Document
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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, 2018
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 every Interactive Data File required to be submitted 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 such files).  Yes  x  No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x           
    Accelerated filer  ¨  
Non-accelerated filer   ¨ 
 Smaller reporting company  ¨
 
Emerging growth company   ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x
At October 31, 2018, there were 83,579,276 Common Shares, $0.0125 par value per share, of the registrant outstanding.

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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 5.
Item 6.
 


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PART I
FINANCIAL INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. federal securities laws. All statements, other than statements of historical facts included in this report, including statements regarding our estimates, beliefs, expectations, intentions, strategies or projections are "forward-looking statements" to be covered by the safe harbor provisions for forward-looking statements in the U.S. federal 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" or similar expressions. These forward-looking statements are not historical facts, and are based upon current expectations, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond management's control. Forward-looking statements contained in this report may include, but are not limited to, information regarding our estimates of losses related to catastrophes and other large losses, measurements of potential losses in the fair market value of our investment portfolio and derivative contracts, performance of our business, our financial results, our liquidity and capital resources, the outcome of our strategic initiatives, our expectations regarding estimated synergies and the success of the integration of acquired entities, our expectations regarding the estimated benefits and synergies relating to the Company's transformation program, our expectations regarding pricing and other market conditions, our growth prospects, and valuations of the potential impact of movements in interest rates, equity securities 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 cyclical nature of the re(insurance) business leading to periods with excess underwriting capacity and unfavorable premium rates,
•
the occurrence and magnitude of natural and man-made disasters,
•
the impact of global climate change on our business, including the possibility that we do not adequately assess or reserve for the increased frequency and severity of natural catastrophes,
•
losses from war, terrorism and political unrest or other unanticipated losses,
•
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,
•
our inability to purchase reinsurance or collect amounts due to us,
•
the breach by third parties in our program business of their obligations to us,
•
difficulties with technology and/or data security,
•
the failure of our policyholders and intermediaries to pay premiums,
•
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 and credit risk due to our reliance on brokers,
•
changes in accounting policies or practices,
•
the use of industry catastrophe models and changes to these models,
•
changes in governmental regulations and potential government intervention in our industry,
•
failure to comply with certain laws and regulations relating to sanctions and foreign corrupt practices,
•
increased competition,


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•
changes in the political environment of certain countries in which we operate or underwrite business including the United Kingdom's expected withdrawal from the European Union,
•
fluctuations in interest rates, credit spreads, equity securities prices and/or currency values,
•
the failure to successfully integrate acquired businesses or realize the expected synergies resulting from such acquisitions,
•
the failure to realize the expected benefits or synergies relating to the Company's transformation program and the integration of Novae Group plc,
•
changes in tax laws, and
•
the other factors including but not limited to those 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, 2017 as those factors may be updated from time to time in our periodic and other filings with the SEC, which are accessible on the SEC's website at www.sec.gov.

We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Website and Social Media Disclosure

We use our website (www.axiscapital.com) and our corporate Twitter (@AXIS_Capital) and LinkedIn (AXIS Capital) accounts as channels of distribution of Company information. The information we post through these channels may be deemed material.  Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about AXIS Capital when you enroll your e-mail address by visiting the “E-mail Alerts” in the Investor Information section of our website (www.axiscapital.com). The contents of our website and social media channels are not, however, a part of this Quarterly Report on Form 10-Q.



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ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS
 
 
Page  
 
 
Consolidated Balance Sheets at September 30, 2018 (Unaudited) and December 31, 2017
Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (Unaudited)
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017 (Unaudited)
Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, 2018 and 2017 (Unaudited)
Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation and Significant Accounting Policies
Note 2 - Segment Information
Note 3 - Investments
Note 4 - Fair Value Measurements
Note 5 - Derivative Instruments
Note 6 - Reserve for Losses and Loss Expenses
Note 7 - Earnings Per Common Share
Note 8 - Share-Based Compensation
Note 9 - Shareholders' Equity
Note 10 - Debt and Financing Arrangements
Note 11 - Commitments and Contingencies
Note 12 - Other Comprehensive Income (Loss)
Note 13 - Subsequent Events





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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017
 
 
2018
 
2017
 
(in thousands)
Assets
 
 
 
Investments:
 
 
 
Fixed maturities, available for sale, at fair value
(Amortized cost 2018: $11,941,555; 2017: $12,611,219)
$
11,767,697

 
$
12,622,006

Equity securities, at fair value
(Cost 2018: $376,007; 2017: $552,867)
433,311

 
635,511

Mortgage loans, held for investment, at amortized cost and fair value
333,018

 
325,062

Other investments, at fair value
833,563

 
1,009,373

Equity method investments
112,155

 
108,597

Short-term investments, at amortized cost and fair value
156,090

 
83,661

Total investments
13,635,834

 
14,784,210

Cash and cash equivalents
1,053,604

 
948,626

Restricted cash and cash equivalents
698,798

 
415,160

Accrued interest receivable
76,000

 
81,223

Insurance and reinsurance premium balances receivable
3,463,360

 
3,012,419

Reinsurance recoverable on unpaid and paid losses
3,439,080

 
3,338,840

Deferred acquisition costs
682,785

 
474,061

Prepaid reinsurance premiums
1,114,039

 
809,274

Receivable for investments sold
2,140

 
11,621

Goodwill
102,003

 
102,003

Intangible assets
247,927

 
257,987

Value of business acquired
58,511

 
206,838

Other assets
268,945

 
317,915

Total assets
$
24,843,026

 
$
24,760,177

 
 
 
 
Liabilities
 
 
 
Reserve for losses and loss expenses
$
12,025,947

 
$
12,997,553

Unearned premiums
4,242,108

 
3,641,399

Insurance and reinsurance balances payable
1,301,580

 
899,064

Senior notes and notes payable
1,377,582

 
1,376,529

Payable for investments purchased
220,183

 
100,589

Other liabilities
403,354

 
403,779

Total liabilities
19,570,754

 
19,418,913

 
 
 
 
Shareholders’ equity
 
 
 
Preferred shares
775,000

 
775,000

Common shares (shares issued 2018: 176,580; 2017: 176,580
shares outstanding 2018: 83,557; 2017: 83,161)
2,206

 
2,206

Additional paid-in capital
2,304,107

 
2,299,166

Accumulated other comprehensive income (loss)
(162,312
)
 
92,382

Retained earnings
6,145,482

 
5,979,666

Treasury shares, at cost (2018: 93,023; 2017: 93,419 shares)
(3,792,211
)
 
(3,807,156
)
Total shareholders’ equity
5,272,272

 
5,341,264

 
 
 
 
Total liabilities and shareholders’ equity
$
24,843,026

 
$
24,760,177


See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

 
Three months ended
 
Nine months ended
 
2018
 
2017
 
2018
 
2017
 
(in thousands, except for per share amounts)
Revenues
 
 
 
 
 
 
 
Net premiums earned
$
1,224,075

 
$
1,017,131

 
$
3,577,026

 
$
2,937,265

Net investment income
114,421

 
95,169

 
325,380

 
299,899

Other insurance related income (losses)
8,475

 
(3,197
)
 
18,811

 
(4,420
)
Bargain purchase gain
—

 
—

 
—

 
15,044

Net investment gains (losses):
 
 
 
 
 
 
 
Other-than-temporary impairment ("OTTI") losses
(5,546
)
 
(5,412
)
 
(7,634
)
 
(13,493
)
Other realized and unrealized investment gains (losses)
(12,082
)
 
20,044

 
(69,917
)
 
(1,318
)
Total net investment gains (losses)
(17,628
)
 
14,632

 
(77,551
)
 
(14,811
)
Total revenues
1,329,343

 
1,123,735

 
3,843,666

 
3,232,977

 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
Net losses and loss expenses
794,959

 
1,235,367

 
2,162,945

 
2,447,640

Acquisition costs
248,314

 
194,724

 
709,527

 
588,879

General and administrative expenses
154,894

 
124,629

 
489,944

 
433,704

Foreign exchange losses
8,305

 
32,510

 
2,066

 
90,093

Interest expense and financing costs
16,897

 
12,835

 
50,758

 
38,377

Transaction and reorganization expenses
16,300

 
5,970

 
48,125

 
5,970

    Amortization of value of business acquired
39,018

 
—

 
149,535

 
—

    Amortization of intangible assets
1,753

 
—

 
8,564

 
—

Total expenses
1,280,440

 
1,606,035

 
3,621,464

 
3,604,663

 
 
 
 
 
 
 
 
Income (loss) before income taxes and interest in income (loss) of equity method investments
48,903

 
(482,300
)
 
222,202

 
(371,686
)
Income tax benefit
3,525

 
25,877

 
3,565

 
38,547

Interest in income (loss) of equity method investments
1,667

 
(661
)
 
5,045

 
(8,402
)
Net income (loss)
54,095

 
(457,084
)
 
230,812

 
(341,541
)
Preferred share dividends
10,656

 
10,656

 
31,969

 
36,154

Net income (loss) available (attributable) to common shareholders
$
43,439

 
$
(467,740
)
 
$
198,843

 
$
(377,695
)
 
 
 
 
 
 
 
 
Per share data
 
 
 
 
 
 
 
Net income (loss) per common share:
 
 
 
 
 
 
 
Basic net income (loss)
$
0.52

 
$
(5.61
)
 
$
2.38

 
$
(4.47
)
Diluted net income (loss)
$
0.52

 
$
(5.61
)
 
$
2.37

 
$
(4.47
)
Weighted average common shares outstanding - basic
83,558

 
83,305

 
83,474

 
84,479

Weighted average common shares outstanding - diluted
84,107

 
83,305

 
83,939

 
84,479

Cash dividends declared per common share
$
0.39

 
$
0.38

 
$
1.17

 
$
1.14

 
 
 
 
 
 
 
 



See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
 
 
Three months ended
 
Nine months ended
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
Net income (loss)
$
54,095

 
$
(457,084
)
 
$
230,812

 
$
(341,541
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Available for sale investments:
 
 
 
 
 
 
 
Unrealized investment gains (losses) arising during the period
(26,061
)
 
62,505

 
(257,521
)
 
206,461

Adjustment for reclassification of net realized investment (gains) losses and OTTI losses recognized in net income
25,924

 
(13,286
)
 
77,189

 
10,169

Unrealized investment gains (losses) arising during the period, net of reclassification adjustment
(137
)
 
49,219

 
(180,332
)
 
216,630

Foreign currency translation adjustment
994

 
8,088

 
(6,864
)
 
46,824

Total other comprehensive income (loss), net of tax
857

 
57,307

 
(187,196
)
 
263,454

Comprehensive income (loss)
$
54,952

 
$
(399,777
)
 
$
43,616

 
$
(78,087
)



See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
 
2018
 
2017
 
(in thousands)
Preferred shares
 
 
 
Balance at beginning of period
$
775,000

 
$
1,126,074

Shares repurchased
—

 
(351,074
)
Balance at end of period
775,000

 
775,000

 
 
 
 
Common shares (par value)
 
 
 
Balance at beginning and end of period
2,206

 
2,206

 
 
 
 
Additional paid-in capital
 
 
 
Balance at beginning of period
2,299,166

 
2,299,857

Treasury shares reissued
(21,935
)
 
(39,033
)
Share-based compensation expense
26,876

 
30,692

Balance at end of period
2,304,107

 
2,291,516

 
 
 
 
Accumulated other comprehensive income (loss)
 
 
 
Balance at beginning of period
92,382

 
(121,841
)
Unrealized gains (losses) on available for sale investments, net of tax:
 
 
 
Balance at beginning of period
89,962

 
(82,323
)
Cumulative effect of adoption of ASU No. 2018-02

2,106

 
—

Cumulative effect of adoption of ASU No. 2016-01, net of taxes
(69,604
)
 
—

Unrealized gains (losses) arising during the period
(180,332
)
 
216,630

Balance at end of period
(157,868
)
 
134,307

Cumulative foreign currency translation adjustments, net of tax:
 
 
 
Balance at beginning of period
2,420

 
(39,518
)
Foreign currency translation adjustment
(6,864
)
 
46,824

Balance at end of period
(4,444
)
 
7,306

Balance at end of period
(162,312
)
 
141,613

 
 
 
 
Retained earnings
 
 
 
Balance at beginning of period
5,979,666

 
6,527,627

Cumulative effect of adoption of ASU No. 2018-02
(2,106
)
 
—

Cumulative effect of adoption of ASU No. 2016-01, net of taxes
69,604

 
—

Net income (loss)
230,812

 
(341,541
)
Preferred share dividends
(31,969
)
 
(36,154
)
Common share dividends
(100,525
)
 
(98,273
)
Balance at end of period
6,145,482

 
6,051,659

 
 
 
 
Treasury shares, at cost
 
 
 
Balance at beginning of period
(3,807,156
)
 
(3,561,553
)
Shares repurchased
(8,699
)
 
(285,659
)
Shares reissued
23,644

 
39,917

Balance at end of period
(3,792,211
)
 
(3,807,295
)
 
 
 
 
Total shareholders’ equity
$
5,272,272

 
$
5,454,699

 
 
 
 


    


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, 2018 AND 2017
 
2018
 
2017
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income (loss)
$
230,812

 
$
(341,541
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
Net investment losses
71,799

 
14,811

Net realized and unrealized gains on other investments
(41,924
)
 
(56,759
)
Amortization of fixed maturities
20,547

 
32,528

Interest in income (loss) of equity method investments
(3,557
)
 
8,402

Amortization of value of business acquired
149,535

 
—

Other amortization and depreciation
32,934

 
19,279

Share-based compensation expense, net of cash payments
26,145

 
1,516

Non-cash foreign exchange losses

—

 
24,149

Bargain purchase gain
—

 
(15,044
)
Changes in:
 
 
 
Accrued interest receivable
1,085

 
8,730

Reinsurance recoverable balances
(419,226
)
 
60,522

Deferred acquisition costs
(214,500
)
 
(123,961
)
Prepaid reinsurance premiums
(311,498
)
 
(178,464
)
Reserve for loss and loss expenses
179,018

 
918,511

Unearned premiums
632,912

 
540,108

Insurance and reinsurance balances, net
(290,728
)
 
(465,436
)
Other items
67,813

 
(135,266
)
Net cash provided by operating activities
131,167

 
312,085

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of:
 
 
 
Fixed maturities
(6,707,576
)
 
(6,250,608
)
Equity securities
(59,040
)
 
(108,804
)
Mortgage loans
(78,079
)
 
(20,812
)
Other investments
(79,319
)
 
(135,526
)
Equity method investments
—

 
(1,000
)
Short-term investments
(285,103
)
 
(20,792
)
Proceeds from the sale of:
 
 
 
Fixed maturities
5,956,644

 
5,354,398

Equity securities
223,098

 
232,755

Other investments
211,395

 
203,896

Short-term investments
153,687

 
19,284

Proceeds from redemption of fixed maturities
982,010

 
1,546,998

Proceeds from redemption of short-term investments
37,831

 
116,261

Proceeds from the repayment of mortgage loans

70,481

 
10,702

Purchase of other assets
(16,918
)
 
(25,842
)
Purchase of subsidiary, net
—

 
(73,067
)
Net cash provided by investing activities
409,111

 
847,843

 
 
 
 
Cash flows from financing activities:
 
 
 
Repurchase of common shares - open market
—

 
(266,016
)
Taxes paid on withholding shares
(8,699
)
 
(24,480
)
Dividends paid - common shares
(100,770
)
 
(102,868
)
Repurchase of preferred shares
—

 
(351,074
)
Dividends paid - preferred shares
(31,969
)
 
(42,188
)
Net cash used in financing activities
(141,438
)
 
(786,626
)
 
 
 
 
Effect of exchange rate changes on foreign currency cash, cash equivalents, and restricted cash
(10,228
)
 
16,318

Increase in cash, cash equivalents, and restricted cash
388,612

 
389,620

Cash, cash equivalents, and restricted cash - beginning of period
1,363,786

 
1,241,507

Cash, cash equivalents, and restricted cash - end of period
$
1,752,398

 
$
1,631,127

 
 
 
 
 
 
 
 

See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

Supplemental disclosures of cash flow information:
 
 
 
Income taxes paid
$
12,108

 
$
8,993

Interest paid
$
42,856

 
$
34,188

 
 
 
 

Supplemental disclosures of cash flow information: Consideration related to an agreement for the Reinsurance to Close ("RITC") of the 2015 and prior years of account of Syndicate 2007 of $819 million was paid in the period of which $600 million was settled by way of a transfer of securities and was treated as a non-cash activity in the Consolidated Statement of Cash Flows. Also refer to Note 6 'Reserve for Losses and Loss Expenses'.

See accompanying notes to Consolidated Financial Statements.

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


1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These unaudited Consolidated Financial Statements (the "financial statements") have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the U.S. Securities and Exchange Commission's ("SEC") instructions to Form 10-Q and Article 10 of Regulation S-X and include AXIS Capital Holdings Limited ("AXIS Capital") and its subsidiaries (the "Company"). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. This Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and related notes included in AXIS Capital's Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC.

In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company's 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.

To facilitate comparison of information across periods, certain reclassifications have been made to prior year amounts to conform to the current year's presentation. These reclassifications did not impact results of operations, financial condition or liquidity.

Tabular dollar and share amounts are in thousands, except per share amounts. All amounts are reported in U.S. dollars.

Significant Accounting Policies

There was one notable change to the Company's significant accounting policies subsequent to its Annual Report on Form 10-K for the year ended December 31, 2017.

a)
Investments
Recognition and Measurement of Financial Assets and Financial Liabilities
Fixed maturities and equity securities are reported at fair value at the balance sheet date (see Note 4 'Fair Value Measurements'). Effective January 1, 2018, the Company adopted ASU 2016-01 "Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities," which:

•
requires equity investments (except those accounted for under the equity method of accounting, investments that are consolidated or those that meet a practicability exception) to be measured at fair value with changes in fair value recognized in net income,
•
simplifies the impairment assessment of equity investments without readily determinable values by requiring a qualitative assessment to identify impairment, eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost,
•
requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes,
•
requires separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liabilities in accordance with the fair value option,
•
requires the separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and
•
clarifies that the reporting organization should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the organization’s other deferred tax assets.

Upon adoption of this guidance, net unrealized investment gains on equity securities of $70 million, net of deferred income taxes of $13 million, were reclassified from accumulated other comprehensive income to retained earnings. As prescribed, the prior period has not been restated to conform to the current presentation.


12
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


New Accounting Standards Adopted in 2018

Revenue From Contracts With Customers

Effective January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2014-09 "Revenue from Contracts with Customers (Topic 606)," using the modified retrospective transition approach. This guidance affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards, such as accounting for insurance contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company generated fee income of $31 million for the nine months ended September 30, 2018 which is within the scope of this ASU. These fees represent service fees earned by the Company's reinsurance segment related to services provided to strategic capital partners and are recognized when the related services have been performed. Given that the timing and measurement of revenue associated with impacted contracts did not change, the adoption of this guidance did not have a material impact on the Company's results of operations, financial condition and liquidity.

Classification of Certain Cash Receipts and Cash Payments

Effective January 1, 2018, the Company adopted ASU 2016-15, "Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments," which addresses diversity in practice in how eight specific cash receipts and cash payments should be presented and classified on the statement of cash flows. The adoption of this guidance did not impact the Company's results of operations, financial condition and liquidity.

Restricted Cash

Effective January 1, 2018, the Company adopted ASU 2016-18, "Statement of Cash Flows (Topic 230) - Restricted Cash," which addresses diversity in practice in the classification and presentation of changes in restricted cash on the statement of cash flows. This guidance requires a statement of cash flows to explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. Transfers between cash and cash equivalents and restricted cash and restricted cash equivalents will no longer be presented on the statement of cash flows. To facilitate comparison of the Company's Consolidated Statements of Cash Flows, the Company adopted this guidance utilizing the full retrospective approach for all periods presented in the Company's Consolidated Financial Statements. As a result, the Company's Consolidated Statements of Cash Flows now explains the change during the period in the total of cash, cash equivalents, and restricted cash. Therefore, restricted cash is now included with cash and cash equivalents in the reconciliation of the beginning of period and end of period total amounts shown on the statement of cash flows. The adoption of this guidance did not impact the Company's results of operations, financial condition and liquidity.

Stock Compensation - Scope of Modification Accounting

Effective January 1, 2018, the Company adopted ASU 2017-09 "Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting," which provides clarity and reduces diversity in practice of applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award. This ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The guidance states that an entity should account for the effects of a modification unless all the following are met:

1.
the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified;
2.
the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.


13
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this Update. The adoption of this guidance did not impact the Company's results of operations, financial condition and liquidity.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

Effective January 1, 2018, the Company adopted ASU 2018-02 "Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" which was a response to a financial reporting issue that arose as a consequence of the U.S. federal government tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 ("U.S. Tax Reform"), which was enacted on December 22, 2017.

U.S. GAAP currently requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date. This guidance is applicable even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income rather than in income from continuing operations. As the adjustment of deferred taxes due to the reduction of the historical corporate income tax rate to the newly enacted corporate income tax rate is required to be included in income from continuing operations, the tax effects of items within accumulated other comprehensive income (referred to as stranded tax effects for purposes of this Update) do not reflect the appropriate tax rate.

The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from U.S. Tax Reform. Consequently, the amendments eliminate the stranded tax effects resulting from U.S. Tax Reform and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of U.S. Tax Reform, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected.

As a consequence of U.S. Tax Reform, the Company recognized a tax benefit of $2 million related to the revaluation of net deferred tax liabilities associated with the reduction in the U.S. corporate income tax rate from 35% to 21%, attributable to net unrealized investment gains associated with investments held by the Company's U.S. domiciled entities. Upon adoption of this guidance, the tax benefit of $2 million was reclassified from accumulated other comprehensive income into retained earnings.

Recently Issued Accounting Standards Not Yet Adopted

Leases

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" which provides a new comprehensive model for lease accounting. Topic 842 will require a lessee to recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.

In July 2018, the FASB issued ASU 2018-11, "Leases (Topic 842) - Targeted Improvements" which provides an additional (and optional) transition method to adopt the new lease guidance. Under the new transition method, companies will initially apply the new guidance by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result, a company's reporting for the comparative periods presented in the financial statements in which the company adopts the new lease guidance will continue to be in accordance with the current lease accounting standard (Topic 840). A company electing this additional (and optional) transition method must provide the required Topic 840 disclosures for all periods that continue to be in accordance with Topic 840. However, these amendments do not change the existing disclosure requirements in Topic 840, in particular these amendments do not create interim disclosure requirements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted.
 
The Company plans to adopt Topic 842 effective January 1, 2019, by electing the additional transition method provided in ASU 2018-11. The Company will also elect the package of practical expedients permitted under the transition guidance of Topic 842, which must be elected as a package and applied consistently to all leases. The package of practical expedients permits the Company not to reassess the following:


14
Table of Contents

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

1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


1.
whether any expired or existing contracts are or contain leases;
2.
the lease classification for any expired or existing leases; and
3.
initial direct costs for any existing leases.

In addition to electing the package of practical expedients, the Company will make an accounting policy election not to record leases with an initial term of 12 months or less (short-term) in the Company's Consolidated Balance Sheets. The Company will recognize expense for short-term lease payments on a straight-line basis over the lease term in the Company's Consolidated Statements of Operations. The Company continues to evaluate all potential impacts of this guidance and expects its adoption will result in a significant increase to assets and liabilities in the Company's Consolidated Balance Sheets related to existing office property and equipment leases. The adoption of this guidance will not impact the Company's results of operations and liquidity.

Measurement of Credit Losses on Financial Instrument

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments" which replaces the "incurred loss" impairment methodology with an approach based on "expected losses" to estimate credit losses on certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses. The guidance also provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. This guidance is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for interim and annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of this guidance on its results of operations, financial condition and liquidity.

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment" that eliminates the requirement to calculate the implied fair value of goodwill (i.e. Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, an impairment charge will be based on the excess of a reporting unit's carrying amount over its fair value (i.e. measure the charge based on Step 1 of the current goodwill impairment test). This guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019, with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The guidance will be adopted on a prospective basis.

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08 "Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities" which shortens the amortization period for certain purchased callable debt securities held at a premium. This guidance is effective for interim and annual reporting periods, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its results of operations, financial condition and liquidity.

Changes to Disclosures on Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13 "Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement" to improve the effectiveness of fair value measurement disclosures. This guidance is effective for interim and annual reporting periods, beginning after December 15, 2019, with early adoption permitted. As this guidance relates solely to financial statement disclosures, the adoption of ASU 2016-18, will not impact the Company's results of operations, financial condition and liquidity.


15
Table of Contents

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

2.
SEGMENT INFORMATION

AXIS Capital's underwriting operations are organized around its global underwriting platforms, AXIS Insurance and AXIS Re. The Company has determined that it has two reportable segments, insurance and reinsurance. The Company does not allocate its assets by segment, with the exception of goodwill and intangible assets, as it evaluates the underwriting results of each segment separately from the results of its investment portfolio.

During the three months ended March 31, 2018, the Company realigned its accident and health business by integrating this business and its operations into the Company's insurance and reinsurance segments. Financial results relating to the Company's accident and health lines of business were previously included in the Company's insurance segment. As a result of the realignment, accident and health results are included in the results of both the insurance and reinsurance segments of the Company with effect from January 1, 2018.

Insurance
The Company's insurance segment offers specialty insurance products to a variety of niche markets on a worldwide basis. The product lines in this segment are property, marine, terrorism, aviation, credit and political risk, professional lines, liability, accident and health, together with discontinued lines, which represents lines of business that Novae Group plc ("Novae") exited or placed into run-off in the three month periods ended December 31, 2016 and March 31, 2017.
 
Reinsurance
The Company's reinsurance segment provides treaty reinsurance to insurance companies on a worldwide basis. The product lines in this segment are catastrophe, property, professional lines, credit and surety, motor, liability, agriculture, engineering, marine and other, accident and health, together with discontinued lines, which represents lines of business that Novae exited or placed into run-off in the three month periods ended December 31, 2016 and March 31, 2017. The reinsurance segment also wrote derivative based risk management products designed to address weather and commodity price risks until July 1, 2017.


16
Table of Contents

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

2.
SEGMENT INFORMATION (CONTINUED)


The following tables present the underwriting results of the Company's reportable segments, as well as the carrying values of allocated goodwill and intangible assets:
 
  
2018
 
2017
 
 
Three months ended and at September 30,
Insurance
 
Reinsurance
 
Total
 
Insurance
 
Reinsurance
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
$
969,364

 
$
454,343

 
$
1,423,707

 
$
651,145

 
$
534,429

 
$
1,185,574

 
 
Net premiums written
602,070

 
317,868

 
919,938

 
407,054

 
425,689

 
832,743

 
 
Net premiums earned
614,795

 
609,280

 
1,224,075

 
420,775

 
596,356

 
1,017,131

 
 
Other insurance related income (losses)
1,526

 
6,949

 
8,475

 
302

 
(3,499
)
 
(3,197
)
 
 
Net losses and loss expenses
(415,488
)
 
(379,471
)
 
(794,959
)
 
(576,688
)
 
(658,679
)
 
(1,235,367
)
 
 
Acquisition costs
(111,888
)
 
(136,426
)
 
(248,314
)
 
(61,541
)
 
(133,183
)
 
(194,724
)
 
 
General and administrative expenses
(100,656
)
 
(29,595
)
 
(130,251
)
 
(71,007
)
 
(25,689
)
 
(96,696
)
 
 
Underwriting income (loss)
$
(11,711
)
 
$
70,737

 
59,026

 
$
(288,159
)
 
$
(224,694
)
 
(512,853
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate expenses
 
 
 
 
(24,643
)
 
 
 
 
 
(27,933
)
 
 
Net investment income
 
 
 
 
114,421

 
 
 
 
 
95,169

 
 
Net investment gains (losses)
 
 
 
 
(17,628
)
 
 
 
 
 
14,632

 
 
Foreign exchange losses
 
 
 
 
(8,305
)
 
 
 
 
 
(32,510
)
 
 
Interest expense and financing costs
 
 
 
 
(16,897
)
 
 
 
 
 
(12,835
)
 
 
Transaction and reorganization expenses
 
 
 
 
(16,300
)
 
 
 
 
 
(5,970
)
 
 
Amortization of value of business acquired
 
 
 
 
(39,018
)
 
 
 
 
 
—

 
 
Amortization of intangible assets
 
 
 
 
(1,753
)
 
 
 
 
 
—

 
 
Income (loss) before income taxes and interest in income (loss) of equity method investments
 
 
 
 
$
48,903

 
 
 
 
 
$
(482,300
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss and loss expense ratio
67.6
%
 
62.3
%
 
64.9
%
 
137.1
%
 
110.5
%
 
121.5
%
 
 
Acquisition cost ratio
18.2
%
 
22.4
%
 
20.3
%
 
14.6
%
 
22.3
%
 
19.1
%
 
 
General and administrative expense ratio
16.4
%
 
4.8
%
 
12.7
%
 
16.9
%
 
4.3
%
 
12.3
%
 
 
Combined ratio
102.2
%
 
89.5
%
 
97.9
%
 
168.6
%
 
137.1
%
 
152.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total intangible assets
$
408,441

 
$
—

 
$
408,441

 
$
87,206

 
$
—

 
$
87,206

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  


17
Table of Contents

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

2.
SEGMENT INFORMATION (CONTINUED)

 
  
2018
 
2017
 
 
Nine months ended and at September 30,
Insurance
 
Reinsurance
 
Total
 
Insurance
 
Reinsurance
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
$
2,876,856

 
$
2,860,471

 
$
5,737,327

 
$
1,960,608

 
$
2,499,164

 
$
4,459,772

 
 
Net premiums written
1,748,142

 
2,158,122

 
3,906,264

 
1,259,999

 
2,037,719

 
3,297,718

 
 
Net premiums earned
1,772,126

 
1,804,900

 
3,577,026

 
1,230,279

 
1,706,986

 
2,937,265

 
 
Other insurance related income (losses)
3,359

 
15,452

 
18,811

 
853

 
(5,273
)
 
(4,420
)
 
 
Net losses and loss expenses
(1,065,799
)
 
(1,097,146
)
 
(2,162,945
)
 
(1,093,237
)
 
(1,354,403
)
 
(2,447,640
)
 
 
Acquisition costs
(290,082
)
 
(419,445
)
 
(709,527
)
 
(177,937
)
 
(410,942
)
 
(588,879
)
 
 
General and administrative expenses
(305,394
)
 
(99,481
)
 
(404,875
)
 
(239,389
)
 
(96,393
)
 
(335,782
)
 
 
Underwriting income (loss)
$
114,210

 
$
204,280

 
318,490

 
$
(279,431
)
 
$
(160,025
)
 
(439,456
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate expenses
 
 
 
 
(85,069
)
 
 
 
 
 
(97,922
)
 
 
Net investment income
 
 
 
 
325,380

 
 
 
 
 
299,899

 
 
Net realized investment losses
 
 
 
 
(77,551
)
 
 
 
 
 
(14,811
)
 
 
Foreign exchange losses
 
 
 
 
(2,066
)
 
 
 
 
 
(90,093
)
 
 
Interest expense and financing costs
 
 
 
 
(50,758
)
 
 
 
 
 
(38,377
)
 
 
Bargain purchase gain
 
 
 
 
—

 
 
 
 
 
15,044

 
 
Transaction and reorganization expenses
 
 
 
 
(48,125
)
 
 
 
 
 
(5,970
)
 
 
Amortization of value of business acquired
 
 
 
 
(149,535
)
 
 
 
 
 
—

 
 
Amortization of intangible assets
 
 
 
 
(8,564
)
 
 
 
 
 
—

 
 
Income (loss) before income taxes and interest in income (loss) of equity method investments
 
 
 
 
$
222,202

 
 
 
 
 
$
(371,686
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss and loss expense ratio
60.1
%
 
60.8
%
 
60.5
%
 
88.9
%
 
79.3
%
 
83.3
%
 
 
Acquisition cost ratio
16.4
%
 
23.2
%
 
19.8
%
 
14.4
%
 
24.2
%
 
20.0
%
 
 
General and administrative expense ratio
17.2
%
 
5.5
%
 
13.7
%
 
19.5
%
 
5.6
%
 
14.8
%
 
 
Combined ratio
93.7
%
 
89.5
%
 
94.0
%
 
122.8
%
 
109.1
%
 
118.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total intangible assets
$
408,441

 
$
—

 
$
408,441

 
$
87,206

 
$
—

 
$
87,206

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


18
Table of Contents

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

3.
INVESTMENTS

a)     Fixed Maturities and Equity securities

Fixed maturities

The amortized cost and fair values of the Company's fixed maturities classified as available for sale were as follows:
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Non-credit
OTTI
in AOCI(5)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,625,114

 
$
414

 
$
(20,063
)
 
$
1,605,465

 
$
—

 
 
Non-U.S. government
558,862

 
3,013

 
(13,750
)
 
548,125

 
—

 
 
Corporate debt
5,144,747

 
23,714

 
(87,376
)
 
5,081,085

 
—

 
 
Agency RMBS(1)
1,688,977

 
2,140

 
(51,886
)
 
1,639,231

 
—

 
 
CMBS(2)
1,099,728

 
729

 
(23,502
)
 
1,076,955

 
—

 
 
Non-Agency RMBS
41,273

 
1,475

 
(962
)
 
41,786

 
(868
)
 
 
ABS(3)
1,651,271

 
1,520

 
(6,980
)
 
1,645,811

 
—

 
 
Municipals(4)
131,583

 
557

 
(2,901
)
 
129,239

 
—

 
 
Total fixed maturities
$
11,941,555

 
$
33,562

 
$
(207,420
)
 
$
11,767,697

 
$
(868
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,727,643

 
$
1,735

 
$
(16,909
)
 
$
1,712,469

 
$
—

 
 
Non-U.S. government
798,582

 
17,240

 
(9,523
)
 
806,299

 
—

 
 
Corporate debt
5,265,795

 
61,922

 
(29,851
)
 
5,297,866

 
—

 
 
Agency RMBS(1)
2,414,720

 
8,132

 
(27,700
)
 
2,395,152

 
—

 
 
CMBS(2)
776,715

 
4,138

 
(3,125
)
 
777,728

 
—

 
 
Non-Agency RMBS
45,713

 
1,917

 
(799
)
 
46,831

 
(853
)
 
 
ABS(3)
1,432,884

 
5,391

 
(1,994
)
 
1,436,281

 
—

 
 
Municipals(4)
149,167

 
1,185

 
(972
)
 
149,380

 
—

 
 
Total fixed maturities
$
12,611,219

 
$
101,660

 
$
(90,873
)
 
$
12,622,006

 
$
(853
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Residential mortgage-backed securities ("RMBS") originated by U.S. government-sponsored agencies.
(2)
Commercial mortgage-backed securities ("CMBS").
(3)
Asset-backed securities (ABS) include debt tranched securities collateralized primarily by auto loans, student loans, credit card receivables, collateralized debt obligations ("CDOs") and collateralized loan obligations ("CLOs").
(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, maturities and redemptions. It does not include the change in fair value subsequent to the impairment measurement date.






19
Table of Contents

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

3.
INVESTMENTS (CONTINUED)

Equity Securities

The cost and fair values of the Company's equity securities were as follows:
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
 
At September 30, 2018
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
Common stocks
$
13,392

 
$
1,345

 
$
(1,232
)
 
$
13,505

 
 
Exchange-traded funds
211,940

 
63,543

 
(2,035
)
 
273,448

 
 
Bond mutual funds
150,675

 
—

 
(4,317
)
 
146,358

 
 
Total equity securities
$
376,007

 
$
64,888

 
$
(7,584
)
 
$
433,311

 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2017
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
Common stocks
$
22,836

 
$
3,412

 
$
(590
)
 
$
25,658

 
 
Exchange-traded funds
356,252

 
71,675

 
(294
)
 
427,633

 
 
Bond mutual funds
173,779

 
9,440

 
(999
)
 
182,220

 
 
Total equity securities
$
552,867

 
$
84,527

 
$
(1,883
)
 
$
635,511

 
 
 
 
 
 
 
 
 
 
 

In the normal course of investing activities, the Company actively manages allocations to non-controlling tranches of structured securities which are variable interests issued by Variable Interest Entities ("VIEs"). These structured securities include RMBS, CMBS and ABS. The Company also invests in limited partnerships including hedge funds, direct lending funds, private equity funds and real estate funds as well as CLO equity tranched securities, which are all variable interests issued by VIEs (see Note 3(c) 'Other Investments'). The Company does not have the power to direct the activities that are most significant to the economic performance of the VIEs therefore the Company is not the primary beneficiary of any of these VIEs. The maximum exposure to loss on these interests is limited to the amount of investment made by the Company. The Company has not provided financial or other support with respect to these structured securities other than the original investment.



20
Table of Contents

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

3.
INVESTMENTS (CONTINUED)

Contractual Maturities

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. The contractual maturities of fixed maturities are shown below:
 
 
Amortized
Cost
 
Fair
Value
 
% of Total
Fair Value
 
 
 
 
 
 
 
 
 
 
At September 30, 2018
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
496,968

 
$
492,752

 
4.1
%
 
 
Due after one year through five years
4,926,538

 
4,881,185

 
41.5
%
 
 
Due after five years through ten years
1,821,059

 
1,774,813

 
15.1
%
 
 
Due after ten years
215,741

 
215,164

 
1.8
%
 
 
 
7,460,306

 
7,363,914

 
62.5
%
 
 
Agency RMBS
1,688,977

 
1,639,231

 
13.9
%
 
 
CMBS
1,099,728

 
1,076,955

 
9.2
%
 
 
Non-Agency RMBS
41,273

 
41,786

 
0.4
%
 
 
ABS
1,651,271

 
1,645,811

 
14.0
%
 
 
Total
$
11,941,555

 
$
11,767,697

 
100.0
%
 
 
 
 
 
 
 
 
 
 
At December 31, 2017
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
486,659

 
$
484,663

 
3.8
%
 
 
Due after one year through five years
4,906,207

 
4,912,189

 
38.9
%
 
 
Due after five years through ten years
2,338,964

 
2,350,433

 
18.6
%
 
 
Due after ten years
209,357

 
218,729

 
1.7
%
 
 
 
7,941,187

 
7,966,014

 
63.0
%
 
 
Agency RMBS
2,414,720

 
2,395,152

 
19.0
%
 
 
CMBS
776,715

 
777,728

 
6.2
%
 
 
Non-Agency RMBS
45,713

 
46,831

 
0.4
%
 
 
ABS
1,432,884

 
1,436,281

 
11.4
%
 
 
Total
$
12,611,219

 
$
12,622,006

 
100.0
%
 
 
 
 
 
 
 
 
 



21
Table of Contents

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

3.
INVESTMENTS (CONTINUED)

 Gross Unrealized Losses

The following table summarizes fixed maturities and equity securities 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, 2018(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
311,591

 
$
(10,619
)
 
$
1,228,100

 
$
(9,444
)
 
$
1,539,691

 
$
(20,063
)
 
 
Non-U.S. government
34,550

 
(2,086
)
 
382,172

 
(11,664
)
 
416,722

 
(13,750
)
 
 
Corporate debt
621,298

 
(28,190
)
 
3,256,619

 
(59,186
)
 
3,877,917

 
(87,376
)
 
 
Agency RMBS
722,287

 
(33,738
)
 
780,730

 
(18,148
)
 
1,503,017

 
(51,886
)
 
 
CMBS
105,887

 
(3,944
)
 
832,183

 
(19,558
)
 
938,070

 
(23,502
)
 
 
Non-Agency RMBS
10,821

 
(946
)
 
6,067

 
(16
)
 
16,888

 
(962
)
 
 
ABS
157,894

 
(2,115
)
 
844,190

 
(4,865
)
 
1,002,084

 
(6,980
)
 
 
Municipals
33,043

 
(1,327
)
 
71,150

 
(1,574
)
 
104,193

 
(2,901
)
 
 
Total fixed maturities
$
1,997,371

 
$
(82,965
)
 
$
7,401,211

 
$
(124,455
)
 
$
9,398,582

 
$
(207,420
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
194,916

 
$
(5,963
)
 
$
1,389,792

 
$
(10,946
)
 
$
1,584,708

 
$
(16,909
)
 
 
Non-U.S. government
62,878

 
(6,806
)
 
204,110

 
(2,717
)
 
266,988

 
(9,523