AM Best revises rating outlook of AXIS subsidiaries to negative

AXIS Capital Holdings has seen the outlooks of the financial strength ratings of its operating subsidiaries revised from stable to negative by AM Best.

The rating agency said that it had revised the outlooks for AXIS Specialty, AXIS Re SE, AXIS Reinsurance Company, AXIS Specialty Europe SE, AXIS Surplus Insurance Company and AXIS Insurance Company.

AM Best said that the ratings reflect AXIS’ balance sheet strength, which it categorises as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM) from the group’s risk profile.

However, the rating agency added that the revised outlooks are based on unfavourable trends in the group’s operating performance, particularly from AXIS’ insurance segment. AM Best pointed out that historically, AXIS’ operating performance ranks among the top of its peer group; however, in recent years these results have trended toward the middle of its cohort. The group’s combined ratio run rate has trended higher, giving AXIS a smaller cushion to absorb shock-losses. Additionally, AXIS’ Accident & Health segment’s organic build-out has contributed to a higher expense ratio and the group is yet to fully realise the benefit. While AXIS has taken measures to address these trends, the current challenging market conditions could impede its effectiveness.

According to AM Best AXIS’ levels of risk-adjusted capitalisation remain in the strongest category, even under stress scenarios. The group’s balance sheet assessment also benefits from a favourable amount of financial flexibility and fungibility of capital within operating subsidiaries, but also reflects capital management strategies that have involved consistent common and preferred dividends, as well as share repurchases. AXIS’ financial leverage metrics are elevated when compared with prior years, but this is a largely temporary position due to the timing of refinancing maturing senior notes.

AM Best views AXIS’ business profile as favourable and the group consistently ranks in the top half of AM Best’s Global Reinsurance Top 50 while also maintaining a well-regarded profile as a specialty writer capable of underwriting complex risks. The group’s ERM is sophisticated and embedded throughout the organization. AM Best believes that AXIS’ risk management is appropriate given its complex risk profile.