AXIS Capital Q4 Net Down 57%; Full Year Declines by 66.7%

February 10, 2009

Bermuda-based AXIS Capital Holdings Limited reported net income for the fourth quarter of 2008 of $131 million, or $0.88 per diluted common share, compared with net income of $306 million, or $1.89 per diluted common share, for the corresponding period in 2007, a 57 percent drop.

Net income for the full year of 2008 was $351 million, or $2.26 per diluted share, compared with $1.055 billion, or $6.41 per diluted share, for the prior year, a 66.78 percent decline.

AXIS reported operating income for the fourth quarter of 2008 was $163 million, or $1.09 per diluted share, compared with $296 million, or $1.83 per diluted common share, for the fourth quarter of 2007. “The same item excluding foreign exchange gains, net of tax, for the fourth quarter of 2008 was $141 million, or $0.94 per diluted common share, compared with $296 million, or $1.83 per diluted common share, for the same period of 2007,” said the announcement.

Operating income for the full year of 2008 was $436 million, or $2.81 per diluted share, compared with $1.050 billion, or $6.38 per diluted common share for 2007. This same item excluding foreign exchange gains, net of tax, for 2008 was $391 million, or $2.52 per diluted common share, compared with $1,035 million, or $6.29 per diluted common share, for 2007.

AXIS listed fourth quarter and full year highlights as follows:
— Return on average common shareholders’ equity of 13.0 percent for the quarter (annualized) and 8.1 percent for the full year;
— Strong underwriting results in both segments this quarter driving a 4 percent increase in underwriting income. Our combined ratio of 67.6 percent improved 3.2 points from the prior year quarter;
— A consolidated combined ratio of 89.8 percent for the year compared with 75.3 percent in the prior year. The increase primarily reflects estimated net losses incurred from Hurricanes Ike and Gustav of $408 million, or 15.2 points. Our total estimated net losses from these hurricanes is unchanged from September 30, 2008;
— Net favorable prior year reserve development in the quarter and full year of 2008 of $125 million and $376 million, respectively;
— Pre-tax net investment losses in the quarter of $26 million compared to net investment income of $125 million in the prior year quarter. Our pre-tax net investment income for the year decreased 49 percent to $247 million. These reductions were primairly due to valuation declines on credit funds, and to a lesser extent hedge funds, resulting from the significant disruption in the global markets;
— Strong operating cash flows of $297 million for the quarter and $1.5 billion for the year;
— Shareholders’ equity of $4.5 billion, a decrease of 3 percent from September 30, 2008. This decline was driven by after-tax unrealized losses on our investment portfolio of $208 million and share repurchases of $50 million. This was partially offset by net income of $131 million in the quarter.
— Diluted book value per common share of $25.79, a decrease of 2 percent from September 30, 2008, and 10 percent from December 31, 2007

CEO John Charman coimmented: “In 2008, we have delivered $351 million in net income, a return on average common equity of 8 percent and, importantly, an excellent combined ratio of 90 percent. This result continues to positively reflect the diversity and strength of our global underwriting operations, but also reflects the negative impact of the extreme volatility of the global financial markets on our alternative investment portfolio, in particular, in 2008.”

He stressed that the “decline in our book value per share during the year of 10 percent was primarily due to the unprecedented decline in asset values globally. Despite this, the overall conservative nature of our investment portfolio and liquidity position has held us in good stead.

“In 2008, we estimate that our industry will digest over $60 billion in insured property and energy losses worldwide, AXIS’s market share of these losses is less than 1 percent. The year also presented some of the most challenging and previously uncorrelated market conditions we have experienced since the formation of AXIS and which prevailed throughout 2008. Importantly we successfully maintained our overall defensive underwriting posture against a market backdrop of often irrational and excessive pricing competition. We are comfortable that any expected loss activity related to the credit crisis and deteriorating global economic environment is manageable and well within acceptable loss parameters for us.”

Charman also said that over he last few months AXIS has “seen strong signals that our view regarding a reinsurance-led hard market is coming to fruition. As we anticipated, the insurance markets are lagging the reinsurance market. We continue to believe the insurance markets will begin to respond positively from the middle of this year onwards. We have not, cannot and will not abandon our high underwriting and operational standards which, in some areas, means that we will continue to shrink our underwriting activity and our exposures. In most areas of our underwriting portfolio, we are in a very strong position to take advantage of any dislocations and ensuing opportunities.”

The full report, and a replay of today’s conference call, together with supplemental information may be obtained on the Company’s web site at: www.axiscapital.com .

A replay of the teleconference will be available through Friday, February 20, 2009, by dialing (877) 344-7529 (U.S. callers) or (412) 317-0088 (international callers) and entering the pass code 426761. The web cast will be archived in the Investor Information section of the Company’s web site.

Source: AXIS Capital

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