Ratings agency Moody's has adjusted its ratings outlook of Bermuda-based AXIS Capital Holdings from stable to negative, primarily reflecting lower capitalisation and higher operating and financial leverage relative to peers.
In the same action, Moody's has affirmed the financial strength rating of AXIS Capital and its subsidiaries.
AXIS' ratings reflect its diversified mix of specialty insurance and reinsurance businesses with expertise in niche markets, good historical operating returns, a solid reserve position, and high quality fixed income portfolio.
Moody's said these strength are supported by meaningful catastrophe exposure including terrorism risk, elevated operating and financial leverage relative to similarly-rated peers; the company's focus on long-tail lines, which heightens vulnerability to reserve volatility; and exposure to specialty lines, which inherently carry more risk than standard lines.
In 2018, AXIS reported net income of $0.4 million and a combined ratio of 99.9 percent, reflecting a series of mid-sized global cat losses, though much improved from the net loss of $416 million in 2017.
Moody's suggested AXIS' operating and financial leverage have increased significantly following its acquisition of Novae Group in October 2017.
"While the company has taken steps to reduce volatility in part through reinsurance, AXIS' financial leverage (29.4 percent at year-end 2018, or 26.6 percent pro forma excluding senior notes maturing April 2019) and gross underwriting leverage (4.2x at year-end 2018) remain high relative to similarly-rated, catastrophe-exposed peers," Moody's said.
Moody's, AXIS Capital, Ratings, Bermuda