Best Affirms AXIS Specialty, AXIS Capital Ratings; Outlook Stable

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. Best also affirmed the ICR of “bbb+” and all existing debt ratings of AXIS Capital Holdings Limited (ACHL) (both domiciled in Hamilton, Bermuda). The outlook for all ratings is stable.

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,” Best explained.

“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.”

Best also noted that AXIS’ “historical operating performance has been strong, with a five-year average combined ratio of approximately 85 percent 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.”

Best said that in its 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 Best said it 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.” Best also anticipates ACHL to maintain total debt-to-capital measures in the mid-teens to low twenties in the near term.

As offsetting factors best cited “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.”

Best summarized the ratings as follows:

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 percent senior unsecured notes, due 2014
— “bbb-” on $250 million 7.25 percent non-cumulative preferred shares, Series A
— “bbb-” on $250 million 7.50 percent non-cumulative preferred shares, Series B

AXIS Specialty Finance LLC (guaranteed by AXIS Capital Holdings Limited)
— “bbb+” on $500 million 5.875 percent 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

Source: A.M. Best