Fitch Affirms Ratings of AXIS Capital Holdings, Ltd.; Outlook Stable

CHICAGO--()--Fitch Ratings has removed the ratings of AXIS Capital Holdings Ltd. (AXIS Capital) and its operating subsidiaries from Rating Watch Positive following the announced termination of the merger between AXIS Capital and PartnerRe Ltd (PRE). Fitch has affirmed the Issuer Default rating of AXIS Capital at 'A' and the Insurer Financial Strength ratings of its operating subsidiaries at 'A+'. The Rating Outlook is Stable. See the full list of rating actions below.

KEY RATING DRIVERS

The ratings of AXIS Capital had been placed on Rating Watch Positive in January 2015 following the announcement of a merger agreement with PRE.

Today's rating action reflects AXIS Capital's maintenance of its competitive position and management team following the termination of its planned merger with PRE. AXIS Capital will receive a $315 million break-up fee from PRE following the termination of the merger. Operating results remain consistent with current ratings in spite of some deterioration during the first half of 2015 (1H15) relative to the same period in 2014.

AXIS Capital's ratings reflect its 'Medium' market position and size/scale, strong capitalization, good profitability and history of favorable reserve development. Balanced against these strengths are potential business disruption from the failed merger with PRE and material catastrophe exposure.

In addition, the ratings reflect Fitch's negative sector outlook on global reinsurance, as the fundamentals of the reinsurance sector have deteriorated with declining premium pricing and weakening of terms and conditions, particularly for property catastrophe risk. This is leading to consolidation in the reinsurance sector as companies aim to enhance their relative competitive positions.

AXIS Capital's market position and size/scale is considered 'Medium' based on premiums and stockholders' equity metrics. Medium companies typically have IFS ratings in the 'A' category, but can reach into the lower 'AA' category.

AXIS Capital utilizes a reasonable amount of operating leverage relative to other Bermuda insurers with significant catastrophe exposure. The company reported an operating leverage ratio of 0.8x at June 30, 2015, which is down modestly from the comparable period in 2014. The financial leverage ratio was 14% at June 30, 2015, essentially unchanged from year-end 2014.

AXIS Capital's underwriting ratios deteriorated modestly during 1H15 as AXIS Capital reported a combined ratio of 95.3%, including 2.6 percentage points from catastrophe and weather-related losses and 6.2 points of favorable reserve development. Both reinsurance and insurance segments reported higher combined ratios relative to comparable periods. Return on equity was 8.3% during 1H15, down from 12.6% in the comparable period of 2014. Reduced investment income and realized losses contributed to the period-to-period decline.

The ratings were not reviewed with respect to Fitch's updated insurance notching criteria published July 14, 2015.

RATING SENSITIVITIES

Key rating triggers that could lead to a downgrade include:

--A significant loss of capital from a catastrophic event that is worse than expectations or industry/peer results, and/or an inability to raise capital following a large loss;

--Increased operating leverage above a 1x net written premiums-to-equity ratio or a financial leverage ratio above 25%;

--An extended period of underwriting losses or GAAP fixed-charge coverage below 7x for a sustained period;

--Significant reserve deficiencies.

Key rating triggers that could lead to an upgrade include:

--A significant increase in capital that meaningfully reduces operating leverage and reduced exposure to catastrophe losses. However, given publicly traded companies' sensitivity around managing capital, Fitch believes the company is unlikely to move toward this level of overcapitalization.

FULL LIST OF RATING ACTIONS

The following ratings were affirmed with a Stable Outlook:

AXIS Capital Holdings, Ltd.

--IDR at 'A';

--Series B 7.5% preferred securities rating at 'BBB';

--Series C 6.875% preferred securities rating at 'BBB';

--Series D 5.5% preferred securities rating at 'BBB'.

AXIS Specialty Finance LLC

--$500 million 5.875% senior debt rating at 'A-'.

AXIS Specialty Finance PLC

--$250 million 2.65% senior notes due 2019 at 'A-';

--$250 million 5.15% senior notes due 2045 at 'A-'.

AXIS Specialty Limited (Bermuda)

AXIS Reinsurance Company

AXIS Insurance Company

AXIS Surplus Insurance Company

AXIS Specialty Insurance Company

--IFS ratings at 'A+'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Exposure Draft: Insurance Notching Criteria (Proposed Methodology Changes) (pub. 12 May 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865576

Insurance Rating Methodology (pub. 14 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868367

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=988957

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988957

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Douglas M. Pawlowski, CFA
Senior Director
+1-312-368-2054
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
or
Secondary Analyst
Martha M. Butler, CFA
Senior Director
+1-312-368-3191
or
Committee Chairperson
Donald F. Thorpe, CPA, CFA
Senior Director
+1-312-606-2353
or
Media Relations
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Douglas M. Pawlowski, CFA
Senior Director
+1-312-368-2054
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
or
Secondary Analyst
Martha M. Butler, CFA
Senior Director
+1-312-368-3191
or
Committee Chairperson
Donald F. Thorpe, CPA, CFA
Senior Director
+1-312-606-2353
or
Media Relations
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com