equity in the mid double digit range, both of which place the company in a leadership position among its Bermudian peer group.

In A.M. Best's opinion, AXIS' solid performance is attributable to its formalized and integrated risk management controls and strong systems capability. Furthermore, AXIS retains a very strong level of risk-based capitalization under various A.M. Best stress scenarios. As a result, A.M. Best expects AXIS to continue managing its capital base in a conservative manner within acceptable ranges to support its current ratings. Both financial leverage and interest coverage also are at acceptable levels relative to ACHL's ratings. A.M. Best anticipates ACHL to maintain total debt-to-capital measures in the mid-teens to low twenties in the near term.

Partially offsetting these positive rating factors is AXIS' exposure to large catastrophe losses as well as the cyclical changes occurring in the current market environment. AXIS did experience a significant level of realized and unrealized investment losses in 2008, primarily attributable to the disruption of global markets. In 2009, AXIS also sustained losses on specific investments and certain underwriting decisions, which impacted quarterly results; however, these losses were manageable for AXIS and did not represent a capital event.

The FSR of A (Excellent) and ICRs of "a+" have been affirmed for AXIS Specialty Limited and its following operating affiliates: AXIS Re Limited AXIS Reinsurance Company AXIS Specialty Europe Limited AXIS Specialty Insurance Company AXIS Surplus Insurance Company AXIS Insurance Company The following debt ratings have been affirmed: AXIS Capital Holdings Limited- -- "bbb+" on $500 million 5.75% senior unsecured notes, due 2014

-- "bbb-" on $250 million 7.25% non-cumulative preferred shares, Series A

-- "bbb-" on $250 million 7.50% non-cumulative preferred shares, Series B AXIS Specialty Finance LLC (guaranteed by AXIS Capital Holdings Limited)- -- "bbb+" on $500 million 5.875% senior unsecured notes, due 2020

The following indicative ratings have been affirmed under the current shelf registration: AXIS Capital Holdings Limited- -- "bbb+" on senior unsecured debt

-- "bbb" on subordinated debt

-- "bbb-" on preferred stock AXIS Capital Trust I, II & III (guaranteed by AXIS Capital Holdings Limited)- -- "bbb-" on preferred securities

The principal methodology used in determining these ratings is Best's Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; "The Treatment of Terrorism in the Rating Evaluation"; "A.M. Best's Ratings and the Treatment of Debt"; and "Rating Members of Insurance Groups." Methodologies can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2010 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.