Axis Readies IPO; S&P Affirms ‘A’ Ratings

June 11, 2003

As Bermuda-based Axis Capital Holdings Ltd. readies the launch of an initial public share offering (it originally filed a Registration Statement with the SEC last March), Standard & Poor’s Ratings Services provided some welcome news, affirming the group’s overall ‘A’ rating and “stable” outlook, and also assigning an ‘A’ financial strength rating to Sheffield Insurance Corp, which Axis acquired from Kemper.

Axis, originally formed by Marsh Mac’s Trident II Investment Trust, J.P. Morgan and other investors after Sept. 11, plans to sell some 21.5 million shares to the public priced at between $19.50 and $21.50, making the less than two-year-old company worth about $3 billion. Axis will sell 13.4 million shares, while Marsh, J.P. Morgan and others will sell around 8.1 million shares. The company plans to raise around $256 million from the sale. When completed it will have more than 151 outstanding shares.

S&P indicated that it had assigned the ‘A’ rating to Sheffield, a writer of specialty insurance, “based on its integration into the business plan of its parent, experienced management, appropriate reinsurance and capital, and financial profile.” It will be renamed Axis Surplus Insurance Co. and will operate solely as a carrier of nonadmitted business in the U.S.

“Business written includes property, umbrella and excess casualty, primary casualty, and professional lines insurance. Although Sheffield has an underwriting history that predates the acquisition by Axis, most of its outstanding exposure is either newly acquired through the purchase of the directors’ and officers’ insurance renewal rights from insurers of Kemper Corp. or is business recently written,” said S&P. It added that it “expects that the company’s exposure at year-end 2003 will be well in excess of what it is today as management exercises these renewal rights.”

“The stable outlook is based on the factors mentioned previously and prospective market conditions,” said S&P. Credit analyst Charles Titterton indicated, “Axis and Sheffield are capable of operating with excellent profitability and at least appropriate capital during the next several years, though Standard & Poor’s believes that management will leverage Axis’s capital base to maximize returns. In addition, the return of weaker business conditions in Axis’s markets, possibly beginning after 2004, is inevitable.”

Axis is one of a number of recently formed Bermuda-based insurers that have profited significantly since their formation following Sept. 11. A recent report from S&P noted that in contrast to older reinsurers, including the two largest, Swiss Re and Munich Re, the newer companies, with unencumbered balance sheets, had been able to become highly profitable in a short space of time. While they may have some problems in the future, right now they’re riding high. Axis should have no problem selling its shares.

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