AXIS Capital(US:AXS)2024-02-26 16:00PART I Business AXIS Capital is a global specialty underwriter managing diversified risks across insurance and reinsurance, subject to extensive regulation - AXIS is a global specialty underwriter with two main underwriting platforms: AXIS Insurance and AXIS Re, operating in Bermuda, the U.S., Europe, Singapore, and Canada35 - The company's strategy involves offering a diversified range of products, managing a balanced portfolio of risks, modulating risk appetite across the underwriting cycle, and maintaining strong relationships with clients and distribution partners39404142 - Key financial performance metrics for the company include operating return on average common equity (operating ROACE) and relative total shareholder return (TSR) over the long-term44 Segment Information Gross Premiums Written by Segment (in thousands) | Segment | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Insurance | $6,140,764 | $5,585,581 | $4,863,232 | | Reinsurance | $2,215,761 | $2,629,014 | $2,822,752 | | Total | $8,356,525 | $8,214,595 | $7,685,984 | - The Insurance segment offers specialty products including Professional Lines, Property, Liability, Cyber, Marine and Aviation, Accident and Health, and Credit and Political Risk, with AmWINS Group, Aon plc, and Marsh & McLennan Companies each accounting for 10% or more of gross premiums written in 2023484950 - The Reinsurance segment provides treaty reinsurance globally, having exited Catastrophe, Property, and Aviation reinsurance lines, with Aon plc and Marsh & McLennan Companies as its largest brokers525455 Cash and Investments - The company's investment strategy balances increasing book value with generating stable investment income and ensuring sufficient liquidity for claims, primarily through investment-grade fixed maturities58 - To diversify risk and optimize growth, the portfolio includes other asset classes such as equity securities, high-yield securities, and alternative investments like private equity funds59 - Investment management is primarily handled by third-party managers under guidelines and objectives approved by the Company's Board of Directors' Finance Committee60 Regulation - The company's entities are regulated across various jurisdictions, including Bermuda (BMA), the United States (state-level insurance departments), Ireland (Solvency II), and the U.K. (PRA and FCA)63 - In Bermuda, AXIS Capital is group supervised by the BMA, and its subsidiary AXIS Specialty Bermuda is a Class 4 insurer subject to the Insurance Act, with Bermuda's commercial insurance sector granted full "equivalence" under Solvency II646566 - In the U.S., insurance subsidiaries are subject to state insurance holding company laws, requiring registration, financial information, and adherence to regulations covering policy forms, solvency standards, and dividend limitations7678 - The company's Ireland-domiciled entities (AXIS Specialty Europe and AXIS Re SE) are subject to the Solvency II Directive, a harmonized risk-based solvency and reporting regime for the European insurance sector878893 - In the U.K., AXIS Managing Agency Ltd. is authorized by the PRA and regulated by the FCA to manage Syndicate 1686 in the Lloyd's of London market97100101 Human Capital Management Employee Statistics (as of Dec 31, 2023) | Metric | Value | | :--- | :--- | | Total Employees | 2,048 | | Voluntary Turnover (2023) | 10.9% | | Employees in North America | 1,289 | | Employees in EMEA | 741 | | Global Gender Demographics | 46% Women, 53% Men | | U.S. Racial/Ethnic Demographics | 61% White, 16% Black, 11% Asian, 5% Hispanic/Latinx | - The company focuses on talent development, with 19% of employees experiencing career progression in 2023, offering extensive online learning, professional development assistance, and career planning tools115 - Diversity, Equity, and Inclusion (DEI) is a key pillar, with initiatives in internal education, inclusive recruitment, and career development for diverse employees, leading to inclusion in the Bloomberg Gender Equality Index for the third consecutive year117118 Risk and Capital Management - The company employs a comprehensive Enterprise Risk Management (ERM) framework to identify, assess, manage, and report risks, aiming to protect its capital base and earnings by monitoring risks against a stated risk appetite129 - An internal capital model is used to provide a holistic view of capital at risk, allocate capital efficiently, support portfolio monitoring, and guide reinsurance purchasing decisions132133 Estimated Net Natural Catastrophe Exposures (PML, Jan 1, 2024) | Territory | Peril | 100-Year Return Period | 250-Year Return Period | | :--- | :--- | :--- | :--- | | Southeast | U.S. Hurricane | $131 million | $149 million | | California | Earthquake | $137 million | $163 million | | Gulf of Mexico | U.S. Hurricane | $124 million | $143 million | | Japan | Earthquake | $67 million | $114 million | - The capital management strategy aims to optimize capital allocation within a Target Capital Range (TCR), which considers the internal model, regulatory requirements, and rating agency capital models195 Risk Factors The company faces diverse risks including cyclicality, catastrophe losses, economic inflation, intense competition, market volatility, and evolving regulatory and tax environments - Insurance Risk: The business is cyclical, with exposure to unpredictable and substantial losses from natural and man-made disasters, including cybersecurity threats and climate change, which may increase event frequency and severity199201211 - Strategic Risk: The highly competitive insurance/reinsurance industry has seen significant consolidation, and the company depends on a few major brokers, with Aon, Marsh & McLennan, and Arthur J. Gallagher providing 38% of gross premiums written in 2023230241 - Market & Credit Risk: Investment portfolios are exposed to capital markets risk from changes in interest rates, credit spreads, and equity prices, alongside credit risk from reinsurers' potential inability to pay claims255265 - Regulatory & Tax Risk: The company is subject to extensive and varying regulation across multiple jurisdictions, and changes in tax laws, particularly the OECD's BEPS project and Bermuda's new Corporate Income Tax Act of 2023, could materially affect its future effective tax rate284313316318 Unresolved Staff Comments The company reports that it had no outstanding, unresolved comments from the SEC staff as of December 31, 2023 - At December 31, 2023, there were no outstanding, unresolved comments from the SEC staff341 Cybersecurity The company has implemented an enterprise-wide information security program, guided by the NIST Cybersecurity Framework, with Board oversight, and has not experienced a material cybersecurity incident - The company's cybersecurity risk management program is designed based on the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF)342 - The Chief Information Security Officer (CISO), with over 30 years of experience, leads the cybersecurity program, which is overseen by the Board of Directors and its Risk and Audit Committees through regular updates345 - The company has not experienced a material cybersecurity incident but acknowledges that risks such as ransomware or operational disruptions, if realized, could have a material impact343 Properties The company maintains leased office facilities globally, with its headquarters in Bermuda, and believes its current space is sufficient for future operations - The company's global headquarters is located at AXIS House, 92 Pitts Bay Road, Pembroke HM 08, Bermuda, and it maintains leased office facilities in its key operating regions346 Legal Proceedings The company is subject to routine legal proceedings in the ordinary course of business, with estimated amounts included in loss reserves, and no material legal proceedings outside this scope - The company is not party to any material legal proceedings arising outside the ordinary course of business, with routine legal matters included in loss reserves347 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common shares trade on the NYSE, it has a history of paying quarterly dividends, and a share repurchase program was authorized for 2023 and renewed for 2024 - The company's common shares trade on the NYSE under the symbol "AXS"350 - A share repurchase program for up to $100 million was authorized for 2023 and renewed for 2024, with no shares repurchased under this program in Q4 2023352 Shareholder Return Comparison (Value of $100 Invested on 12/31/2018) | Company/Index | 12/31/2023 | | :--- | :--- | | AXIS Capital Holdings Limited | $126.18 | | S&P 500 P&C Index | $211.53 | | S&P 500 Index | $207.21 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, AXIS Capital reported net income of $346 million and operating income of $486 million, with gross premiums written increasing slightly to $8.4 billion despite a higher combined ratio of 99.9% due to adverse prior year reserve development 2023 Financial Highlights | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Income to Common Shareholders | $346 million | $193 million | | Operating Income | $486 million | $498 million | | Gross Premiums Written | $8.4 billion | $8.2 billion | | Combined Ratio | 99.9% | 95.8% | | Net Investment Income | $612 million | $419 million | | Book Value per Diluted Share | $54.06 | $46.95 | - The company entered into a significant retrocession agreement with Monarch Point Re, effective January 1, 2023, covering a diversified portfolio of casualty reinsurance business on both a prospective and retroactive basis368 - The Bermuda government enacted a corporate income tax effective for accounting periods starting on or after January 1, 2025, which is expected to have a material impact on the company's future effective tax rate370 Consolidated Results of Operations Consolidated Underwriting Results | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Premiums Earned | $5,083.8M | $5,160.3M | | Underwriting Income | $160.8M | $358.7M | | Net Losses and Loss Expenses Ratio | 66.7% | 62.8% | | Acquisition Cost Ratio | 19.7% | 19.8% | | General and Administrative Expense Ratio | 13.5% | 13.2% | | Combined Ratio | 99.9% | 95.8% | - The increase in the combined ratio to 99.9% in 2023 was primarily driven by an 8.1 percentage point impact from net adverse prior year reserve development, partially offset by a decrease in the catastrophe and weather-related loss ratio375 Results by Segment - Insurance Segment: Gross premiums written grew 10% to $6.1 billion, driven by property, marine & aviation, and liability lines, but underwriting income decreased to $261 million from $327 million in 2022, with the combined ratio increasing to 92.5% from 89.6% due to $176 million of net adverse prior year reserve development378381 - Reinsurance Segment: Gross premiums written decreased 16% to $2.2 billion due to the exit from catastrophe and property lines, resulting in an underwriting loss of $100 million (from $31 million income in 2022) and a combined ratio deterioration to 107.6% from 99.1%, driven by $236 million of net adverse prior year reserve development392393 Cash and Investments Investment Portfolio Composition (Fair Value) | Asset Class | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Fixed maturities, available for sale | $12,234.7M | $11,326.9M | | Equity securities | $588.5M | $485.3M | | Other investments | $949.4M | $996.8M | | Cash and cash equivalents | $1,384.0M | $1,174.7M | | Total Cash and Investments | $16,650.5M | $15,504.3M | - The fixed maturities portfolio maintained a weighted average credit rating of AA- and an average duration of 3.0 years at year-end 2023, consistent with the prior year462 - Gross unrealized losses on the fixed maturities portfolio decreased significantly to $481 million at year-end 2023 from $857 million at year-end 2022, reflecting the impact of declining yields and tightening credit spreads478 Liquidity and Capital Resources Capital Structure (in millions) | Component | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Debt | $1,313.7 | $1,312.3 | | Preferred shares | $550.0 | $550.0 | | Common equity | $4,713.2 | $4,089.9 | | Total capital | $6,576.9 | $5,952.2 | | Ratio of debt to total capital | 20.0% | 22.0% | - Net cash provided by operating activities increased to $1.26 billion in 2023 from $798 million in 2022, primarily due to higher interest and dividends received and an increase in premiums received493494 - The company's principal operating subsidiaries maintain strong financial strength ratings, including 'A+' (Stable) from Standard & Poor's and 'A' (Stable) from A.M. Best519520 Critical Accounting Estimates - The most significant accounting judgment is the estimate of reserves for losses and loss expenses, representing management's estimate of the ultimate liability for insured events, involving complex estimates for both reported and incurred but not reported (IBNR) claims526 - The company uses multiple actuarial methods, including Expected Loss Ratio (ELR), Loss Development, and Bornhuetter-Ferguson (BF) methods, to estimate reserves, with key assumptions including expected loss ratios and loss development patterns893894895 - A sensitivity analysis shows that a 10% higher expected loss ratio in the Insurance Professional Lines business could increase gross loss reserves by approximately $199 million, while a 6-month shorter development pattern could decrease them by a similar amount552 Quantitative and Qualitative Disclosure About Market Risk The company is exposed to market risks from interest rate, credit spread, equity price, and foreign currency fluctuations, which are managed through various strategies - A hypothetical 100 basis point increase in interest rates would result in a potential pre-tax adverse change in the fair value of fixed maturities of $382 million, with an additional $229 million adverse change from a 100 basis point widening of credit spreads598 - A 20% decline in the market prices of the company's equity exposures would result in a pre-tax impact of $59 million as of December 31, 2023601 - The company's total net foreign currency exposure was $(106.4) million, or (2.0)% of total shareholders' equity, at December 31, 2023603 Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2023, including balance sheets, statements of operations, and cash flows, with the estimation of loss reserves identified as a critical audit matter Consolidated Balance Sheet Highlights (in millions) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Investments | $15,261.0 | $14,353.3 | | Total Assets | $30,250.7 | $27,683.0 | | Reserve for Losses and Loss Expenses | $16,434.0 | $15,168.9 | | Total Liabilities | $24,987.5 | $23,043.1 | | Total Shareholders' Equity | $5,263.2 | $4,639.9 | - The independent auditor, Deloitte Ltd., issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting, identifying the estimation of the reserve for losses and loss expenses as a critical audit matter621622626 Note 3 – Segment Information 2023 Underwriting Results by Segment (in thousands) | Metric | Insurance | Reinsurance | Total | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $6,140,764 | $2,215,761 | $8,356,525 | | Net Premiums Earned | $3,461,700 | $1,622,081 | $5,083,781 | | Underwriting Income (Loss) | $260,944 | $(100,182) | $160,762 | | Combined Ratio | 92.5% | 107.6% | 99.9% | Note 8 – Reserve for Losses and Loss Expenses - The gross reserve for losses and loss expenses increased to $16.4 billion at year-end 2023 from $15.2 billion in 2022, while the net reserve increased to $10.1 billion from $9.3 billion908912 - The company recorded $412 million of net adverse prior year reserve development in 2023, compared to $26 million of net favorable development in 2022, primarily driven by the Insurance Liability ($235 million) and Reinsurance Liability ($262 million) lines due to updated assumptions reflecting economic and social inflation trends in the U.S. casualty market918919932 Note 10 – Debt and Financing Arrangements Outstanding Debt (Principal) | Description | Maturity Date | Amount | | :--- | :--- | :--- | | 5.150% Senior Notes | April 1, 2045 | $250,000,000 | | 4.000% Senior Notes | December 6, 2027 | $350,000,000 | | 3.900% Senior Notes | July 15, 2029 | $300,000,000 | | 4.900% Junior Subordinated Notes | January 15, 2040 | $425,000,000 | - At December 31, 2023, the company had a $500 million secured letter of credit facility with Citibank, with $325 million outstanding10881091 Note 18 – Related Party Transactions - The company engages in transactions with entities affiliated with Stone Point Capital, LLC, where a board member is CEO, including asset management services and investments in various funds116211631164 - On September 22, 2023, the company entered into a retrocession agreement with Monarch Point Re, a reinsurer jointly sponsored by AXIS and Stone Point, ceding $287 million in prospective premiums and recognizing a $76 million reinsurance recoverable on unpaid losses from the retroactive portion for 2023117011711172 - The company cedes reinsurance to Harrington Re, an entity over which it has significant influence, with ceded premiums of $298 million in 2023 and reinsurance recoverable on unpaid and paid losses of $933 million at year-end11751177 Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes identified - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 20231223 - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2023, a conclusion concurred with by the independent registered public accounting firm122412251229 PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's forthcoming definitive proxy statement - This section incorporates information by reference from the company's forthcoming definitive proxy statement1237 Executive Compensation Information regarding executive compensation is incorporated by reference from the company's forthcoming definitive proxy statement - This section incorporates information by reference from the company's forthcoming definitive proxy statement1238 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and related matters is incorporated by reference from the company's forthcoming definitive proxy statement - This section incorporates information by reference from the company's forthcoming definitive proxy statement1239 Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the company's forthcoming definitive proxy statement - This section incorporates information by reference from the company's forthcoming definitive proxy statement1240 Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's forthcoming definitive proxy statement - This section incorporates information by reference from the company's forthcoming definitive proxy statement1241 PART IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report, with many incorporated by reference - This item lists all financial statements, schedules, and exhibits included with or incorporated by reference into the Form 10-K1242 Form 10-K Summary The company indicates that there is no Form 10-K summary provided in this report - No Form 10-K summary is provided1257