S&P revises AXIS Capital outlook to stable

S&P Global Ratings has revised its outlook to stable from negative and affirmed its 'A-' long-term issuer credit and senior debt ratings on Bermuda-based AXIS Capital Holdings.

In addition, S&P Global Ratings affirmed its 'A+' long-term issuer credit and financial strength ratings on AXIS' core operating subsidiaries.

The outlook revision and ratings affirmation reflect S&P Global Ratings' view that AXIS' capital management and implementation of its various strategic initiatives are bearing fruit and will help rebuild the company's capital adequacy redundancy at the 'AAA' confidence level by year-end 2019, based on S&P Global Ratings' risk-adjusted capital model.

In 2017, AXIS' capitalisation deteriorated due to the Novae Group acquisition and the deficiency at the 'AAA' level was exacerbated by catastrophe losses in the second half of the year. As a result, AXIS stopped its share buybacks, and is lowering its net aggregate property-catastrophe probable maximum losses through reinsurance/retrocession usage and alternative capital and has exited underperforming lines of business such as on-shore energy, US retail property, and excess casualty lines. In addition, AXIS has materially reduced its exposure to Novae's legacy liabilities by ceding $819 million of reserves associated with 2015 and prior underwriting years to Enstar Group, a Bermuda-based runoff specialist. Furthermore, S&P expects AXIS to realise about $100 million in expense savings per year prospectively, because of the Novae integration and additional corporate cost synergies.

S&P said that it continues to view AXIS' business risk profile as strong, supported by a strong competitive position underpinned by a broad product offering, diverse geographic footprint, and a focus on specialty coverage, through its dual platform including insurance and reinsurance. AXIS has also developed a strong global franchise through organic growth and acquisitions. In the first nine months of 2018, it wrote $5.7 billion in gross premiums written, a 28.6 percent increase from the same period in 2017 primarily due to the two recent acquisitions, Novae and Aviabel Cie. Belge d'Assurances Aviation.

The stable outlook reflects S&P’s view that AXIS will rebuild its capital adequacy to the 'AAA' confidence level, supported by effective capital management and other strategic initiatives and its ability to generate strong and sustainable earnings. In addition, it expects AXIS to keep its underwriting discipline while maintaining its strong competitive position.

S&P concluded by saying: “We are unlikely to upgrade AXIS during the next two years because of our view of the company's competitive position, the industry's ongoing heightened competitive pressures in the global property/casualty reinsurance sector and US specialty insurance lines of business, and potential earnings volatility arising from exposure to severity risk such as property-catastrophe.”