AXIS Capital(US:AXS)2024-10-30 20:23PART I - Financial Information Item 1. Consolidated Financial Statements AXIS Capital Holdings Limited's unaudited consolidated financial statements and notes for the period ended September 30, 2024, are presented Consolidated Balance Sheets As of September 30, 2024, total assets grew to $32.7 billion, liabilities to $26.6 billion, and shareholders' equity to $6.1 billion Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Investments | $16,667,045 | $15,260,960 | | Total Assets | $32,722,648 | $30,250,672 | | Reserve for losses and loss expenses | $17,295,329 | $16,434,018 | | Total Liabilities | $26,639,421 | $24,987,476 | | Total Shareholders' Equity | $6,083,227 | $5,263,196 | Consolidated Statements of Operations Net income available to common shareholders significantly increased to $765.5 million for the nine months ended September 30, 2024 Key Operating Results (in thousands, except per share data) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Premiums Earned | $1,366,701 | $1,322,564 | $3,929,221 | $3,818,508 | | Net Investment Income | $205,100 | $154,201 | $563,458 | $424,802 | | Total Revenues | $1,610,821 | $1,433,995 | $4,485,880 | $4,162,083 | | Net Income | $180,728 | $188,098 | $788,153 | $518,870 | | Net Income Available to Common Shareholders | $173,165 | $180,535 | $765,465 | $496,182 | | Earnings per Diluted Common Share | $2.04 | $2.10 | $8.97 | $5.77 | Note 3 - Segment Information The company's Insurance and Reinsurance segments reported underwriting income of $337.4 million and $104.6 million respectively for the nine months ended September 30, 2024 Underwriting Income by Segment - Nine Months Ended Sep 30 (in thousands) | Segment | 2024 | 2023 | | :--- | :--- | :--- | | Insurance | $337,414 | $322,617 | | Reinsurance | $104,556 | $112,217 | | Total Underwriting Income | $441,970 | $434,834 | Combined Ratio by Segment - Nine Months Ended Sep 30 | Segment | 2024 | 2023 | | :--- | :--- | :--- | | Insurance | 88.4% | 87.3% | | Reinsurance | 92.1% | 92.5% | | Total | 91.6% | 91.7% | - For the nine months ended Sep 30, 2024, the Insurance segment's gross premiums written increased by 8% to $4.9 billion, while the Reinsurance segment's grew by 5% to $2.1 billion47 Note 4 - Investments Total investments reached $16.7 billion by September 30, 2024, with net investment income increasing to $563.5 million for the nine-month period Investment Portfolio Composition (Fair Value, in thousands) | Asset Class | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Fixed maturities, available for sale | $13,768,193 | $12,234,742 | | Equity securities | $604,834 | $588,511 | | Mortgage loans, held for investment | $524,929 | $610,148 | | Other investments | $939,734 | $949,413 | | Total Investments | $16,667,045 | $15,260,960 | Net Investment Income (in thousands) | Period | 2024 | 2023 | | :--- | :--- | :--- | | Three months ended Sep 30 | $205,100 | $154,201 | | Nine months ended Sep 30 | $563,458 | $424,802 | - The company has unfunded commitments of $259 million to direct lending funds, $117 million to private equity funds, and $95 million to real estate funds as of September 30, 2024737475 Note 7 - Reserve for Losses and Loss Expenses Gross reserves for losses and loss expenses increased to $17.3 billion by September 30, 2024, with $8.0 million in favorable prior year development Reserve Roll-Forward - Nine Months Ended Sep 30, 2024 (in thousands) | Description | Amount | | :--- | :--- | | Gross reserve, beginning of period | $16,434,018 | | Net incurred losses and loss expenses | $2,326,532 | | Current year | $2,334,543 | | Prior years (favorable) | ($8,011) | | Net paid losses and loss expenses | ($2,077,859) | | Gross reserve, end of period | $17,295,329 | - Catastrophe and weather-related losses for the nine months ended Sep 30, 2024, were $145 million, compared to $112 million for the same period in 2023. Key events included Hurricane Helene and Hurricane Beryl147 Net Favorable Prior Year Reserve Development - Nine Months Ended Sep 30 (in thousands) | Segment | 2024 | 2023 | | :--- | :--- | :--- | | Insurance | $4,008 | $5,433 | | Reinsurance | $4,003 | $7,685 | | Total | $8,011 | $13,118 | Note 10 - Shareholders' Equity The company repurchased 2.4 million common shares for $154.8 million and paid $1.32 per share in dividends during the nine months ended September 30, 2024 Common Share Repurchases - Nine Months Ended Sep 30, 2024 | Repurchase Type | Total Shares (thousands) | Total Cost (thousands) | Average Price per Share | | :--- | :--- | :--- | :--- | | In the open market | 2,125 | $139,886 | $65.82 | | From employees (for tax) | 243 | $14,943 | $61.49 | | Total | 2,368 | $154,829 | $65.38 | - The authorization under the December 2023 share repurchase program was exhausted as of June 30, 2024196 Note 17 - Income Taxes The company recorded a $163 million net deferred tax asset for the nine months ended September 30, 2024, due to Bermuda's new corporate income tax act - Bermuda enacted the Corporate Income Tax Act 2023, which will apply a 15% corporate income tax for fiscal years beginning on or after January 1, 2025218 - The company recorded a net deferred tax asset of $163 million for the nine months ended September 30, 2024, due to the economic transition adjustment provision in the new Bermuda tax law218 Total Income Tax (Expense) Benefit (in thousands) | Period | 2024 | 2023 | | :--- | :--- | :--- | | Three months ended Sep 30 | ($47,922) | ($24,624) | | Nine months ended Sep 30 | $36,185 | ($68,078) | Note 18 - Subsequent Events The company issued a preliminary pre-tax net loss estimate of $50 million to $100 million for Hurricane Milton, which occurred in October 2024 - The company's preliminary pre-tax net loss estimate for Hurricane Milton, which occurred in October 2024, is between $50 million and $100 million224 - The loss estimate is based on industry insured loss estimates, market share analyses, and catastrophe modeling, but the actual net loss may be materially different225 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operating results, including Q3 2024 performance, segment contributions, and strategic initiatives Third Quarter 2024 Financial Highlights AXIS reported Q3 2024 net income of $173 million and operating income of $230 million, with gross premiums written of $1.9 billion Q3 2024 Key Metrics | Metric | Value | | :--- | :--- | | Net Income to Common Shareholders | $173 million | | Operating Income (Non-GAAP) | $230 million | | Diluted EPS | $2.04 | | Operating EPS (Non-GAAP) | $2.71 | | Gross Premiums Written | $1.9 billion | | Combined Ratio | 93.1% | | Pre-tax Catastrophe Losses | $78 million | Overview AXIS Capital, a global specialty underwriter, focuses on profitable growth through strategic market expansion, portfolio re-balancing, and technology investments - Strategic execution includes growing in U.S. excess and surplus lines, re-balancing the portfolio to less volatile business, and improving efficiency through the "How We Work" program233 - The company anticipates market rates will continue to exceed loss cost trends in casualty, but expects moderate rate erosion in property and financial lines due to new capital and increased capacity236 - AXIS Syndicate 2050, dedicated to new energy projects, commenced underwriting on April 1, 2024240 Consolidated Results of Operations For the nine months ended September 30, 2024, gross premiums written increased 7% to $7.0 billion, boosting net income to $765 million Consolidated Performance - Nine Months Ended Sep 30 | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $7,030,564 | $6,572,232 | 7% | | Net Premiums Earned | $3,929,221 | $3,818,508 | 3% | | Underwriting Income | $441,970 | $434,834 | 2% | | Net Investment Income | $563,458 | $424,802 | 33% | | Net Income to Common Shareholders | $765,465 | $496,182 | 54% | - The combined ratio for the nine months ended Sep 30, 2024 was 91.6%, a slight improvement from 91.7% in 2023. The current accident year loss ratio, excluding catastrophes, was 55.7%, down from 56.1%244 Results by Segment This section details the performance of the Insurance and Reinsurance segments, including premium growth and combined ratios Insurance Segment The Insurance segment's gross premiums written increased 8% to $4.9 billion for the nine months ended September 30, 2024, with an 88.4% combined ratio Insurance Segment Performance - Nine Months Ended Sep 30 | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Gross Premiums Written | $4,915,247 | $4,557,386 | | Net Premiums Earned | $2,900,011 | $2,544,920 | | Underwriting Income | $337,414 | $322,617 | | Combined Ratio | 88.4% | 87.3% | - Growth in gross premiums written for the nine months was led by property lines (+19%), accident and health (+28%), and credit and political risk (+29%)247250 - The nine-month combined ratio was impacted by a 1.6 point increase in the net losses and loss expenses ratio, driven by higher catastrophe and weather-related losses ($136 million in 2024 vs. $88 million in 2023)246268 Reinsurance Segment The Reinsurance segment's gross premiums written grew 5% to $2.1 billion for the nine months ended September 30, 2024, with an improved combined ratio of 92.1% Reinsurance Segment Performance - Nine Months Ended Sep 30 | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Gross Premiums Written | $2,115,317 | $2,014,846 | | Net Premiums Earned | $1,029,210 | $1,273,588 | | Underwriting Income | $104,556 | $112,217 | | Combined Ratio | 92.1% | 92.5% | - Growth in gross premiums written for the nine months was led by credit and surety (+22%), agriculture (+16%), and professional lines (+8%), partially offset by planned decreases in run-off catastrophe and property lines284285 - Ceded premiums written in Q3 2024 were significantly lower ($149 million vs $358 million in Q3 2023) due to the accounting treatment of the Monarch Point Re retrocession agreement, recorded retroactively in 2023291292 Net Investment Income and Net Investment Gains (Losses) Net investment income rose 33% to $563.5 million for the nine months ended September 30, 2024, primarily due to higher yields on fixed maturities Net Investment Income by Asset Class - Nine Months Ended Sep 30 (in thousands) | Asset Class | 2024 | 2023 | | :--- | :--- | :--- | | Fixed maturities | $456,421 | $375,659 | | Other investments | $39,569 | ($4,543) | | Cash and cash equivalents | $41,796 | $35,638 | | Total Net Investment Income | $563,458 | $424,802 | - The pre-tax yield on the fixed maturities portfolio increased to 4.5% for the nine months of 2024, up from 3.8% in 2023318 - Net investment losses for the nine months of 2024 were primarily due to realized losses on the sale of fixed income securities, partially offset by unrealized gains on equity securities326 Liquidity and Capital Resources The company's total capital strengthened to $7.4 billion by September 30, 2024, improving the debt to total capital ratio to 17.8% Capital Structure (in thousands) | Component | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Debt | $1,314,806 | $1,313,714 | | Shareholders' equity | $6,083,227 | $5,263,196 | | Total capital | $7,398,033 | $6,576,910 | | Ratio of debt to total capital | 17.8% | 20.0% | - During the nine months ended Sep 30, 2024, the company repurchased 2.4 million common shares for $155 million410 - A new $300 million share repurchase program was approved in May 2024, with $260 million remaining available as of September 30, 2024412 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures since year-end 2023, except for a $34 million net foreign currency asset exposure as of September 30, 2024 - There have been no material changes to market risk since December 31, 2023, except for foreign currency risk exposure420 Total Net Foreign Currency Exposure (in thousands) | Currency | Exposure Amount | | :--- | :--- | | AUD | $27,144 | | CAD | ($5,735) | | EUR | $16,466 | | GBP | ($8,549) | | JPY | ($1,448) | | Other | $6,484 | | Total | $34,362 | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal control over financial reporting during Q3 2024 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2024423 - No changes occurred during Q3 2024 that materially affected or are reasonably likely to materially affect the company's internal control over financial reporting425 PART II - Other Information Item 1. Legal Proceedings The company is subject to routine legal proceedings in its ordinary course of business and is not a party to any material non-routine legal actions - The company is not party to any material legal proceedings outside the ordinary course of business426 Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023427 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2024, the company repurchased 542,000 common shares, with $260 million remaining available under the May 2024 repurchase program Issuer Purchases of Equity Securities (Q3 2024) | Period | Total Shares Purchased (thousands) | Average Price Paid per Share | Shares Purchased Under Program (thousands) | | :--- | :--- | :--- | :--- | | July 1-31, 2024 | 1 | $70.00 | — | | August 1-31, 2024 | 399 | $73.54 | 399 | | September 1-30, 2024 | 142 | $76.42 | 138 | | Total | 542 | N/A | 537 | - A new share repurchase program for up to $300 million was approved on May 16, 2024, with $260 million remaining available at the end of Q3 2024428 Item 5. Other Information The company discloses immaterial exposure to Iran through reinsurance treaties and no Rule 10b5-1 trading arrangement changes by directors or officers during Q3 2024 - Certain non-U.S. subsidiaries provide global reinsurance coverage that may have some exposure to Iran, but the premium allocated is not material and activities comply with applicable law430 - During Q3 2024, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement431 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act of 2002 and the Inline XBRL financial data files