AXIS CAPITAL HOLDINGS LTD – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our results of operations for the
three and six months ended
Item 1 'Consolidated Financial Statements' of this report and our Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the year ended
Tabular dollars are in thousands, except per share amounts. Amounts in tables
may not reconcile due to rounding differences.
Page
Second Quarter 2022 Financial Highlights 52
Overview 53
Consolidated Results of Operations 56
Results by Segment:
i) Insurance Segment 58
ii) Reinsurance Segment 62
Net Investment Income and Net Investment Gains (Losses) 67
Other Expenses (Revenues), Net
69
Financial Measures 71
Non-GAAP Financial Measures Reconciliation 73
Cash and Investments 76
Liquidity and Capital Resources 79
Critical Accounting Estimates 80
Recent Accounting Pronouncements 80
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SECOND QUARTER 2022 FINANCIAL HIGHLIGHTS
Second Quarter 2022 Consolidated Results of Operations
•Net income available to common shareholders of
share, and
•Operating income(1) of
•Gross premiums written of
•Net premiums written of
•Net premiums earned of
•Pre-tax catastrophe and weather-related losses, net of reinsurance and
reinstatement premiums, of
the high frequency of small to mid-sized other weather-related events that
occurred worldwide.
•Net favorable prior year reserve development of
•Underwriting income(2) of
•Net investment income of
•Net investment losses of
•Foreign exchange gains of
Second Quarter 2022 Consolidated Financial Condition
•Total cash and investments of
investments, and cash and cash equivalents comprise 86% of total cash and
investments and have an average credit rating of AA-
•Total assets of
•Reserve for losses and loss expenses of
recoverable on unpaid and paid losses and loss expenses of
•Debt of
•Total common shares repurchased were 0.6 million shares for
•Common shareholders' equity of
share of
(1)Operating income (loss) and operating income (loss) per diluted common share
are non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K.
The reconciliations to the most comparable GAAP financial measures, net income
(loss) available (attributable) to common shareholders and earnings (loss) per
diluted common share, respectively, and a discussion of the rationale for the
presentation of these items are provided in 'Management's Discussion and
Analysis of Financial Condition and Results of Operations - Non-GAAP Financial
Measures Reconciliation'.
(2)Consolidated underwriting income (loss) is a non-GAAP financial measure as
defined in Item 10(e) of SEC Regulation S-K. The reconciliation to, the most
comparable GAAP financial measure, net income (loss), is presented in
'Management's Discussion and Analysis of Financial Condition and Results of
Operations - Consolidated Results of Operations', and a discussion of the
rationale for its presentation is provided in 'Management's Discussion and
Analysis of Financial Condition and Results of Operations - Non-GAAP Financial
Measures Reconciliation'.
(3)The debt to total capital ratio is calculated by dividing debt by total
capital. Total capital represents the sum of total shareholders' equity and
debt.
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Table of Contents OVERVIEW Business Overview
subsidiaries, is a global specialty underwriter and provider of insurance and
reinsurance solutions with operations in
and
underwriting platforms,
We provide our clients and distribution partners with a broad range of risk
transfer products and services, and meaningful capacity, backed by excellent
financial strength. We manage our portfolio holistically, aiming to construct
the optimum portfolio of risks, consistent with our risk appetite and the
development of our franchise. We nurture an ethical, entrepreneurial,
disciplined and diverse culture that promotes outstanding client service,
intelligent risk taking and the achievement of superior risk-adjusted returns
for our shareholders. We believe that the achievement of our objectives will
position us as a global leader in specialty risks. The execution of our business
strategy for the first six months of 2022 included the following:
•increasing our relevance in a select number of attractive specialty lines
insurance and treaty reinsurance markets including
lines,
business;
•re-balancing our portfolio towards less volatile lines of business that carry
attractive returns while deploying capital with risk limits, diversification and
risk management;
•continuing the implementation of a focused distribution strategy while building
mutually beneficial relationships with clients and partners;
•improving the effectiveness and efficiency of our operating platforms and
processes;
•investing in data and technology capabilities, and tools to empower our
underwriters and enhance the service that we provide to our customers;
•utilizing reinsurance markets and third party capital relationships;
•fostering a positive workplace environment that enables us to attract, retain
and develop top talent; and
•growing our corporate citizenship program to give back to our communities and
help contribute to a more sustainable future.
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Outlook
We are committed to leadership in specialty underwriting, where we have depth of
talent and expertise. We believe our market positioning, underwriting expertise,
best-in-class claims management capabilities and strong relationships with our
distributors and clients will provide opportunities for increased profitability,
with differences among our lines of business driven by our tactical response to
market conditions.
Strong market conditions persist across virtually all insurance lines and
geographies, even as we see rate deceleration in certain markets. The industry
has observed rising loss cost trends and we expect rate improvement to continue
as carriers assess pricing adequacy, portfolio construction, inflationary
pressure and account preferences. In this market environment, we continue to
focus on growth in lines of business and market segments that are adequately
priced.
The reinsurance market is also experiencing improvements in rates, and terms and
conditions. In light of 2021 marking the fifth consecutive year of challenging
market loss events, carriers are aiming to reduce net volatility and increase
profitability, and we anticipate the strongest market opportunities to be in
specialty and casualty reinsurance lines.
We are encouraged by the pricing improvements we are seeing across most markets,
that we expect will carry into 2023. Where prices deliver adequate
profitability, we will look to grow within our risk and volatility guidelines.
With a strengthened book of business, and growing footprint in attractive
specialty markets that are seeing the most favorable conditions, we believe AXIS
is well positioned to drive profitable growth within the current environment.
Response to Russia-Ukraine War
Following the Russian invasion of
against the countries involved, organizations and named individuals, we
established a task-force to coordinate our response to this situation.
The
risk to which we are exposed from an underwriting and reserving perspective.
Our team is tracking the situation closely, including stress and scenario
testing on existing underwriting exposures. A range of economic impacts and
external pressures across individual product lines are being considered.
Underwriting
We are monitoring international sanctions which impact our global operations and
were effective
months ended
write business in the region, not including
as short as seven days.
We are also closely monitoring cash due from our customers and reinsurers,
giving due consideration to the
sanctions. At
insurance and reinsurance premium balances receivable and reinsurance
recoverable balances on unpaid losses and loss expenses. Based on facts and
circumstances at that time, we did not adjust allowances for expected credit
losses at
allowances for expected credit losses as new information comes to light.
Adjustments to allowances for expected credit losses in subsequent periods could
be material.
Reserving
At
attributable the
at
The estimate of net reserves for losses and loss expenses related to the
driven by the inherent difficulty in making assumptions around the impact of the
the event, and its far-reaching impacts.
While we believe the overall estimate of net reserves for losses and loss
expenses is adequate for losses and loss adjustment expenses that have been
incurred at
continue to monitor the appropriateness of
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Table of Contents
our assumptions as new information comes to light and will adjust the estimate
of net reserves for losses and loss adjustment expenses, as appropriate.
Actual losses for this event may ultimately differ materially from current
estimates.
Refer to 'Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results by Segment' for further information
Investments
At
investments portfolio.
Refer to Item 1A, 'Risk Factors' in our most recent Annual Report on Form 10-K
for further information.
Recent Developments
On
business. This strategic initiative is part of an overall approach to reduce our
exposure to volatile catastrophe risk. Reorganization expenses related to this
strategic initiative for the three months ended
were mainly attributable to compensation-related costs associated with the
termination of certain employees.
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