A.M. Best Revises Outlook to Positive for AXIS Specialty Limited and Its Operating Affiliates

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has revised the outlook to positive from stable and 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 revised the outlook to positive from stable and affirmed the ICR of “bbb+” and all existing debt ratings of AXIS Capital Holdings Limited (ACHL) (both domiciled in Hamilton, Bermuda) (NYSE: AXS).

Additionally, A.M. Best has downgraded the FSR to B++ (Good) from A (Excellent) and ICR to “bbb+” from “a+” of AXIS Specialty Insurance Company(Alpharetta, GA). The outlook for both ratings is stable. Subsequently, A.M. Best has withdrawn the ratings due to management’s plans to cease writing new business, and thus place this company in run off. (See below for a detailed list of the companies and ratings.)

The ratings reflect AXIS’ consistently strong operating performance on a relative and absolute basis, 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. Given the current soft casualty market conditions the company is well positioned with a diversified book of business and expanding worldwide infrastructure. AXIS’ book of business emphasizes short to medium-tail lines and focuses on specialty risks including property, marine and political risk, along with property catastrophe coverages.

AXIS’ historical operating performance has been strong, with a five-year average combined ratio and a five-year average return on equity through 2010, which places the company among the top of its Bermudian peer group. In A.M. Best’s opinion, AXIS’ solid performance is attributable to its highly developed and integrated risk management controls and strong systems capabilities. 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.

Partially offsetting these positive rating factors is AXIS’ exposure to large catastrophe losses as well as the current soft casualty market environment. These challenges and other rating factors, which could lead to a downgrade or revision in the outlook to negative, include unfavorable operating profitability trends, outsized catastrophe or investment losses relative to peers, significant adverse loss reserve development and/or a material decline in risk-adjusted capital. Alternatively, factors that could lead to an upgrade include continued favorable operating profitability coupled with maintenance of strong risk-adjusted capital levels.

The FSR of A (Excellent) and ICRs of “a+” have been affirmed forAXIS Specialty Limited and its following operating affiliates:

• AXIS Re Limited
• AXIS Reinsurance Company
• AXIS Specialty Europe Limited
• 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”; “Understanding Universal BCAR”; “Catastrophe Analysis in A.M. Best Ratings”; “Catastrophe Risk Management Incorporated Within the Rating Analysis”; “Rating Members of Insurance Groups”; and “A.M. Best’s Ratings & the Treatment of Debt.” 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 © 2011 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
Greg Reisner
Senior Financial Analyst
908-439-2200, ext. 5224
[email protected]
or
Peter Dickey
Assistant Vice President
908-439-2200, ext. 5053
[email protected]
or
Rachelle Morrow
Senior Manager, Public Relations
908-439-2200, ext. 5378
[email protected]
or
Jim Peavy
Assistant Vice President, Public Relations
908-439-2200, ext. 5644
[email protected]

Source: A.M. Best Co.