S&P Assigns ‘BBB’ Rating to AXIS Notes; Affirms Company Ratings

November 23, 2004

Standard & Poor’s Ratings Services announced that it has assigned its “BBB+” senior debt rating to Bermuda-based AXIS Capital Holdings Ltd.’s $500 million, 5.75 percent senior notes, which are due in 2014.

S&P also affirmed its “BBB+” counterparty credit rating on AXIS Capital and its “A” financial strength ratings on AXIS Specialty Ltd. and AXIS Capital’s other interactively rated subsidiaries. The outlook on all these companies is stable.

The notes issue, which Axis announced earlier this month (See IJ Website Nov. 11), is part of the company’s $2.4 billion universal shelf registration, filed on Aug. 6, 2004. S&P said it “expects proceeds from the issuance to be used for general corporate purposes.” It added that, “including the issuance, the group’s (collectively referred to as AXIS) financial leverage–as measured by total debt to total capital–is expected to be about 14 percent, which is conservative for the rating.”

AXIS’ overall ratings are based on its “seasoned management, very strong capital adequacy, very strong operating results, good risk management, and very strong balance sheet,” S&P said. “Partially offsetting these factors are AXIS’s relatively short track record and high-risk coverages.

“AXIS’ operating performance remained strong through the first nine months of 2004, with a year-to-date combined ratio of 86.4 percent and an ROR of 19 percent despite $227 million in net hurricane losses in the third quarter of 2004. Capital adequacy has declined because of continued growth in premium writings but remains very strong, with an estimated capital adequacy ratio of 160 to 170 percent as of June 30, 2004.”

Commenting on the company’s future outlook, S&P indicated that it “expects AXIS to continue to generate very strong average operating returns, though results in any period are subject to volatility from large losses. Capital adequacy is expected to remain very strong, and financial leverage is not expected to exceed 15 percent over the medium term.”

S&P cited the following “Major Rating Factors,” which are listed in summarized form:

— Seasoned management. Management’s strength is in both its depth and breadth, with proven track records at Lloyd’s, in Bermuda, and in other jurisdictions as well as expertise in property and specialty lines of business.
— Very strong current capital. Capitalization is substantial on an absolute basis and is currently at the ‘AA’ level.
— Very strong initial operating results. For 2002 and 2003, AXIS generated extremely strong underwriting and operating performance, with an average combined ratio of 72 percent – ROE of 22 percent; ROR of 33 percent in 2003.
— Good risk management. Management has demonstrated a sound understanding of the underwriting strengths and weaknesses of business it writes, with a good grasp of pricing, risk selection, attachments points, policy limits, loss modeling, and reinsurance. AXIS uses technology actively and also peer-reviews all treaties.
— Very strong balance sheet. AXIS has a very strong balance sheet with very few intangibles, no legacy reserve or recoverable concerns, and a healthy reserve cushion.
— Relatively short track record. Although AXIS has demonstrated very strong operating performance to date, the group’s operating history is relatively short and, as a result, the ability of its franchise to navigate weak markets is relatively untested.
— High-risk coverages. AXIS’s management team has considerable experience in what are considered higher-risk coverages, such as terrorism/war and political risks. Although risk is well controlled and monitored, AXIS could suffer high-severity losses at any given time and might be subject to higher volatility in its operating performance than has been realized to date. This risk is mitigated by conservative reserving and a very strong balance sheet.

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