AXIS Gets AM Best Ratings Downgrade on ‘Deterioration’ of Operating Performance

AM Best has downgraded the credit ratings of Bermuda-based AXIS Capital Holdings and its subsidiaries. The re/insurer has had its Financial Strength Rating downgraded to A (Excellent) from A+ (Superior) and its Long-Term Issuer Credit Ratings have been downgraded to “a+” from “aa-“.

The outlook of these ratings has been revised to stable from negative.

“The downgrades reflect a deterioration in AM Best’s view of AXIS’ operating performance,” said AM Best, noting that these ratings revisions were made because the group’s operating performance is no longer in line with companies with a strong operating performance assessment or AXIS’ own historical results.

“This is evident by the group’s five-year average return-on-equity and combined ratios, which fall short of AM Best’s strong operating performance benchmarks,” said the ratings agency.

Nevertheless, AM Best credited the re/insurer in several areas, including its balance sheet strength, which it categorized as “strongest.” Other areas of strength include AXIS’ adequate operating performance, favorable business profile and appropriate enterprise risk management (ERM), which AM Best termed as “sophisticated and embedded throughout the organization.”

AM Best said that AXIS still maintains positive overall results and has taken corrective measures, particularly in its insurance segment, to improve its earnings profile.

Rating factors that could lead to positive rating actions are a demonstration of long-term, consistently strong operating results coupled with superior risk-adjusted capitalization through various market cycles at the operating and holding company level. Negative rating pressure could result from outsized insurance or investment losses, said AM Best.

Responding to the ratings downgrade, AXIS acknowledged that it also has not been satisfied with its operating performance but believes the ratings revision does not fully reflect the “significant actions” the company has taken over the past two years to strengthen its business, improve its portfolio, and reduce overall volatility.

First Quarter Loss

In its first quarter earnings report, AXIS reported a net loss of $185 million, of $2.20 per diluted common share, compared to net income of $98 million for the first quarter of 2019. It reported a Q1 combined ratio of 119.8%, compared with 96.9% during the same period in 2019. (A combined ratio above 100% indicates an underwriting loss).

The company estimated pre-tax catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, of $300 million, which included $235 million attributable to the COVID-19 pandemic.

“Like all re/insurers, our financial results have been impacted by COVID-19. The losses from the pandemic overshadowed what otherwise would have been an excellent quarter for AXIS,” said Albert Benchimol, president and CEO of AXIS Capital, in a statement.

Source: AM Best and AXIS Capital Holdings