10-Q
Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
OR
¨        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-31721
AXIS CAPITAL HOLDINGS LIMITED
(Exact name of registrant as specified in its charter)
BERMUDA
(State or other jurisdiction of incorporation or organization)
98-0395986
(I.R.S. Employer Identification No.)
92 Pitts Bay Road, Pembroke, Bermuda HM 08
(Address of principal executive offices and zip code)
(441) 496-2600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x    No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x  Accelerated filer  ¨   Non-accelerated filer  ¨  Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x
As of October 23, 2015, there were 96,392,995 Common Shares, $0.0125 par value per share, of the registrant outstanding.


Table of Contents




AXIS CAPITAL HOLDINGS LIMITED
INDEX TO FORM 10-Q


 
 
 
Page
 
PART I
 
 
Item 1.
Item 2.
Item 3.
Item 4.
 
PART II
 
 
Item 1.
Item 1A.
Item 2.
Item 6.
 



2
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PART I
FINANCIAL INFORMATION
This quarterly report contains forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the United States securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may”, “should”, “could”, “anticipate”, “estimate”, “expect”, “plan”, “believe”, “predict”, “potential” and “intend”. Forward-looking statements contained in this report may include information regarding our estimates of losses related to catastrophes and other large losses, measurements of potential losses in the fair value of our investment portfolio and derivative contracts, our expectations regarding pricing and other market conditions, our growth prospects, and valuations of the potential impact of movements in interest rates, equity prices, credit spreads and foreign currency rates. Forward-looking statements only reflect our expectations and are not guarantees of performance.
These statements involve risks, uncertainties and assumptions. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements. We believe that these factors include, but are not limited to, the following: 
•
the occurrence and magnitude of natural and man-made disasters,
•
actual claims exceeding our loss reserves,
•
general economic, capital and credit market conditions,
•
the failure of any of the loss limitation methods we employ,
•
the effects of emerging claims, coverage and regulatory issues, including uncertainty related to coverage definitions, limits, terms and conditions,
•
the failure of our cedants to adequately evaluate risks,
•
inability to obtain additional capital on favorable terms, or at all,
•
the loss of one or more key executives,
•
a decline in our ratings with rating agencies,
•
loss of business provided to us by our major brokers,
•
changes in accounting policies or practices,
•
the use of industry catastrophe models and changes to these models,
•
changes in governmental regulations,
•
increased competition,
•
changes in the political environment of certain countries in which we operate or underwrite business,
•
fluctuations in interest rates, credit spreads, equity prices and/or currency values,
•
the other matters set forth under Item 1A, ‘Risk Factors’ and Item 7, ‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’ included in our Annual Report on Form 10-K for the year ended December 31, 2014.
We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.




3
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ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS
 
 
Page  
 
 
Consolidated Balance Sheets at September 30, 2015 (Unaudited) and December 31, 2014
Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014 (Unaudited)
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and 2014 (Unaudited)
Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, 2015 and 2014 (Unaudited)
Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation and Accounting Policies
Note 2 - Segment Information
Note 3 - Goodwill and Intangibles
Note 4 - Investments
Note 5 - Fair Value Measurements
Note 6 - Derivative Instruments
Note 7 - Reserve for Losses and Loss Expenses
Note 8 - Share-Based Compensation
Note 9 - Earnings Per Common Share
Note 10 - Shareholders' Equity
Note 11 - Noncontrolling Interests
Note 12 - Debt and Financing Arrangements
Note 13 - Commitments and Contingencies
Note 14 - Other Comprehensive Loss
Note 15 - Reorganization and Related Expenses






4
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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2015 (UNAUDITED) AND DECEMBER 31, 2014
 
 
2015
 
2014
 
(in thousands)
Assets
 
 
 
Investments:
 
 
 
Fixed maturities, available for sale, at fair value
(Amortized cost 2015: $12,217,258; 2014: $12,185,973)
$
12,139,595

 
$
12,129,273

Equity securities, available for sale, at fair value
(Cost 2015: $685,462; 2014: $531,648)
689,157

 
567,707

Mortgage loans, held for investment, at amortized cost and fair value
129,431

 
—

Other investments, at fair value
800,319

 
965,465

Short-term investments, at amortized cost and fair value
7,152

 
107,534

Total investments
13,765,654

 
13,769,979

Cash and cash equivalents
992,253

 
921,830

Restricted cash and cash equivalents
188,220

 
287,865

Accrued interest receivable
75,375

 
83,070

Insurance and reinsurance premium balances receivable
2,169,581

 
1,808,620

Reinsurance recoverable on unpaid and paid losses
2,036,099

 
1,926,145

Deferred acquisition costs
544,178

 
466,987

Prepaid reinsurance premiums
416,451

 
351,441

Receivable for investments sold
7,220

 
169

Goodwill and intangible assets
87,329

 
88,960

Other assets
274,981

 
250,670

Total assets
$
20,557,341

 
$
19,955,736

 
 
 
 
Liabilities
 
 
 
Reserve for losses and loss expenses
$
9,703,583

 
$
9,596,797

Unearned premiums
3,107,348

 
2,735,376

Insurance and reinsurance balances payable
301,830

 
249,186

Senior notes
991,562

 
990,790

Payable for investments purchased
303,916

 
188,176

Other liabilities
322,736

 
315,471

Total liabilities
14,730,975

 
14,075,796

 
 
 
 
Shareholders’ equity
 
 
 
Preferred shares
627,843

 
627,843

Common shares (2015: 176,222; 2014: 175,478 shares issued and
2015: 96,049; 2014: 99,426 shares outstanding)
2,202

 
2,191

Additional paid-in capital
2,230,278

 
2,285,016

Accumulated other comprehensive loss
(117,593
)
 
(45,574
)
Retained earnings
6,093,897

 
5,715,504

Treasury shares, at cost (2015: 80,173; 2014: 76,052 shares)
(3,010,261
)
 
(2,763,859
)
Total shareholders’ equity attributable to AXIS Capital
5,826,366

 
5,821,121

Noncontrolling interests
—

 
58,819

Total shareholders’ equity
5,826,366

 
5,879,940

 
 
 
 
Total liabilities and shareholders’ equity
$
20,557,341

 
$
19,955,736


See accompanying notes to Consolidated Financial Statements.

5
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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 
Three months ended
 
Nine months ended
 
2015
 
2014
 
2015
 
2014
 
(in thousands, except for per share amounts)
Revenues
 
 
 
 
 
 
 
Net premiums earned
$
919,341

 
$
966,138

 
$
2,764,605

 
$
2,912,482

Net investment income
45,685

 
66,562

 
226,336

 
264,171

Other insurance related income
1,158

 
7,702

 
12,319

 
12,468

Termination fee received
280,000

 
—

 
280,000

 
—

Net realized investment gains (losses):
 
 
 
 
 
 
 
Other-than-temporary impairment (OTTI) losses
(32,301
)
 
(9,431
)
 
(62,762
)
 
(12,121
)
Other realized investment gains (losses)
(37,656
)
 
86,879

 
(60,856
)
 
133,450

Total net realized investment gains (losses)
(69,957
)
 
77,448

 
(123,618
)
 
121,329

Total revenues
1,176,227

 
1,117,850

 
3,159,642

 
3,310,450

 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
Net losses and loss expenses
560,387

 
552,064

 
1,652,868

 
1,662,097

Acquisition costs
182,744

 
185,950

 
537,549

 
549,848

General and administrative expenses
144,727

 
152,916

 
456,451

 
456,725

Foreign exchange gains
(28,088
)
 
(72,292
)
 
(69,200
)
 
(58,353
)
Interest expense and financing costs
12,918

 
20,344

 
38,114

 
56,913

Reorganization and related expenses
45,867

 
—

 
45,867

 
—

Total expenses
918,555

 
838,982

 
2,661,649

 
2,667,230

 
 
 
 
 
 
 
 
Income before income taxes
257,672

 
278,868

 
497,993

 
643,220

Income tax expense (benefit)
30

 
(4,098
)
 
1,155

 
9,527

Net income
257,642

 
282,966

 
496,838

 
633,693

Amounts attributable from noncontrolling interests
—

 
(6,160
)
 
—

 
(3,365
)
Net income attributable to AXIS Capital
257,642

 
289,126

 
496,838

 
637,058

Preferred share dividends
10,022

 
10,022

 
30,066

 
30,066

Net income available to common shareholders
$
247,620

 
$
279,104

 
$
466,772

 
$
606,992

 
 
 
 
 
 
 
 
Per share data
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
Basic net income
$
2.52

 
$
2.71

 
$
4.69

 
$
5.74

Diluted net income
$
2.50

 
$
2.68

 
$
4.65

 
$
5.68

Weighted average number of common shares outstanding - basic
98,226

 
102,945

 
99,464

 
105,683

Weighted average number of common shares outstanding - diluted
99,124

 
104,247

 
100,468

 
106,953

Cash dividends declared per common share
$
0.29

 
$
0.27

 
$
0.87

 
$
0.81




See accompanying notes to Consolidated Financial Statements.

6
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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
 
 
Three months ended
 
Nine months ended
 
2015
 
2014
 
2015
 
2014
 
(in thousands)
Net income
$
257,642

 
$
282,966

 
$
496,838

 
$
633,693

Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
Available for sale investments:
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
(99,711
)
 
(167,060
)
 
(176,938
)
 
24,874

Adjustment for reclassification of net realized investment gains (losses) and OTTI losses recognized in net income
74,810

 
(72,670
)
 
128,770

 
(116,213
)
Unrealized losses arising during the period, net of reclassification adjustment
(24,901
)
 
(239,730
)
 
(48,168
)
 
(91,339
)
Foreign currency translation adjustment
(14,626
)
 
(10,000
)
 
(23,851
)
 
(3,551
)
Total other comprehensive loss, net of tax
(39,527
)
 
(249,730
)
 
(72,019
)
 
(94,890
)
Comprehensive income
218,115

 
33,236

 
424,819

 
538,803

Amounts attributable from noncontrolling interests
—

 
(6,160
)
 
—

 
(3,365
)
Comprehensive income attributable to AXIS Capital
$
218,115

 
$
39,396

 
$
424,819

 
$
542,168




See accompanying notes to Consolidated Financial Statements.

7
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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
 
2015
 
2014
 
(in thousands)
Preferred shares
 
 
 
Balance at beginning and end of period
$
627,843

 
$
627,843

 
 
 
 
Common shares (par value)
 
 
 
Balance at beginning of period
2,191

 
2,174

Shares issued
11

 
16

Balance at end of period
2,202

 
2,190

 
 
 
 
Additional paid-in capital
 
 
 
Balance at beginning of period
2,285,016

 
2,240,125

Shares issued - common shares
2,472

 
1,138

Cost of treasury shares reissued
(17,674
)
 
(11,711
)
Unsettled accelerated share repurchase
(60,000
)
 
—

Stock options exercised
558

 
3,898

Share-based compensation expense
19,906

 
39,660

Balance at end of period
2,230,278

 
2,273,110

 
 
 
 
Accumulated other comprehensive income (loss)
 
 
 
Balance at beginning of period
(45,574
)
 
117,825

Unrealized gains (losses) on available for sale investments, net of tax:
 
 
 
Balance at beginning of period
(28,192
)
 
124,945

Unrealized losses arising during the period, net of reclassification adjustment
(48,168
)
 
(91,339
)
Non-credit portion of OTTI losses
—

 
—

Balance at end of period
(76,360
)
 
33,606

Cumulative foreign currency translation adjustments, net of tax:
 
 
 
Balance at beginning of period
(17,382
)
 
(7,120
)
Foreign currency translation adjustments
(23,851
)
 
(3,551
)
Balance at end of period
(41,233
)
 
(10,671
)
Balance at end of period
(117,593
)
 
22,935

 
 
 
 
Retained earnings
 
 
 
Balance at beginning of period
5,715,504

 
5,062,706

Net income
496,838

 
633,693

Amounts attributable from noncontrolling interests
—

 
3,365

Preferred share dividends
(30,066
)
 
(30,066
)
Common share dividends
(88,379
)
 
(87,756
)
Balance at end of period
6,093,897

 
5,581,942

 
 
 
 
Treasury shares, at cost
 
 
 
Balance at beginning of period
(2,763,859
)
 
(2,232,711
)
Shares repurchased for treasury
(264,076
)
 
(468,531
)
Cost of treasury shares reissued
17,674

 
11,711

Balance at end of period
(3,010,261
)
 
(2,689,531
)
 
 
 
 
Total shareholders’ equity attributable to AXIS Capital
5,826,366

 
5,818,489

Noncontrolling interests
—

 
61,635

Total shareholders' equity
$
5,826,366

 
$
5,880,124

 
 
 
 

See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
 
2015
 
2014
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
496,838

 
$
633,693

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Net realized investment losses (gains)
123,618

 
(121,329
)
Net realized and unrealized gains on other investments
(17,616
)
 
(45,868
)
Amortization of fixed maturities
75,645

 
84,412

Other amortization and depreciation
26,219

 
17,669

Share-based compensation expense, net of cash payments
25,435

 
45,074

Changes in:
 
 
 
Accrued interest receivable
7,128

 
5,231

Reinsurance recoverable balances
(158,362
)
 
(26,419
)
Deferred acquisition costs
(77,348
)
 
(100,461
)
Prepaid reinsurance premiums
(69,016
)
 
(22,271
)
Reserve for loss and loss expenses
212,066

 
184,881

Unearned premiums
380,610

 
458,058

Insurance and reinsurance balances, net
(330,128
)
 
(412,603
)
Other items
7,841

 
35,674

Net cash provided by operating activities
702,930

 
735,741

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of:
 
 
 
Fixed maturities
(8,110,841
)
 
(8,782,175
)
Equity securities
(240,415
)
 
(510,332
)
Mortgage loans

(129,431
)
 
—

Other investments
(61,591
)
 
(60,272
)
Short-term investments
(34,147
)
 
(562,427
)
Proceeds from the sale of:
 
 
 
Fixed maturities
6,797,585

 
7,625,717

Equity securities
112,794

 
597,820

Other investments
244,353

 
205,112

Short-term investments
112,694

 
429,679

Proceeds from redemption of fixed maturities
1,107,175

 
785,183

Proceeds from redemption of short-term investments
22,337

 
64,071

Purchase of other assets
(18,401
)
 
(20,306
)
Change in restricted cash and cash equivalents
99,645

 
(52,884
)
Impact of the deconsolidation of a variable interest entity

(71,649
)
 
—

Net cash used in investing activities
(169,892
)
 
(280,814
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Dividends paid - common shares
(89,611
)
 
(90,092
)
Repurchase of common shares
(332,097
)
 
(468,531
)
Dividends paid - preferred shares
(30,066
)
 
(30,066
)
Proceeds from issuance of common shares
3,042

 
5,052

Net proceeds from issuance of senior notes
—

 
494,344

Sales of shares to noncontrolling interests
—

 
25,000

Return of capital to noncontrolling interests
—

 
(10,000
)
Net cash used in financing activities
(448,732
)
 
(74,293
)
 
 
 
 
Effect of exchange rate changes on foreign currency cash and cash equivalents
(13,883
)
 
(13,583
)
Increase in cash and cash equivalents
70,423

 
367,051

Cash and cash equivalents - beginning of period
921,830

 
923,326

Cash and cash equivalents - end of period
$
992,253

 
$
1,290,377

 
 
 
 

See accompanying notes to Consolidated Financial Statements.

9

Table of Contents
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1.
BASIS OF PRESENTATION AND ACCOUNTING POLICIES 

Basis of Presentation

These interim consolidated financial statements include the accounts of AXIS Capital Holdings Limited (“AXIS Capital”) and its subsidiaries (herein referred to as “we,” “us,” “our,” or the “Company”).

The consolidated balance sheet at September 30, 2015 and the consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for the periods ended September 30, 2015 and 2014 have not been audited. The balance sheet at December 31, 2014 is derived from our audited financial statements.

These financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) for interim financial information and with the Securities and Exchange Commission's (“SEC”) instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of our financial position and results of operations for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year. All inter-company accounts and transactions have been eliminated.

The following information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014. Tabular dollar and share amounts are in thousands, except per share amounts. All amounts are reported in U.S. dollars.

Significant Accounting Policies

There were no notable changes in our significant accounting policies subsequent to our Annual Report on Form 10-K for the year ended December 31, 2014, with the exception of the addition to our accounting policy for mortgage loans held-for-investment noted below.

Mortgage Loans Held-For-Investment

Mortgage loans held-for-investment are stated at amortized cost calculated as the unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, and are net of valuation allowances.  Interest income and prepayment fees are recognized when earned.  Interest income is recognized using an effective yield method giving effect to the amortization of premiums and accretion of discounts.

New Accounting Standards Adopted in 2015

Consolidation

During the second quarter of 2015, the Company early adopted the Accounting Standards Update (“ASU”) 2015-02, “Amendments to the Consolidation Analysis” issued by the Financial Accounting Standards Board (the “FASB”). The adoption of this amended accounting guidance resulted in the Company concluding that it no longer had a variable interest in AXIS Ventures Reinsurance Limited (“Ventures Re”) and therefore it was no longer required to consolidate the results of operations and the financial position of Ventures Re in its Consolidated Financial Statements. The Company adopted this revised accounting guidance using the modified retrospective approach and ceased to consolidate Ventures Re effective as of January 1, 2015. There was no impact from the adoption of ASU 2015-02 on the Company’s cumulative retained earnings. Refer to Note 11 to the Consolidated Financial Statements "Noncontrolling Interests" for more information.

The new consolidation guidance did not have an impact on any other investments currently held by the Company.




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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.
BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)

Recently Issued Accounting Standards Not Yet Adopted

Disclosures About Short-Duration Contracts

In May 2015, the FASB issued new guidance making targeted improvements to existing disclosure requirements for short-duration contracts. The guidance requires insurance entities to disclose additional information about the liability for unpaid claims and claim adjustment expenses. The guidance is effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016, with early adoption permitted. The guidance will be applied retrospectively. As the new guidance is disclosure-related only, the adoption of this guidance is not expected to impact our results of operations, financial condition or liquidity.

Investments Measured Using The Net Asset Value Per Share ("NAV") Practical Expedient

In May 2015, the FASB issued new guidance eliminating the requirement to categorize investments measured using the NAV practical expedient in the fair value hierarchy table. This guidance is effective for reporting periods beginning after December 15, 2015, with early adoption permitted. The guidance will be applied retrospectively. As the new guidance is disclosure-related only, the adoption of this guidance is not expected to impact our results of operations, financial condition or liquidity.

2.
SEGMENT INFORMATION

Our underwriting operations are organized around our global underwriting platforms, AXIS Insurance and AXIS Re. Therefore we have determined that we have two reportable segments, insurance and reinsurance. We do not allocate our assets by segment, with the exception of goodwill and intangible assets, as we evaluate the underwriting results of each segment separately from the results of our investment portfolio.



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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2.
SEGMENT INFORMATION (CONTINUED)


The following tables summarize the underwriting results of our reportable segments, as well as the carrying values of allocated goodwill and intangible assets:
 
  
2015
 
2014
 
 
Three months ended and at September 30,
Insurance
 
Reinsurance
 
Total
 
Insurance
 
Reinsurance
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
$
606,704

 
$
329,879

 
$
936,583

 
$
555,283

 
$
341,531

 
$
896,814

 
 
Net premiums written
381,118

 
296,099

 
677,217

 
363,571

 
323,652

 
687,223

 
 
Net premiums earned
444,550

 
474,791

 
919,341

 
461,805

 
504,333

 
966,138

 
 
Other insurance related income
542

 
616

 
1,158

 
—

 
7,702

 
7,702

 
 
Net losses and loss expenses
(283,272
)
 
(277,115
)
 
(560,387
)
 
(289,207
)
 
(262,857
)
 
(552,064
)
 
 
Acquisition costs
(69,118
)
 
(113,626
)
 
(182,744
)
 
(71,264
)
 
(114,686
)
 
(185,950
)
 
 
General and administrative expenses
(85,814
)
 
(35,309
)
 
(121,123
)
 
(85,750
)
 
(36,612
)
 
(122,362
)
 
 
Underwriting income
$
6,888

 
$
49,357

 
56,245

 
$
15,584

 
$
97,880

 
113,464

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate expenses
 
 
 
 
(23,604
)
 
 
 
 
 
(30,554
)
 
 
Net investment income
 
 
 
 
45,685

 
 
 
 
 
66,562

 
 
Net realized investment gains (losses)
 
 
 
 
(69,957
)
 
 
 
 
 
77,448

 
 
Foreign exchange gains
 
 
 
 
28,088

 
 
 
 
 
72,292

 
 
Interest expense and financing costs
 
 
 
 
(12,918
)
 
 
 
 
 
(20,344
)
 
 
Termination fee received
 
 
 
 
280,000

 
 
 
 
 
—

 
 
Reorganization and related expenses
 
 
 
 
(45,867
)
 
 
 
 
 
—

 
 
Income before income taxes
 
 
 
 
$
257,672

 
 
 
 
 
$
278,868

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss and loss expense ratio
63.7
%
 
58.4
%
 
61.0
%
 
62.6
%
 
52.1
%
 
57.1
%
 
 
Acquisition cost ratio
15.5
%
 
23.9
%
 
19.9
%
 
15.4
%
 
22.7
%
 
19.2
%
 
 
General and administrative expense ratio
19.4
%
 
7.4
%
 
15.7
%
 
18.6
%
 
7.3
%
 
15.9
%
 
 
Combined ratio
98.6
%
 
89.7
%
 
96.6
%
 
96.6
%
 
82.1
%
 
92.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and intangible assets
$
87,329

 
$
—

 
$
87,329

 
$
88,740

 
$
—

 
$
88,740

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  



12
Table of Contents

AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2.
SEGMENT INFORMATION (CONTINUED)

 
  
2015
 
2014
 
 
Nine months ended and at September 30,
Insurance
 
Reinsurance
 
Total
 
Insurance
 
Reinsurance
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
$
1,970,554

 
$
1,833,374

 
$
3,803,928

 
$
1,911,102

 
$
2,038,377

 
$
3,949,479

 
 
Net premiums written
1,352,122

 
1,727,185

 
3,079,307

 
1,361,351

 
1,990,607

 
3,351,958

 
 
Net premiums earned
1,344,339

 
1,420,266

 
2,764,605

 
1,368,683

 
1,543,799

 
2,912,482

 
 
Other insurance related income
811

 
11,508

 
12,319

 
—

 
12,468

 
12,468

 
 
Net losses and loss expenses
(866,580
)
 
(786,288
)
 
(1,652,868
)
 
(859,093
)
 
(803,004
)
 
(1,662,097
)
 
 
Acquisition costs
(200,493
)
 
(337,056
)
 
(537,549
)
 
(207,360
)
 
(342,488
)
 
(549,848
)
 
 
General and administrative expenses
(261,924
)
 
(110,701
)
 
(372,625
)
 
(257,208
)
 
(106,987
)
 
(364,195
)
 
 
Underwriting income
$
16,153

 
$
197,729

 
213,882

 
$
45,022

 
$
303,788

 
348,810

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate expenses
 
 
 
 
(83,826
)
 
 
 
 
 
(92,530
)
 
 
Net investment income
 
 
 
 
226,336

 
 
 
 
 
264,171

 
 
Net realized investment gains (losses)
 
 
 
 
(123,618
)
 
 
 
 
 
121,329

 
 
Foreign exchange gains
 
 
 
 
69,200

 
 
 
 
 
58,353

 
 
Interest expense and financing costs
 
 
 
 
(38,114
)
 
 
 
 
 
(56,913
)
 
 
Termination fee received
 
 
 
 
280,000

 
 
 
 
 
—

 
 
Reorganization and related expenses
 
 
 
 
(45,867
)
 
 
 
 
 
—

 
 
Income before income taxes
 
 
 
 
$
497,993

 
 
 
 
 
$
643,220

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss and loss expense ratio
64.5
%
 
55.4
%
 
59.8
%
 
62.8
%
 
52.0
%
 
57.1
%
 
 
Acquisition cost ratio
14.9
%
 
23.7
%
 
19.4
%
 
15.2
%
 
22.2
%
 
18.9
%
 
 
General and administrative expense ratio
19.5
%
 
7.8
%
 
16.5
%
 
18.7
%
 
6.9
%
 
15.6
%
 
 
Combined ratio
98.9
%
 
86.9
%
 
95.7
%
 
96.7
%
 
81.1
%
 
91.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and intangible assets
$
87,329

 
$
—

 
$
87,329

 
$
88,740

 
$
—

 
$
88,740

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

3.
GOODWILL AND INTANGIBLES

On April 1, 2015, the Company announced that it completed the acquisition of Ternian Insurance Group LLC ("Ternian"), a leading provider of voluntary, limited benefit affordable health plans and other employee benefits coverage for hourly and part-time workers and their families. The Company recognized intangible assets of $13 million associated with this acquisition.

During September 2015, as part of its profitability enhancement initiatives, the Company decided to wind-down all of its retail insurance operations in Australia. As a result of this decision, the Company recognized an impairment of an associated finite-lived intangible asset. The impaired intangible asset related to the purchase of an Australian distribution network in 2009, and had an initial expected useful life of thirty years. The impairment expense of $13 million has been included as part of the reorganization and related expenses in the Consolidated Statement of Operations.



13
Table of Contents

AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.
GOODWILL AND INTANGIBLES (CONTINUED)


The following table shows an analysis of goodwill and intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
Intangible
assets with an
indefinite life
 
Intangible
assets with a
finite life
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net balance at December 31, 2014
$
47,148

 
$
26,036

 
$
15,776

 
$
88,960

 
 
Acquisition of Ternian
—

 
—

 
13,330

 
13,330

 
 
Amortization
n/a

 
n/a

 
(2,022
)
 
(2,022
)
 
 
Impairment charges
—

 
—

 
(12,939
)
 
(12,939
)
 
 
Net balance at September 30, 2015
$
47,148

 
$
26,036

 
$
14,145

 
$
87,329

 
 
 
 
 
 
 
 
 
 
 
 
Gross balance at September 30, 2015
$
42,237

 
$
26,036

 
$
29,166

 
$
97,439

 
 
Accumulated amortization
n/a

 
n/a

 
(15,021
)
 
(15,021
)
 
 
Foreign currency translation adjustment
4,911

 
—

 
—

 
4,911

 
 
Net balance at September 30, 2015
$
47,148

 
$
26,036

 
$
14,145

 
$
87,329

 
 
 
 
 
 
 
 
 
 
 
n/a – not applicable
We estimate that the amortization expense for our total intangible assets with a finite life for the next three months will be less than $1 million and annual amortization expense for 2016 through 2018 will be approximately $2 million and 2019 through 2020 will be approximately $1 million each year. The estimated remaining useful lives of these assets range from three to nine years.
Intangible assets with an indefinite life consist primarily of U.S. state licenses that provide a legal right to transact business indefinitely.




14
Table of Contents

AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.
INVESTMENTS

a)     Fixed Maturities and Equities

The amortized cost or cost and fair values of our fixed maturities and equities were as follows:
 
 
Amortized
Cost or
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Non-credit
OTTI
in AOCI(5)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,867,800

 
$
9,517

 
$
(12,859
)
 
$
1,864,458

 
$
—

 
 
Non-U.S. government
835,965

 
3,888

 
(67,139
)
 
772,714

 
—

 
 
Corporate debt
4,540,189

 
29,437

 
(77,543
)
 
4,492,083

 
—

 
 
Agency RMBS(1)
2,172,782

 
38,239

 
(3,313
)
 
2,207,708

 
—

 
 
CMBS(2)
1,069,887

 
11,623

 
(3,651
)
 
1,077,859

 
—

 
 
Non-Agency RMBS
103,180

 
2,173

 
(1,456
)
 
103,897

 
(886
)
 
 
ABS(3)
1,448,536

 
2,138

 
(11,451
)
 
1,439,223

 
—

 
 
Municipals(4)
178,919

 
3,780

 
(1,046
)
 
181,653

 
—

 
 
Total fixed maturities
$
12,217,258

 
$
100,795

 
$
(178,458
)
 
$
12,139,595

 
$
(886
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Exchange-traded funds
563,262

 
21,835

 
(17,704
)
 
567,393

 
 
 
 
Bond mutual funds
122,200

 
—

 
(436
)
 
121,764

 
 
 
 
Total equity securities
$
685,462

 
$
21,835

 
$
(18,140
)
 
$
689,157

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,645,068

 
$
3,337

 
$
(28,328
)
 
$
1,620,077

 
$
—

 
 
Non-U.S. government
1,080,601

 
7,383

 
(54,441
)
 
1,033,543

 
—

 
 
Corporate debt
4,386,432

 
40,972

 
(66,280
)
 
4,361,124

 
—

 
 
Agency RMBS(1)
2,241,581

 
40,762

 
(4,235
)
 
2,278,108

 
—

 
 
CMBS(2)
1,085,618

 
13,289

 
(2,019
)
 
1,096,888

 
—

 
 
Non-Agency RMBS
71,236

 
2,765

 
(915
)
 
73,086

 
(889
)
 
 
ABS(3)
1,475,026

 
2,748

 
(16,188
)
 
1,461,586

 
—

 
 
Municipals(4)
200,411

 
5,282

 
(832
)
 
204,861

 
—

 
 
Total fixed maturities
$
12,185,973

 
$
116,538

 
$
(173,238
)
 
$
12,129,273

 
$
(889
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Exchange-traded funds
416,063

 
43,583

 
(4,756
)
 
454,890

 
 
 
 
Bond mutual funds
115,585

 
—

 
(2,768
)
 
112,817

 
 
 
 
Total equity securities
$
531,648

 
$
43,583

 
$
(7,524
)
 
$
567,707

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Residential mortgage-backed securities (RMBS) originated by U.S. agencies.
(2)
Commercial mortgage-backed securities (CMBS).
(3)
Asset-backed securities (ABS) include debt tranched securities collateralized primarily by auto loans, student loans, credit cards, and other asset types. This asset class also includes collateralized loan obligations (CLOs) and collateralized debt obligations (CDOs).
(4)
Municipals include bonds issued by states, municipalities and political subdivisions.
(5)
Represents the non-credit component of the other-than-temporary impairment (OTTI) losses, adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment measurement date.

In the normal course of investing activities, we actively manage allocations to non-controlling tranches of structured securities (variable interests) issued by VIEs. These structured securities include RMBS, CMBS and ABS and are included in the above table. Additionally, within our other investments portfolio, we also invest in limited partnerships (hedge funds and drawdown funds) and



15
Table of Contents

AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.
INVESTMENTS (CONTINUED)

CLO equity tranched securities, which are all variable interests issued by VIEs (see Note 4(c)). For these variable interests, we do not have the power to direct the activities that are most significant to the economic performance of the VIEs and accordingly we are not the primary beneficiary for any of these VIEs. Our maximum exposure to loss on these interests is limited to the amount of our investment. We have not provided financial or other support with respect to these structured securities other than our original investment.

Contractual Maturities

The contractual maturities of fixed maturities are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
Amortized
Cost
 
Fair
Value
 
% of Total
Fair Value
 
 
 
 
 
 
 
 
 
 
At September 30, 2015
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
430,729

 
$
428,014

 
3.4
%
 
 
Due after one year through five years
4,472,042

 
4,429,743

 
36.5
%
 
 
Due after five years through ten years
2,209,980

 
2,149,330

 
17.7
%
 
 
Due after ten years
310,122

 
303,821

 
2.5
%
 
 
 
7,422,873

 
7,310,908

 
60.1
%
 
 
Agency RMBS
2,172,782

 
2,207,708

 
18.2
%
 
 
CMBS
1,069,887

 
1,077,859

 
8.9
%
 
 
Non-Agency RMBS
103,180

 
103,897

 
0.9
%
 
 
ABS
1,448,536

 
1,439,223

 
11.9
%
 
 
Total
$
12,217,258

 
$
12,139,595

 
100.0
%
 
 
 
 
 
 
 
 
 
 
At December 31, 2014
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
424,077

 
$
423,265

 
3.5
%
 
 
Due after one year through five years
4,925,780

 
4,892,411

 
40.3
%
 
 
Due after five years through ten years
1,755,248

 
1,695,641

 
14.0
%
 
 
Due after ten years
207,407

 
208,288

 
1.7
%
 
 
 
7,312,512

 
7,219,605

 
59.5
%
 
 
Agency RMBS
2,241,581

 
2,278,108

 
18.8
%
 
 
CMBS
1,085,618

 
1,096,888

 
9.0
%
 
 
Non-Agency RMBS
71,236

 
73,086

 
0.6
%
 
 
ABS
1,475,026

 
1,461,586

 
12.1
%
 
 
Total
$
12,185,973

 
$
12,129,273

 
100.0
%
 
 
 
 
 
 
 
 
 




16
Table of Contents

AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.
INVESTMENTS (CONTINUED)

 Gross Unrealized Losses

The following table summarizes fixed maturities and equities in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
 
  
12 months or greater
 
Less than 12 months
 
Total
 
 
  
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
121,077

 
$
(8,479
)
 
$
582,387

 
$
(4,380
)
 
$
703,464

 
$
(12,859
)
 
 
Non-U.S. government
137,816

 
(46,343
)
 
269,400

 
(20,796
)
 
407,216

 
(67,139
)
 
 
Corporate debt
368,525

 
(34,296
)
 
2,056,431

 
(43,247
)
 
2,424,956

 
(77,543
)
 
 
Agency RMBS
67,859

 
(1,063
)
 
493,436

 
(2,250
)
 
561,295

 
(3,313
)
 
 
CMBS
75,560

 
(971
)
 
271,340

 
(2,680
)
 
346,900

 
(3,651
)
 
 
Non-Agency RMBS
6,294

 
(675
)
 
59,911

 
(781
)
 
66,205

 
(1,456
)
 
 
ABS
553,123

 
(8,703
)
 
489,771

 
(2,748
)
 
1,042,894

 
(11,451
)
 
 
Municipals
14,950

 
(647
)
 
32,970

 
(399
)
 
47,920

 
(1,046
)
 
 
Total fixed maturities
$
1,345,204

 
$
(101,177
)
 
$
4,255,646

 
$
(77,281
)
 
$
5,600,850

 
$
(178,458
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Exchange-traded funds
25,984

 
(4,141
)
 
281,414

 
(13,563
)
 
307,398

 
(17,704
)
 
 
Bond mutual funds
—

 
—

 
121,733

 
(436
)
 
121,733

 
(436
)
 
 
Total equity securities
$
25,984

 
$
(4,141
)
 
$
403,147

 
$
(13,999
)
 
$
429,131

 
$
(18,140
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
388,551

 
$
(24,319
)
 
$
786,850

 
$
(4,009
)
 
$
1,175,401

 
$
(28,328
)
 
 
Non-U.S. government
143,602

 
(29,171
)
 
435,670

 
(25,270
)
 
579,272

 
(54,441
)
 
 
Corporate debt
26,708

 
(2,221
)
 
2,199,672