Best Places AXIS and Subs Ratings under Review w/ Negative Implications

January 27, 2015

A.M. Best has placed under review with negative implications the financial strength rating (FSR) of ‘A+’ (Superior) and the issuer credit ratings (ICR) of “aa-” of AXIS Specialty Limited and its operating affiliates.

Best also put the ICR of “a-” of AXIS Capital Holdings Limited (ACHL) under review with negative implications. Both companies are domiciled in Bermuda. Best’s actions follow the recent announcement that ACHL and PartnerRe Ltd have signed a definitive amalgamation agreement. Best has also placed under review with negative implications the existing debt ratings of ACHL Holdings.

Best said the under review status reflects its “concern associated with this merger’s size, scope and complexity. Along with combining two company cultures under one leadership team, the successful integration will need to be completed in a timely manner and optimize operational and systems infrastructure while retaining key personnel.”

The report added that during the integration period, Best “believes there is greater inherent risk to the ongoing operations of the combined company. This transaction has inherent execution risk although this is partially mitigated by the collaborative nature of both management teams.”

On a more positive note, Best said: “Looking beyond the aforementioned risk factors, there is a fundamentally strong strategic rationale for this transaction. This combination brings two strong companies together that will have enhanced scale, a more diversified product mix and the transaction offers the ability to generate meaningful capital efficiencies and synergies.”

Best also indicated that it would remove the under review status “once the transaction has closed” and Best has been able to review the final integration plan.

Best also noted the “factors that could lead to a rating downgrade or an outlook revision to negative,” which includes Best’s view that “the transaction and integration plan represent a potentially material risk to the organization. Factors that could lead to a stabilization of the ratings include a sound and streamlined integration plan and retention of key personnel.”

Best summarized its rating actions as follows:
The FSR of ‘A+’ (Superior) and the ICRs of “aa-” for AXIS Specialty Limited and its following operating affiliates have been placed under review with negative implications:
AXIS Reinsurance Company
AXIS Specialty Europe SE
AXIS Surplus Insurance Company
AXIS Insurance Company

The following debt ratings have been placed under review with negative implications:
AXIS Capital Holdings Limited—
— “bbb” on $250 million 7.50% non-cumulative preferred shares, Series B
— “bbb” on $400 million 6.875% non-cumulative preferred shares, Series C
— “bbb” on $200 million 5.5% non-cumulative preferred shares, Series D

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

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

Source: A.M. Best

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