Best Affirms AXIS Specialty, Affiliates Ratings; Raises Outlook to Positive

November 23, 2011

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a+” of Bermuda-based AXIS Specialty Limited and its operating affiliates.

Best has also revised the outlook to positive from stable and affirmed the ICR of “bbb+” and all existing debt ratings of AXIS Capital Holdings Limited (ACHL).

In addition Best said it has downgraded the FSR to ‘B++’ (Good) from ‘A’ (Excellent) and ICR to “bbb+” from “a+” of AXIS Specialty Insurance Company (Alpharetta, GA), both with stable outlooks. Best subsequently withdrew the ratings “due to management’s plans to cease writing new business, and thus place this company in run off.”

The ratings reflect AXIS’ “consistently strong operating performance on a relative and absolute basis, excellent risk-based capitalization, robust enterprise risk management controls and a highly experienced management team,” said Best.

“AXIS’ operating strategy has historically emphasized underwriting profitability with a balanced risk profile. Given the current soft casualty market conditions the company is well positioned with a diversified book of business and expanding worldwide infrastructure. AXIS’ book of business emphasizes short to medium-tail lines and focuses on specialty risks including property, marine and political risk, along with property catastrophe coverages.”

Best also described AXIS’ historical operating performance as “strong, with a five-year average combined ratio and a five-year average return on equity through 2010, which places the company among the top of its Bermudian peer group.”

Best added that in its opinion “AXIS’ solid performance is attributable to its highly developed and integrated risk management controls and strong systems capabilities. Furthermore, AXIS retains a very strong level of risk-based capitalization under various A.M. Best stress scenarios.”

As a result, Best said it “expects AXIS to continue managing its capital base in a conservative manner within acceptable ranges to support its current ratings. Both financial leverage and interest coverage also are at acceptable levels relative to ACHL’s ratings.”

As partial offsetting factors, Best cited “AXIS’ exposure to large catastrophe losses as well as the current soft casualty market environment. These challenges and other rating factors, which could lead to a downgrade or revision in the outlook to negative, include unfavorable operating profitability trends, outsized catastrophe or investment losses relative to peers, significant adverse loss reserve development and/or a material decline in risk-adjusted capital. Alternatively, factors that could lead to an upgrade include continued favorable operating profitability coupled with maintenance of strong risk-adjusted capital levels.”

Best summarized the companies and debt instruments affected by the rating actions as follows:

The FSR of ‘A’ (Excellent) and ICRs of “a+” have been affirmed for AXIS Specialty Limited and its following operating affiliates:
— AXIS Re Limited
— AXIS Reinsurance Company
— AXIS Specialty Europe Limited
— AXIS Surplus Insurance Company
— AXIS Insurance Company

The following debt ratings have been affirmed:

AXIS Capital Holdings Limited—
— “bbb+” on $500 million 5.75 percent senior unsecured notes, due 2014
— “bbb-” on $250 million 7.25 percent non-cumulative preferred shares, Series A
— “bbb-” on $250 million 7.50 percent non-cumulative preferred shares, Series B

AXIS Specialty Finance LLC (guaranteed by AXIS Capital Holdings Limited)
— “bbb+” on $500 million 5.875 percent senior unsecured notes, due 2020

The following indicative ratings have been affirmed under the current shelf registration:
AXIS Capital Holdings Limited
— “bbb+” on senior unsecured debt
— “bbb” on subordinated debt
— “bbb-” on preferred stock

AXIS Capital Trust I, II & III (guaranteed by AXIS Capital Holdings Limited)
— “bbb-” on preferred securities

Source: A.M. Best

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