AXIS Capital Holdings Limited ("AXIS Capital") (NYSE:
AXS) today reported net income available to common shareholders of
$90.1 million for the year ended December 31, 2005, or $0.57 per
diluted common share, compared with net income of $495.0 million, or
$2.98 per diluted common share, for the year ended December 31, 2004.
Net income available to common shareholders for the quarter ended
December 31, 2005 was $233.5 million, or $1.47 per diluted common
share, compared with net income of $181.1 million, or $1.09 per
diluted common share, for the quarter ended December 31, 2004.
The decrease in the 2005 net income available to common shareholders was principally caused by pre-tax net losses from Hurricanes Katrina, Rita and Wilma of $1,019.1 million. These net losses include $846.9 million for Hurricanes Katrina and Rita, an increase of 5.3% over previously reported net loss estimates for these two events of $804.5 million, and $172.2 million for Hurricane Wilma. These net losses compared to net losses from Hurricanes Charley, Frances, Ivan and Jeanne of $266.3 million for 2004. Our net loss estimate for Hurricane Katrina remained stable at $723.4 million and our net loss estimate for Hurricane Rita increased to $123.5 million from our previous estimate of $80.9 million. Our initial range of net loss estimates for Hurricane Wilma was determined immediately following the event and our updated estimate reflects our analysis of the latest loss information.
Net income available to common shareholders, excluding net realized gains and losses on investments, net of tax, for 2005 was $105.2 million, or $0.67 per diluted common share, compared with net income of $482.2 million, or $2.91 per diluted common share, for 2004. This same item excluding foreign exchange losses, net of tax, for 2005 was $157.6 million, or $1.00 per diluted common share, compared with net income $468.2 million, or $2.82 per diluted common share for 2004.
Net income available to common shareholders, excluding net realized gains and losses on investments, net of tax, for the fourth quarter of 2005 was $243.6 million, or $1.54 per diluted common share, compared with net income of $177.2 million, or $1.06 per diluted common share, for the same period in 2004. This same item excluding foreign exchange losses, net of tax, for the fourth quarter of 2005 was $245.2 million, or $1.54 per diluted common share, compared with net income of $159.0 million, or $0.95 per diluted common share, for the same period in 2004.
Net income available to common shareholders, excluding net realized gains and losses on investments, net of tax, and net income excluding net realized gains and losses on investments and foreign exchange losses, net of tax, are non-GAAP financial measures. Reconciliations of these measures to net income are presented at the end of this release.
Operating highlights for the year ended December 31, 2005 included the following:
-- Gross premiums written increased by 12.7% to $3,393.9 million primarily due to an increase in premiums written in our reinsurance segment.
-- Net premiums written increased to $2,659.0 million from $2,423.7 million, an increase of 9.7%.
-- Net premiums earned increased by 25.9% to $2,553.7 million. The increase was largely generated by our reinsurance segment.
-- Total pre-tax investment income, including net realized gains and losses, increased by 44.7% to $239.8 million. The increase was primarily due to a combination of higher investment balances and higher investment yields offset by an increase in realized losses; and
-- Total shareholders' equity was $3.5 billion and total capitalization was $4.0 billion at December 31, 2005. This included $200 million of common equity and $500 million of preferred equity issued during the third and fourth quarters of 2005. This compared to total shareholders equity of $3.2 billion and total capitalization of $3.7 billion at December 31, 2004.
Commenting on the 2005 financial year results, John Charman, Chief Executive Officer and President of AXIS Capital, stated: "In a year of unprecedented catastrophe losses, AXIS has clearly demonstrated that its experienced, realistic risk management practice, coupled with its strongly diversified business portfolio, is able to withstand extraordinary losses. Having been consistently involved in business subject to volatility, my 34-year career goal has been to accrete capital meaningfully over the long-term and, at the very least, to be in a position to do so by preserving capital regardless of market circumstances. It's always disappointing to report major loss events; however, I am very proud that AXIS was able to produce net income for 2005 of $90.1 million. We finished the year with $4 billion in total capital. This is capital that was preserved by our focused core underwriting discipline and further strengthened by our capital raisings during the last half of 2005.
Our diversified global franchise and underwriting machine is well-positioned to maximize any benefit wherever and whenever it may appear in this firming market environment. Our underwriters have a proven track record of bringing opportunities to fruition quickly and decisively in an intelligent peer review environment and, in the aftermath of Hurricane Katrina, have been rigorously applying remedial action. AXIS is truly well positioned for 2006 and beyond."
Operating Results
Gross premiums written for 2005 increased 12.7% from 2004 and were derived 55.2% from our insurance segment and 44.8% from our reinsurance segment compared to 63.7% and 36.3%, respectively, for 2004. This change in business mix was due to additional premiums written in our reinsurance business and a decrease in premiums written by our global insurance operations. Our combined ratio increased to 101.8% in 2005 from 84.4% in 2004 primarily due to an increase in the level of net hurricane losses.
During the fourth quarter of 2005, gross premiums written decreased by 2.7% compared to the same period in 2004 and were derived 74.6% from our insurance segment and 25.4% from our reinsurance segment compared to 91.1% and 8.9%, respectively, for the same period in 2004. The change in business mix was primarily due to the decrease in premiums written in global insurance. Our combined ratio decreased to 73.2% in the fourth quarter from 79.3% in the same period in 2004 primarily due to a reduction in the loss ratio.
Insurance Segment
Gross premiums written in our insurance segment decreased by 2.3% to $1,875.0 million for 2005 and 20.4% to $472.2 million for the fourth quarter of 2005 compared to the same periods in 2004. The decreases were driven by a reduction in gross premiums written in global insurance of 21.4%, or $234.2 million for the year, and 48.0%, or $174.8 million for the fourth quarter. The decreases were driven by our underwriting discipline during the deteriorating market conditions that characterized most of 2005. In particular, we significantly reduced the level of aviation and aviation war business written in the fourth quarter of 2005, which is the primary renewal period for this business, as fewer risks met our underwriting criteria. This decline in global insurance gross premiums written, however, was largely offset by an increase in gross premiums written in our U.S. insurance segment. Gross premiums written in our U.S. insurance segment increased 23.0%, or $189.7 million, for the year and 23.6%, or $54.0 million, for the fourth quarter compared to the same periods in 2004. These increases were primarily due to the targeted expansion of our professional lines products and our specialty program business within our property account.
Net premiums written of $1,167.8 million for 2005 declined 14.3% from 2004 primarily as a result of increased ceded premiums in U.S. insurance. For the fourth quarter of 2005, net premiums written were $320.1 million, a 23.9% decrease from the same period in 2004.
Our insurance segment reported a combined ratio of 93.2% for 2005 compared to 81.0% for 2004. The increase was driven by net losses of $405.6 million, or 33.8 percentage points, relating to Hurricanes Katrina, Rita and Wilma compared to net losses of $97.1 million, or 8.5 percentage points, relating to Hurricanes Charley, Frances, Ivan and Jeanne in 2004. The insurance segment experienced favorable prior period reserve development of $268.7 million, or 22.4 percentage points, on short-tail lines of business from accident years 2004 and prior, compared to $106.8 million, or 9.3 percentage points, in 2004.
During the fourth quarter of 2005, the insurance segment generated a combined ratio of 71.9% compared to 68.5% in the same period in 2004. The increase was primarily due to net losses of $70.7 million from Hurricane Wilma, which added 22.4 percentage points to the loss ratio. The insurance segment experienced favorable prior period development of $96.1 million, or 30.4 percentage points, in the quarter on short-tail lines of business from accident years 2004 and prior, compared to $27.4 million, or 9.1 percentage points, in the same period in 2004.
Reinsurance Segment
Our reinsurance segment reported gross premiums written in 2005 of $1,518.9 million, an increase of 39.0% from 2004, and net premiums written in 2005 of $1,491.2 million, an increase of 40.6% from 2004. The increase in gross premiums written was primarily driven by our property, catastrophe and liability lines of business.
The fourth quarter is not a significant renewal date for our reinsurance segment. Gross premiums written were $161.1 million for the fourth quarter of 2005 compared to $58.1 million for the same period in 2004. The increase was primarily due to additional premiums written in our property and liability lines of business.
Our reinsurance segment reported a combined ratio of 106.2% for 2005 compared to 84.5% in 2004, which was largely driven by an increase in the loss ratio from 63.4% to 86.4%. The segment incurred net losses of $613.5 million, or 45.4 percentage points, relating to Hurricanes Katrina, Rita and Wilma compared to net losses of $169.2 million, or 19.2 percentage points, relating to Hurricanes Charley, Frances, Ivan and Jeanne in 2004. Favorable prior period reserve development was from short-tail lines of business and was $114.3 million, or 8.5 percentage points, in 2005 compared to $74.9 million, or 8.5 percentage points for 2004.
The combined ratio in the reinsurance segment for the fourth quarter of 2005 was 69.5% compared to 88.1% for the same period in 2004. The decrease was largely due to a decrease in the loss ratio from 66.7% to 51.5%, which was primarily the result of prior period favorable development from short-tail lines of business of $50.4 million, or 13.6 percentage points, in the quarter compared to $13.0 million, or 5.3 percentage points, in the same period in 2004.
Interest Expense
Interest expense for 2005 was $32.4 million compared to $5.3 million for 2004. Interest expense for the fourth quarter of 2005 was $8.2 million compared to $4.6 million for the same period in 2004. Interest expense consists of interest due on outstanding debt, the amortization of debt offering expenses and discounts and fees relating to our credit facility. Our outstanding debt relates to $500 million of senior unsecured notes issued on November 15, 2004.
Preferred Dividends
Preferred dividends were $4.4 million for 2005 and related to dividends declared on our Series A preferred shares, which were issued in September 2005. Dividends on our Series B preferred shares, issued in November 2005, will be payable commencing in 2006, subject to Board approval.
Investments
Total pre-tax investment income for 2005 of $239.8 million included $256.7 million in net investment income and $16.9 million in realized losses. This was an increase of 44.7% from $165.7 million in 2004. For the fourth quarter of 2005, total pre-tax investment income was $68.0 million and included $78.9 million in net investment income and $10.9 million in realized losses. This was an increase of 31.7% from $51.7 million in the same period in 2004. The increases primarily reflected the positive impact of higher average yields on higher investment balances offset by an increase in realized losses. These increased yields were generated by higher short-term U.S. interest rates together with our increased allocation to other investments.
Capitalization / Shareholders' Equity
Total capitalization at December 31, 2005 was $4.0 billion. In November 2005, we issued 2,500,000 7.5% Series B preferred shares with net proceeds received of $247.5 million and completed the sale of 6,800,000 common shares with net proceeds received of $200.1 million. In September 2005, we issued 10,000,000 7.25% Series A preferred shares with net proceeds received of $242.3 million.
At December 31, 2005, diluted book value per common share was $19.19 and book value per common share was $20.23. Diluted book value per share is a non-GAAP financial measure. A reconciliation of this measure to shareholders' equity is presented at the end of this release.
Conference Call
We will host a conference call on Wednesday February 8, 2006 at 8:00 AM (Eastern) to discuss the year end financial results and related matters. This presentation will be available through an audio webcast accessible through the Investor Information section of our website at www.axiscapital.com.
In addition, a financial supplement relating to our financial results for the year and fourth quarter is available in the Investor Information section of our website.
AXIS Capital is a Bermuda-based global provider of specialty lines insurance and treaty reinsurance with shareholders' equity at December 31, 2005 of $3.5 billion and locations in Bermuda, the United States, Europe and Singapore. Its operating subsidiaries have been assigned a rating of "A" ("Excellent") by A.M. Best and a rating of "A" ("Strong") by Standard & Poor's. AXIS Capital has been assigned a senior unsecured debt rating of Baa1 (stable) by Moody's Investors Service and BBB+ (stable) by Standard & Poor's. For more information about AXIS Capital, visit our website at www.axiscapital.com. -0- AXIS CAPITAL HOLDINGS LIMITED UNAUDITED CONSOLIDATED BALANCE SHEETS As at December 31, 2005 and December 31, 2004 (Expressed in thousands of U.S. dollars, except share and per share amounts) December 31, December 31, 2005 2004 Assets Note 1 Cash and cash equivalents $1,280,990 $632,329 Fixed maturity investments at fair market value 6,012,425 5,293,877 Other investments 409,504 105,812 Accrued interest receivable 59,784 47,487 Securities lending collateral 998,349 865,311 Insurance and reinsurance balances receivable 1,026,975 914,562 Deferred acquisition costs 196,388 211,082 Prepaid reinsurance premiums 281,579 271,187 Reinsurance recoverable 1,518,110 596,299 Intangible assets 37,013 31,734 Other assets 104,859 68,605 ------------- ------------- Total Assets $11,925,976 $9,038,285 ============= ============= Liabilities Reserve for losses and loss expenses $4,743,338 $2,404,560 Unearned premiums 1,760,467 1,644,771 Insurance and reinsurance balances payable 314,232 247,940 Accounts payable and accrued expenses 101,179 89,804 Securities lending payable 995,287 864,354 Net payable for investments purchased 76 49,854 Debt 499,046 498,938 ------------- ------------- Total Liabilities 8,413,625 5,800,221 ------------- ------------- Shareholders' Equity Series A preferred shares $125 $- Series B preferred shares 31 - Common shares 1,861 1,910 Additional paid-in capital 2,386,200 2,017,144 Accumulated other comprehensive (loss) income (77,798) 12,915 Retained earnings 1,201,932 1,206,095 ------------- ------------- Total Shareholders' Equity 3,512,351 3,238,064 ------------- ------------- Total Liabilities & Shareholders' Equity $11,925,976 $9,038,285 ============= ============= Note 1: In 2004, certain investments have been reclassified from other investments to fixed maturity investments to conform to current year classifications. AXIS CAPITAL HOLDINGS LIMITED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS For the Quarters and Years ended December 31, 2005 and 2004 (Expressed in thousands of U.S. dollars, except share and per share amounts) Quarters ended Years ended December 31, December 31, 2005 2004 2005 2004 Note 2 Note 2 Revenues Gross premiums written $ 633,322 $ 651,169 $ 3,393,885 $ 3,012,311 Premiums ceded (169,917) (176,575) (734,896) (588,638) Change in unearned premiums 223,461 74,354 (105,306) (395,276) ------------ ------------ ------------ ------------ Net premiums earned 686,866 548,948 2,553,683 2,028,397 Net investment income 78,938 47,451 256,712 152,072 Net realized (losses) gains (10,915) 4,216 (16,912) 13,634 Other insurance related income (loss) 198 3,603 (5,085) 11,253 ------------ ------------ ------------ ------------ Total revenues $ 755,087 $ 604,218 $ 2,788,398 $ 2,205,356 ------------ ------------ ------------ ------------ Expenses Net losses and loss expenses $ 348,716 $ 300,219 $ 2,051,129 $ 1,246,244 Acquisition costs 96,175 78,894 337,383 280,568 General and administrative expenses 57,507 55,945 212,842 187,305 Foreign exchange losses (gains) 1,719 (18,583) 54,090 (14,484) Interest expense 8,191 4,597 32,447 5,285 ------------ ------------ ------------ ------------ Total expenses $ 512,308 $ 421,072 $ 2,687,891 $ 1,704,918 ------------ ------------ ------------ ------------ Income before income taxes 242,779 183,146 100,507 500,438 Income tax expense (4,908) (2,071) (6,067) (5,440) ------------ ------------ ------------ ------------ Net Income 237,871 181,075 94,440 494,998 Preferred Dividends (4,379) - (4,379) - ------------ ------------ ------------ ------------ Net income available to common shareholders $ 233,492 $ 181,075 $ 90,061 $ 494,998 ============ ============ ============ ============ Weighted average common shares and Common share equivalents - basic 144,750,783 152,662,584 143,225,774 152,553,677 ============ ============ ============ ============ Weighted average common shares and common share equivalents - diluted 159,123,364 165,397,980 157,523,952 165,875,823 ============ ============ ============ ============ Net income per common share - basic $ 1.61 $ 1.19 $ 0.63 $ 3.24 ============ ============ ============ ============ Net income per common share - diluted $ 1.47 $ 1.09 $ 0.57 $ 2.98 ============ ============ ============ ============ Insurance Ratios Loss ratio 50.8% 54.7% 80.3% 61.4% Expense ratio 22.4% 24.6% 21.5% 23.0% ------------ ------------ ------------ ------------ Combined ratio 73.2% 79.3% 101.8% 84.4% ============ ============ ============ ============ Note 2: In 2004, interest expense has been reclassifed from general administrative expenses to conform to current year classifications. Interest expense consists of interest due on outstanding debt, the amortization of debt offering expenses and offering discounts and fees relating to our credit facility. AXIS CAPITAL HOLDINGS LIMITED UNAUDITED CONSOLIDATED SEGMENTAL DATA Quarter ended December 31, 2005 Global U.S. Total Insurance Insurance Insurance ------------------------------ Revenues: Gross premiums written $189,647 $282,556 $472,203 Net premiums written 168,455 151,673 320,128 Net premiums earned 185,081 131,538 316,619 Other insurance related income - 198 198 Expenses: Net losses and loss expenses (40,709) (117,264) (157,973) Acquisition costs (25,078) (16,075) (41,153) General and administrative expenses (8,271) (20,105) (28,376) ------------------------------ Underwriting income (loss) (a) 111,023 (21,708) 89,315 Corporate expenses Net investment income Realized losses on investments Foreign exchange losses Interest expense Income before income taxes Net loss and loss expense ratio 22.0% 89.1% 49.9% Acquisition cost ratio 13.5% 12.2% 13.0% General and administrative expense ratio 4.5% 15.3% 9.0% ------------------------------ Combined ratio 40.0% 116.6% 71.9% ------------------------------ Reinsurance Corporate Total ------------------------------ Revenues: Gross premiums written $161,119 $633,322 Net premiums written 143,277 463,405 Net premiums earned 370,247 686,866 Other insurance related income - 198 Expenses: Net losses and loss expenses (190,743) (348,716) Acquisition costs (55,022) (96,175) General and administrative expenses (11,592) (39,968) ------------------------------ Underwriting income (loss) (a) 112,890 202,205 Corporate expenses (17,539) (17,539) Net investment income 78,938 78,938 Realized losses on investments (10,915) (10,915) Foreign exchange losses (1,719) (1,719) Interest expense (8,191) (8,191) --------- Income before income taxes $242,779 ========= Net loss and loss expense ratio 51.5% 50.8% Acquisition cost ratio 14.9% 14.0% General and administrative expense ratio 3.1% 2.6% 8.4% ------------------------------ Combined ratio 69.5% 73.2% ------------ --------- (a) The Company utilizes underwriting income (loss) as a measure of underwriting profitability as it evaluates profitability solely on underwriting related revenues and costs. Items not considered to be part of underwriting include corporate expenses, investment income, realized losses and gains on the sale of investments, foreign exchange and interest expense. These items are evaluated separately from our underwriting results. Underwriting income (loss) takes into account net premiums earned and other insurance related income as revenue and net losses and loss expenses, acquisition costs and underwriting related general and administrative expenses as expenses. Underwriting income (loss) is the difference between the revenue and expense items. AXIS CAPITAL HOLDINGS LIMITED UNAUDITED CONSOLIDATED SEGMENTAL DATA Quarter ended December 31, 2004 Global U.S. Total Insurance Insurance Insurance ------------------------------ Revenues: Gross premiums written $364,450 $228,598 $593,048 Net premiums written 313,950 106,846 420,796 Net premiums earned 200,805 101,450 302,255 Other insurance related income 3,377 - 3,377 Expenses: Net losses and loss expenses (83,248) (52,475) (135,723) Acquisition costs (35,423) (3,302) (38,725) General and administrative expenses (11,005) (21,555) (32,560) ------------------------------ Underwriting income (a) 74,506 24,118 98,624 Corporate expenses Net investment income Realized gains on investments Foreign exchange gains Interest expense Income before income taxes Net loss and loss expense ratio 41.5% 51.7% 44.9% Acquisition cost ratio 17.6% 3.3% 12.8% General and administrative expense ratio 5.5% 21.2% 10.8% ------------------------------ Combined ratio 64.6% 76.2% 68.5% ------------------------------ Reinsurance Corporate Total ------------------------------ Revenues: Gross premiums written $58,121 - $651,169 Net premiums written 53,798 - 474,594 Net premiums earned 246,693 - 548,948 Other insurance related income 226 - 3,603 Expenses: Net losses and loss expenses (164,496) - (300,219) Acquisition costs (40,169) - (78,894) General and administrative expenses (12,604) - (45,164) ------------------------------ Underwriting income (a) 29,650 - 128,274 Corporate expenses (10,781) (10,781) Net investment income 47,451 47,451 Realized gains on investments 4,216 4,216 Foreign exchange gains 18,583 18,583 Interest expense (4,597) (4,597) --------- Income before income taxes $183,146 ========= Net loss and loss expense ratio 66.7% 54.7% Acquisition cost ratio 16.3% 14.4% General and administrative expense ratio 5.1% 2.0% 10.2% ------------------------------ Combined ratio 88.1% 79.3% ------------ --------- (a) The Company utilizes underwriting income as a measure of underwriting profitability as it evaluates profitability solely on underwriting related revenues and costs. Items not considered to be part of underwriting include corporate expenses, investment income, realized losses and gains on the sale of investments, foreign exchange and interest expense. These items are evaluated separately from our underwriting results. Underwriting income takes into account net premiums earned and other insurance related income as revenue and net losses and loss expenses, acquisition costs and underwriting related general and administrative expenses as expenses. Underwriting income is the difference between the revenue and expense items. AXIS CAPITAL HOLDINGS LIMITED UNAUDITED CONSOLIDATED SEGMENTAL DATA Year ended December 31, 2005 Global U.S. Total Insurance Insurance Insurance -------------------------------- Revenues: Gross premiums written $861,098 $1,013,919 $1,875,017 Net premiums written 649,703 518,064 1,167,767 Net premiums earned 748,015 453,534 1,201,549 Other insurance related (loss) income (5,865) 780 (5,085) Expenses: Net losses and loss expenses (492,667) (390,140) (882,807) Acquisition costs (97,908) (21,092) (119,000) General and administrative expenses (36,794) (80,909) (117,703) -------------------------------- Underwriting income (loss) (a) 114,781 (37,827) 76,954 Corporate expenses Net investment income Realized losses on investments Foreign exchange losses Interest expense Income before income taxes Net loss and loss expense ratio 65.9% 86.0% 73.5% Acquisition cost ratio 13.1% 4.7% 9.9% General and administrative expense ratio 4.9% 17.8% 9.8% -------------------------------- Combined ratio 83.9% 108.5% 93.2% -------------------------------- Reinsurance Corporate Total -------------------------------- Revenues: Gross premiums written $1,518,868 $3,393,885 Net premiums written 1,491,222 2,658,989 Net premiums earned 1,352,134 2,553,683 Other insurance related (loss) income - (5,085) Expenses: Net losses and loss expenses (1,168,322) (2,051,129) Acquisition costs (218,383) (337,383) General and administrative expenses (48,410) (166,113) -------------------------------- Underwriting income (loss) (a) (82,981) (6,027) Corporate expenses (46,729) (46,729) Net investment income 256,712 256,712 Realized losses on investments (16,912) (16,912) Foreign exchange losses (54,090) (54,090) Interest expense (32,447) (32,447) ----------- Income before income taxes $100,507 =========== Net loss and loss expense ratio 86.4% 80.3% Acquisition cost ratio 16.2% 13.2% General and administrative expense ratio 3.6% 1.8% 8.3% -------------------------------- Combined ratio 106.2% 101.8% ------------ ----------- (a) The Company utilizes underwriting income (loss) as a measure of underwriting profitability as it evaluates profitability solely on underwriting related revenues and costs. Items not considered to be part of underwriting include corporate expenses, investment income, realized losses and gains on the sale of investments, foreign exchange and interest expense. These items are evaluated separately from our underwriting results. Underwriting income (loss) takes into account net premiums earned and other insurance related income as revenue and net losses and loss expenses, acquisition costs and underwriting related general and administrative expenses as expenses. Underwriting income (loss) is the difference between the revenue and expense items. AXIS CAPITAL HOLDINGS LIMITED UNAUDITED CONSOLIDATED SEGMENTAL DATA Year ended December 31, 2004 Global U.S. Total Insurance Insurance Insurance -------------------------------- Revenues: Gross premiums written $1,095,328 $824,235 $1,919,563 Net premiums written 933,198 430,087 1,363,285 Net premiums earned 796,566 349,287 1,145,853 Other insurance related income 10,264 - 10,264 Expenses: Net losses and loss expenses (451,724) (234,746) (686,470) Acquisition costs (124,953) (10,779) (135,732) General and administrative expenses (35,052) (71,482) (106,534) -------------------------------- Underwriting income (a) 195,101 32,280 227,381 Corporate expenses Net investment income Realized gains on investments Foreign exchange gains Interest expense Income before income taxes Net loss and loss expense ratio 56.7% 67.2% 59.9% Acquisition cost ratio 15.7% 3.1% 11.8% General and administrative expense ratio 4.4% 20.5% 9.3% -------------------------------- Combined ratio 76.8% 90.8% 81.0% -------------------------------- Reinsurance Corporate Total -------------------------------- Revenues: Gross premiums written $1,092,748 - $3,012,311 Net premiums written 1,060,388 - 2,423,673 Net premiums earned 882,544 - 2,028,397 Other insurance related income 989 - 11,253 Expenses: Net losses and loss expenses (559,774) - (1,246,244) Acquisition costs (144,836) - (280,568) General and administrative expenses (41,662) - (148,196) -------------------------------- Underwriting income (a) 137,261 - 364,642 Corporate expenses (39,109) (39,109) Net investment income 152,072 152,072 Realized gains on investments 13,634 13,634 Foreign exchange gains 14,484 14,484 Interest expense (5,285) (5,285) ----------- Income before income taxes $500,438 =========== Net loss and loss expense ratio 63.5% 61.4% Acquisition cost ratio 16.4% 13.8% General and administrative expense ratio 4.7% 1.9% 9.2% -------------------------------- Combined ratio 84.5% 84.4% ------------ ----------- (a) The Company utilizes underwriting income (loss) as a measure of underwriting profitability as it evaluates profitability solely on underwriting related revenues and costs. Items not considered to be part of underwriting include corporate expenses, investment income, realized losses and gains on the sale of investments, foreign exchange and interest expense. These items are evaluated separately from our underwriting results. Underwriting income (loss) takes into account net premiums earned and other insurance related income as revenue and net losses and loss expenses, acquisition costs and underwriting related general and administrative expenses as expenses. Underwriting income (loss) is the difference between the revenue and expense items.
Cautionary Note Regarding Forward-Looking Statements
This release contains forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements contained in this release include our estimate of losses related to Hurricanes Katrina, Rita and Wilma and our expectations regarding market conditions. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause actual events or results to be materially different from our expectations include our losses related to Hurricanes Katrina, Rita and Wilma exceeding our estimates. Additional important factors that could cause actual events or results to be materially different from our expectation include (1) our limited operating history, (2) the occurrence of natural and man-made disasters, (3) actual claims exceeding our loss reserves, (4) the failure of any of the loss limitation methods we employ, (5) the effects of emerging claims and coverage issues, (6) the failure of our cedants to adequately evaluate risks, (7) the loss of one or more key executives (8) a decline in our ratings with rating agencies, (9) the loss of business provided to us by our major brokers, (10) changes in governmental regulations, (11) increased competition and (12) general economic conditions. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Non-GAAP Financial Measures
In addition to the GAAP financial measures included within this release, we have presented "net income available to common shareholders, excluding net realized gains and losses on investments, net of tax", "net income available to common shareholders, excluding net realized gains and losses on investments and foreign exchange, net of tax" and "diluted book value per common share," which are non-GAAP financial measures. We have included the first and second measures as we believe that security analysts, rating agencies and investors believe that realized gains and losses and foreign exchange, where an actively managed foreign exchange program is not in place, are largely opportunistic and are a function of economic and interest rate conditions. As a result, we believe that they evaluate earnings before realized gains and losses and foreign exchange, adjusted for tax, to make performance comparisons with our industry peers. We have included the third measure because it takes into account the effect of dilutive securities and, therefore, we believe that this is a better measure of calculating shareholder returns than book value per share. -0- AXIS CAPITAL HOLDINGS LIMITED NON-GAAP FINANCIAL MEASURE RECONCILIATION NET INCOME AVAILABLE TO COMMON SHAREHOLDERS EXCLUDING REALIZED GAINS AND LOSSES ON INVESTMENTS, NET OF TAX For the Quarters and Years ended December 31, 2005 and 2004 (Expressed in thousands of U.S. dollars, except per share amounts) Quarters ended Years ended December 31, December 31, 2005 2004 2005 2004 Net income available to common shareholders $233,492 $181,075 $90,061 $494,998 Adjustment for net realized losses (gains) on investments 10,915 (4,216) 16,912 (13,634) Adjustment for associated tax impact of net realized (losses) gains on investments (775) 326 (1,813) 971 Net income available to common shareholders excluding realized (losses) gains on investments, net ------------ ------------ ------------ ------------ of tax $243,632 $177,185 $105,160 $482,235 ============ ============ ============ ============ Net income per common share - diluted $1.47 $1.09 $0.57 $2.98 ============ ============ ============ ============ Adjustment for net realized (losses) gains on investments 0.07 (0.03) 0.11 (0.08) Adjustment for associated tax impact of net realized (losses) gains on investments - - (0.01) 0.01 Net income excluding realized (losses) gains on investments, net of tax per diluted------------ ------------ ------------ ------------ common share $1.54 $1.06 $0.67 $2.91 ============ ============ ============ ============ Weighted average common shares and common share equivalents - diluted 159,123,364 165,397,980 157,523,952 165,875,823 ============ ============ ============ ============ AXIS CAPITAL HOLDINGS LIMITED NON-GAAP FINANCIAL MEASURE RECONCILIATION NET INCOME AVAILABLE TO COMMON SHAREHOLDERS EXCLUDING REALIZED GAINS AND LOSSES ON INVESTMENTS AND FOREIGN EXCHANGE LOSSES, NET OF TAX For the Quarters and Years ended December 31, 2005 and 2004 (Expressed in thousands of U.S. dollars, except per share amounts) Quarters ended Years ended December 31, December 31, 2005 2004 2005 2004 Net income available to common shareholders $233,492 $181,075 $90,061 $494,998 Adjustment for net realized losses (gains) on investments 10,915 (4,216) 16,912 (13,634) Adjustment for foreign exchange losses (gains) 1,719 (18,583) 54,090 (14,484) Adjustment for associated tax impact (891) 739 (3,454) 1,325 Net income available to common shareholders excluding realized (losses) gains on investments and foreign exchange gains, (losses) ------------ ------------ ------------ ------------ net of tax $245,235 $159,015 $157,609 $468,205 ============ ============ ============ ============ Net income per common share - diluted $1.47 $1.09 $0.57 $2.98 ============ ============ ============ ============ Adjustment for net realized losses (gains) on investments 0.07 (0.03) 0.11 (0.08) Adjustment for foreign exchange losses 0.01 (0.11) 0.34 (0.09) Adjustment for associated tax impact (0.01) - (0.02) 0.01 Net income excluding realized (losses) gains on investments and foreign exchange gains, (losses) net of tax per common diluted ------------ ------------ ------------ ------------ share $1.54 $0.95 $1.00 $2.82 ============ ============ ============ ============ Weighted average common shares and common share equivalents - diluted 159,123,364 165,397,980 157,523,952 165,875,823 ============ ============ ============ ============ AXIS CAPITAL HOLDINGS LIMITED NON-GAAP FINANCIAL MEASURE RECONCILIATION DILUTED BOOK VALUE PER COMMON SHARE As at December 31, 2005 and 2004 (Expressed in thousands of U.S. dollars, except share and per share amounts) December 31, December 31, 2005 2004 Total shareholders' equity $3,512,351 $3,238,064 less preferred equity (500,000) - ------------ ------------ Common shareholders' equity $3,012,351 $3,238,064 Common shares outstanding 148,868,759 152,764,917 ------------ ------------ Book value per common share $20.23 $21.20 ============ ============ Diluted book value on an "as if converted basis" Common shareholders' equity $3,012,351 $3,238,064 add in: proceeds on exercise of options 117,808 94,724 proceeds on exercise of warrants 244,812 244,812 ------------ ------------ Adjusted shareholders' equity 3,374,971 3,577,600 ------------ ------------ As if converted diluted shares outstanding Common shares outstanding 148,868,759 152,764,917 add in: vesting of restricted stock 1,172,550 2,182,700 exercise of options 6,174,464 5,694,181 exercise of warrants 19,650,509 19,619,152 ------------ ------------ Diluted common shares outstanding 175,866,282 180,260,950 ------------ ------------ ------------ ------------ Diluted book value per common share $19.19 $19.85 ============ ============
The decrease in the 2005 net income available to common shareholders was principally caused by pre-tax net losses from Hurricanes Katrina, Rita and Wilma of $1,019.1 million. These net losses include $846.9 million for Hurricanes Katrina and Rita, an increase of 5.3% over previously reported net loss estimates for these two events of $804.5 million, and $172.2 million for Hurricane Wilma. These net losses compared to net losses from Hurricanes Charley, Frances, Ivan and Jeanne of $266.3 million for 2004. Our net loss estimate for Hurricane Katrina remained stable at $723.4 million and our net loss estimate for Hurricane Rita increased to $123.5 million from our previous estimate of $80.9 million. Our initial range of net loss estimates for Hurricane Wilma was determined immediately following the event and our updated estimate reflects our analysis of the latest loss information.
Net income available to common shareholders, excluding net realized gains and losses on investments, net of tax, for 2005 was $105.2 million, or $0.67 per diluted common share, compared with net income of $482.2 million, or $2.91 per diluted common share, for 2004. This same item excluding foreign exchange losses, net of tax, for 2005 was $157.6 million, or $1.00 per diluted common share, compared with net income $468.2 million, or $2.82 per diluted common share for 2004.
Net income available to common shareholders, excluding net realized gains and losses on investments, net of tax, for the fourth quarter of 2005 was $243.6 million, or $1.54 per diluted common share, compared with net income of $177.2 million, or $1.06 per diluted common share, for the same period in 2004. This same item excluding foreign exchange losses, net of tax, for the fourth quarter of 2005 was $245.2 million, or $1.54 per diluted common share, compared with net income of $159.0 million, or $0.95 per diluted common share, for the same period in 2004.
Net income available to common shareholders, excluding net realized gains and losses on investments, net of tax, and net income excluding net realized gains and losses on investments and foreign exchange losses, net of tax, are non-GAAP financial measures. Reconciliations of these measures to net income are presented at the end of this release.
Operating highlights for the year ended December 31, 2005 included the following:
-- Gross premiums written increased by 12.7% to $3,393.9 million primarily due to an increase in premiums written in our reinsurance segment.
-- Net premiums written increased to $2,659.0 million from $2,423.7 million, an increase of 9.7%.
-- Net premiums earned increased by 25.9% to $2,553.7 million. The increase was largely generated by our reinsurance segment.
-- Total pre-tax investment income, including net realized gains and losses, increased by 44.7% to $239.8 million. The increase was primarily due to a combination of higher investment balances and higher investment yields offset by an increase in realized losses; and
-- Total shareholders' equity was $3.5 billion and total capitalization was $4.0 billion at December 31, 2005. This included $200 million of common equity and $500 million of preferred equity issued during the third and fourth quarters of 2005. This compared to total shareholders equity of $3.2 billion and total capitalization of $3.7 billion at December 31, 2004.
Commenting on the 2005 financial year results, John Charman, Chief Executive Officer and President of AXIS Capital, stated: "In a year of unprecedented catastrophe losses, AXIS has clearly demonstrated that its experienced, realistic risk management practice, coupled with its strongly diversified business portfolio, is able to withstand extraordinary losses. Having been consistently involved in business subject to volatility, my 34-year career goal has been to accrete capital meaningfully over the long-term and, at the very least, to be in a position to do so by preserving capital regardless of market circumstances. It's always disappointing to report major loss events; however, I am very proud that AXIS was able to produce net income for 2005 of $90.1 million. We finished the year with $4 billion in total capital. This is capital that was preserved by our focused core underwriting discipline and further strengthened by our capital raisings during the last half of 2005.
Our diversified global franchise and underwriting machine is well-positioned to maximize any benefit wherever and whenever it may appear in this firming market environment. Our underwriters have a proven track record of bringing opportunities to fruition quickly and decisively in an intelligent peer review environment and, in the aftermath of Hurricane Katrina, have been rigorously applying remedial action. AXIS is truly well positioned for 2006 and beyond."
Operating Results
Gross premiums written for 2005 increased 12.7% from 2004 and were derived 55.2% from our insurance segment and 44.8% from our reinsurance segment compared to 63.7% and 36.3%, respectively, for 2004. This change in business mix was due to additional premiums written in our reinsurance business and a decrease in premiums written by our global insurance operations. Our combined ratio increased to 101.8% in 2005 from 84.4% in 2004 primarily due to an increase in the level of net hurricane losses.
During the fourth quarter of 2005, gross premiums written decreased by 2.7% compared to the same period in 2004 and were derived 74.6% from our insurance segment and 25.4% from our reinsurance segment compared to 91.1% and 8.9%, respectively, for the same period in 2004. The change in business mix was primarily due to the decrease in premiums written in global insurance. Our combined ratio decreased to 73.2% in the fourth quarter from 79.3% in the same period in 2004 primarily due to a reduction in the loss ratio.
Insurance Segment
Gross premiums written in our insurance segment decreased by 2.3% to $1,875.0 million for 2005 and 20.4% to $472.2 million for the fourth quarter of 2005 compared to the same periods in 2004. The decreases were driven by a reduction in gross premiums written in global insurance of 21.4%, or $234.2 million for the year, and 48.0%, or $174.8 million for the fourth quarter. The decreases were driven by our underwriting discipline during the deteriorating market conditions that characterized most of 2005. In particular, we significantly reduced the level of aviation and aviation war business written in the fourth quarter of 2005, which is the primary renewal period for this business, as fewer risks met our underwriting criteria. This decline in global insurance gross premiums written, however, was largely offset by an increase in gross premiums written in our U.S. insurance segment. Gross premiums written in our U.S. insurance segment increased 23.0%, or $189.7 million, for the year and 23.6%, or $54.0 million, for the fourth quarter compared to the same periods in 2004. These increases were primarily due to the targeted expansion of our professional lines products and our specialty program business within our property account.
Net premiums written of $1,167.8 million for 2005 declined 14.3% from 2004 primarily as a result of increased ceded premiums in U.S. insurance. For the fourth quarter of 2005, net premiums written were $320.1 million, a 23.9% decrease from the same period in 2004.
Our insurance segment reported a combined ratio of 93.2% for 2005 compared to 81.0% for 2004. The increase was driven by net losses of $405.6 million, or 33.8 percentage points, relating to Hurricanes Katrina, Rita and Wilma compared to net losses of $97.1 million, or 8.5 percentage points, relating to Hurricanes Charley, Frances, Ivan and Jeanne in 2004. The insurance segment experienced favorable prior period reserve development of $268.7 million, or 22.4 percentage points, on short-tail lines of business from accident years 2004 and prior, compared to $106.8 million, or 9.3 percentage points, in 2004.
During the fourth quarter of 2005, the insurance segment generated a combined ratio of 71.9% compared to 68.5% in the same period in 2004. The increase was primarily due to net losses of $70.7 million from Hurricane Wilma, which added 22.4 percentage points to the loss ratio. The insurance segment experienced favorable prior period development of $96.1 million, or 30.4 percentage points, in the quarter on short-tail lines of business from accident years 2004 and prior, compared to $27.4 million, or 9.1 percentage points, in the same period in 2004.
Reinsurance Segment
Our reinsurance segment reported gross premiums written in 2005 of $1,518.9 million, an increase of 39.0% from 2004, and net premiums written in 2005 of $1,491.2 million, an increase of 40.6% from 2004. The increase in gross premiums written was primarily driven by our property, catastrophe and liability lines of business.
The fourth quarter is not a significant renewal date for our reinsurance segment. Gross premiums written were $161.1 million for the fourth quarter of 2005 compared to $58.1 million for the same period in 2004. The increase was primarily due to additional premiums written in our property and liability lines of business.
Our reinsurance segment reported a combined ratio of 106.2% for 2005 compared to 84.5% in 2004, which was largely driven by an increase in the loss ratio from 63.4% to 86.4%. The segment incurred net losses of $613.5 million, or 45.4 percentage points, relating to Hurricanes Katrina, Rita and Wilma compared to net losses of $169.2 million, or 19.2 percentage points, relating to Hurricanes Charley, Frances, Ivan and Jeanne in 2004. Favorable prior period reserve development was from short-tail lines of business and was $114.3 million, or 8.5 percentage points, in 2005 compared to $74.9 million, or 8.5 percentage points for 2004.
The combined ratio in the reinsurance segment for the fourth quarter of 2005 was 69.5% compared to 88.1% for the same period in 2004. The decrease was largely due to a decrease in the loss ratio from 66.7% to 51.5%, which was primarily the result of prior period favorable development from short-tail lines of business of $50.4 million, or 13.6 percentage points, in the quarter compared to $13.0 million, or 5.3 percentage points, in the same period in 2004.
Interest Expense
Interest expense for 2005 was $32.4 million compared to $5.3 million for 2004. Interest expense for the fourth quarter of 2005 was $8.2 million compared to $4.6 million for the same period in 2004. Interest expense consists of interest due on outstanding debt, the amortization of debt offering expenses and discounts and fees relating to our credit facility. Our outstanding debt relates to $500 million of senior unsecured notes issued on November 15, 2004.
Preferred Dividends
Preferred dividends were $4.4 million for 2005 and related to dividends declared on our Series A preferred shares, which were issued in September 2005. Dividends on our Series B preferred shares, issued in November 2005, will be payable commencing in 2006, subject to Board approval.
Investments
Total pre-tax investment income for 2005 of $239.8 million included $256.7 million in net investment income and $16.9 million in realized losses. This was an increase of 44.7% from $165.7 million in 2004. For the fourth quarter of 2005, total pre-tax investment income was $68.0 million and included $78.9 million in net investment income and $10.9 million in realized losses. This was an increase of 31.7% from $51.7 million in the same period in 2004. The increases primarily reflected the positive impact of higher average yields on higher investment balances offset by an increase in realized losses. These increased yields were generated by higher short-term U.S. interest rates together with our increased allocation to other investments.
Capitalization / Shareholders' Equity
Total capitalization at December 31, 2005 was $4.0 billion. In November 2005, we issued 2,500,000 7.5% Series B preferred shares with net proceeds received of $247.5 million and completed the sale of 6,800,000 common shares with net proceeds received of $200.1 million. In September 2005, we issued 10,000,000 7.25% Series A preferred shares with net proceeds received of $242.3 million.
At December 31, 2005, diluted book value per common share was $19.19 and book value per common share was $20.23. Diluted book value per share is a non-GAAP financial measure. A reconciliation of this measure to shareholders' equity is presented at the end of this release.
Conference Call
We will host a conference call on Wednesday February 8, 2006 at 8:00 AM (Eastern) to discuss the year end financial results and related matters. This presentation will be available through an audio webcast accessible through the Investor Information section of our website at www.axiscapital.com.
In addition, a financial supplement relating to our financial results for the year and fourth quarter is available in the Investor Information section of our website.
AXIS Capital is a Bermuda-based global provider of specialty lines insurance and treaty reinsurance with shareholders' equity at December 31, 2005 of $3.5 billion and locations in Bermuda, the United States, Europe and Singapore. Its operating subsidiaries have been assigned a rating of "A" ("Excellent") by A.M. Best and a rating of "A" ("Strong") by Standard & Poor's. AXIS Capital has been assigned a senior unsecured debt rating of Baa1 (stable) by Moody's Investors Service and BBB+ (stable) by Standard & Poor's. For more information about AXIS Capital, visit our website at www.axiscapital.com. -0- AXIS CAPITAL HOLDINGS LIMITED UNAUDITED CONSOLIDATED BALANCE SHEETS As at December 31, 2005 and December 31, 2004 (Expressed in thousands of U.S. dollars, except share and per share amounts) December 31, December 31, 2005 2004 Assets Note 1 Cash and cash equivalents $1,280,990 $632,329 Fixed maturity investments at fair market value 6,012,425 5,293,877 Other investments 409,504 105,812 Accrued interest receivable 59,784 47,487 Securities lending collateral 998,349 865,311 Insurance and reinsurance balances receivable 1,026,975 914,562 Deferred acquisition costs 196,388 211,082 Prepaid reinsurance premiums 281,579 271,187 Reinsurance recoverable 1,518,110 596,299 Intangible assets 37,013 31,734 Other assets 104,859 68,605 ------------- ------------- Total Assets $11,925,976 $9,038,285 ============= ============= Liabilities Reserve for losses and loss expenses $4,743,338 $2,404,560 Unearned premiums 1,760,467 1,644,771 Insurance and reinsurance balances payable 314,232 247,940 Accounts payable and accrued expenses 101,179 89,804 Securities lending payable 995,287 864,354 Net payable for investments purchased 76 49,854 Debt 499,046 498,938 ------------- ------------- Total Liabilities 8,413,625 5,800,221 ------------- ------------- Shareholders' Equity Series A preferred shares $125 $- Series B preferred shares 31 - Common shares 1,861 1,910 Additional paid-in capital 2,386,200 2,017,144 Accumulated other comprehensive (loss) income (77,798) 12,915 Retained earnings 1,201,932 1,206,095 ------------- ------------- Total Shareholders' Equity 3,512,351 3,238,064 ------------- ------------- Total Liabilities & Shareholders' Equity $11,925,976 $9,038,285 ============= ============= Note 1: In 2004, certain investments have been reclassified from other investments to fixed maturity investments to conform to current year classifications. AXIS CAPITAL HOLDINGS LIMITED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS For the Quarters and Years ended December 31, 2005 and 2004 (Expressed in thousands of U.S. dollars, except share and per share amounts) Quarters ended Years ended December 31, December 31, 2005 2004 2005 2004 Note 2 Note 2 Revenues Gross premiums written $ 633,322 $ 651,169 $ 3,393,885 $ 3,012,311 Premiums ceded (169,917) (176,575) (734,896) (588,638) Change in unearned premiums 223,461 74,354 (105,306) (395,276) ------------ ------------ ------------ ------------ Net premiums earned 686,866 548,948 2,553,683 2,028,397 Net investment income 78,938 47,451 256,712 152,072 Net realized (losses) gains (10,915) 4,216 (16,912) 13,634 Other insurance related income (loss) 198 3,603 (5,085) 11,253 ------------ ------------ ------------ ------------ Total revenues $ 755,087 $ 604,218 $ 2,788,398 $ 2,205,356 ------------ ------------ ------------ ------------ Expenses Net losses and loss expenses $ 348,716 $ 300,219 $ 2,051,129 $ 1,246,244 Acquisition costs 96,175 78,894 337,383 280,568 General and administrative expenses 57,507 55,945 212,842 187,305 Foreign exchange losses (gains) 1,719 (18,583) 54,090 (14,484) Interest expense 8,191 4,597 32,447 5,285 ------------ ------------ ------------ ------------ Total expenses $ 512,308 $ 421,072 $ 2,687,891 $ 1,704,918 ------------ ------------ ------------ ------------ Income before income taxes 242,779 183,146 100,507 500,438 Income tax expense (4,908) (2,071) (6,067) (5,440) ------------ ------------ ------------ ------------ Net Income 237,871 181,075 94,440 494,998 Preferred Dividends (4,379) - (4,379) - ------------ ------------ ------------ ------------ Net income available to common shareholders $ 233,492 $ 181,075 $ 90,061 $ 494,998 ============ ============ ============ ============ Weighted average common shares and Common share equivalents - basic 144,750,783 152,662,584 143,225,774 152,553,677 ============ ============ ============ ============ Weighted average common shares and common share equivalents - diluted 159,123,364 165,397,980 157,523,952 165,875,823 ============ ============ ============ ============ Net income per common share - basic $ 1.61 $ 1.19 $ 0.63 $ 3.24 ============ ============ ============ ============ Net income per common share - diluted $ 1.47 $ 1.09 $ 0.57 $ 2.98 ============ ============ ============ ============ Insurance Ratios Loss ratio 50.8% 54.7% 80.3% 61.4% Expense ratio 22.4% 24.6% 21.5% 23.0% ------------ ------------ ------------ ------------ Combined ratio 73.2% 79.3% 101.8% 84.4% ============ ============ ============ ============ Note 2: In 2004, interest expense has been reclassifed from general administrative expenses to conform to current year classifications. Interest expense consists of interest due on outstanding debt, the amortization of debt offering expenses and offering discounts and fees relating to our credit facility. AXIS CAPITAL HOLDINGS LIMITED UNAUDITED CONSOLIDATED SEGMENTAL DATA Quarter ended December 31, 2005 Global U.S. Total Insurance Insurance Insurance ------------------------------ Revenues: Gross premiums written $189,647 $282,556 $472,203 Net premiums written 168,455 151,673 320,128 Net premiums earned 185,081 131,538 316,619 Other insurance related income - 198 198 Expenses: Net losses and loss expenses (40,709) (117,264) (157,973) Acquisition costs (25,078) (16,075) (41,153) General and administrative expenses (8,271) (20,105) (28,376) ------------------------------ Underwriting income (loss) (a) 111,023 (21,708) 89,315 Corporate expenses Net investment income Realized losses on investments Foreign exchange losses Interest expense Income before income taxes Net loss and loss expense ratio 22.0% 89.1% 49.9% Acquisition cost ratio 13.5% 12.2% 13.0% General and administrative expense ratio 4.5% 15.3% 9.0% ------------------------------ Combined ratio 40.0% 116.6% 71.9% ------------------------------ Reinsurance Corporate Total ------------------------------ Revenues: Gross premiums written $161,119 $633,322 Net premiums written 143,277 463,405 Net premiums earned 370,247 686,866 Other insurance related income - 198 Expenses: Net losses and loss expenses (190,743) (348,716) Acquisition costs (55,022) (96,175) General and administrative expenses (11,592) (39,968) ------------------------------ Underwriting income (loss) (a) 112,890 202,205 Corporate expenses (17,539) (17,539) Net investment income 78,938 78,938 Realized losses on investments (10,915) (10,915) Foreign exchange losses (1,719) (1,719) Interest expense (8,191) (8,191) --------- Income before income taxes $242,779 ========= Net loss and loss expense ratio 51.5% 50.8% Acquisition cost ratio 14.9% 14.0% General and administrative expense ratio 3.1% 2.6% 8.4% ------------------------------ Combined ratio 69.5% 73.2% ------------ --------- (a) The Company utilizes underwriting income (loss) as a measure of underwriting profitability as it evaluates profitability solely on underwriting related revenues and costs. Items not considered to be part of underwriting include corporate expenses, investment income, realized losses and gains on the sale of investments, foreign exchange and interest expense. These items are evaluated separately from our underwriting results. Underwriting income (loss) takes into account net premiums earned and other insurance related income as revenue and net losses and loss expenses, acquisition costs and underwriting related general and administrative expenses as expenses. Underwriting income (loss) is the difference between the revenue and expense items. AXIS CAPITAL HOLDINGS LIMITED UNAUDITED CONSOLIDATED SEGMENTAL DATA Quarter ended December 31, 2004 Global U.S. Total Insurance Insurance Insurance ------------------------------ Revenues: Gross premiums written $364,450 $228,598 $593,048 Net premiums written 313,950 106,846 420,796 Net premiums earned 200,805 101,450 302,255 Other insurance related income 3,377 - 3,377 Expenses: Net losses and loss expenses (83,248) (52,475) (135,723) Acquisition costs (35,423) (3,302) (38,725) General and administrative expenses (11,005) (21,555) (32,560) ------------------------------ Underwriting income (a) 74,506 24,118 98,624 Corporate expenses Net investment income Realized gains on investments Foreign exchange gains Interest expense Income before income taxes Net loss and loss expense ratio 41.5% 51.7% 44.9% Acquisition cost ratio 17.6% 3.3% 12.8% General and administrative expense ratio 5.5% 21.2% 10.8% ------------------------------ Combined ratio 64.6% 76.2% 68.5% ------------------------------ Reinsurance Corporate Total ------------------------------ Revenues: Gross premiums written $58,121 - $651,169 Net premiums written 53,798 - 474,594 Net premiums earned 246,693 - 548,948 Other insurance related income 226 - 3,603 Expenses: Net losses and loss expenses (164,496) - (300,219) Acquisition costs (40,169) - (78,894) General and administrative expenses (12,604) - (45,164) ------------------------------ Underwriting income (a) 29,650 - 128,274 Corporate expenses (10,781) (10,781) Net investment income 47,451 47,451 Realized gains on investments 4,216 4,216 Foreign exchange gains 18,583 18,583 Interest expense (4,597) (4,597) --------- Income before income taxes $183,146 ========= Net loss and loss expense ratio 66.7% 54.7% Acquisition cost ratio 16.3% 14.4% General and administrative expense ratio 5.1% 2.0% 10.2% ------------------------------ Combined ratio 88.1% 79.3% ------------ --------- (a) The Company utilizes underwriting income as a measure of underwriting profitability as it evaluates profitability solely on underwriting related revenues and costs. Items not considered to be part of underwriting include corporate expenses, investment income, realized losses and gains on the sale of investments, foreign exchange and interest expense. These items are evaluated separately from our underwriting results. Underwriting income takes into account net premiums earned and other insurance related income as revenue and net losses and loss expenses, acquisition costs and underwriting related general and administrative expenses as expenses. Underwriting income is the difference between the revenue and expense items. AXIS CAPITAL HOLDINGS LIMITED UNAUDITED CONSOLIDATED SEGMENTAL DATA Year ended December 31, 2005 Global U.S. Total Insurance Insurance Insurance -------------------------------- Revenues: Gross premiums written $861,098 $1,013,919 $1,875,017 Net premiums written 649,703 518,064 1,167,767 Net premiums earned 748,015 453,534 1,201,549 Other insurance related (loss) income (5,865) 780 (5,085) Expenses: Net losses and loss expenses (492,667) (390,140) (882,807) Acquisition costs (97,908) (21,092) (119,000) General and administrative expenses (36,794) (80,909) (117,703) -------------------------------- Underwriting income (loss) (a) 114,781 (37,827) 76,954 Corporate expenses Net investment income Realized losses on investments Foreign exchange losses Interest expense Income before income taxes Net loss and loss expense ratio 65.9% 86.0% 73.5% Acquisition cost ratio 13.1% 4.7% 9.9% General and administrative expense ratio 4.9% 17.8% 9.8% -------------------------------- Combined ratio 83.9% 108.5% 93.2% -------------------------------- Reinsurance Corporate Total -------------------------------- Revenues: Gross premiums written $1,518,868 $3,393,885 Net premiums written 1,491,222 2,658,989 Net premiums earned 1,352,134 2,553,683 Other insurance related (loss) income - (5,085) Expenses: Net losses and loss expenses (1,168,322) (2,051,129) Acquisition costs (218,383) (337,383) General and administrative expenses (48,410) (166,113) -------------------------------- Underwriting income (loss) (a) (82,981) (6,027) Corporate expenses (46,729) (46,729) Net investment income 256,712 256,712 Realized losses on investments (16,912) (16,912) Foreign exchange losses (54,090) (54,090) Interest expense (32,447) (32,447) ----------- Income before income taxes $100,507 =========== Net loss and loss expense ratio 86.4% 80.3% Acquisition cost ratio 16.2% 13.2% General and administrative expense ratio 3.6% 1.8% 8.3% -------------------------------- Combined ratio 106.2% 101.8% ------------ ----------- (a) The Company utilizes underwriting income (loss) as a measure of underwriting profitability as it evaluates profitability solely on underwriting related revenues and costs. Items not considered to be part of underwriting include corporate expenses, investment income, realized losses and gains on the sale of investments, foreign exchange and interest expense. These items are evaluated separately from our underwriting results. Underwriting income (loss) takes into account net premiums earned and other insurance related income as revenue and net losses and loss expenses, acquisition costs and underwriting related general and administrative expenses as expenses. Underwriting income (loss) is the difference between the revenue and expense items. AXIS CAPITAL HOLDINGS LIMITED UNAUDITED CONSOLIDATED SEGMENTAL DATA Year ended December 31, 2004 Global U.S. Total Insurance Insurance Insurance -------------------------------- Revenues: Gross premiums written $1,095,328 $824,235 $1,919,563 Net premiums written 933,198 430,087 1,363,285 Net premiums earned 796,566 349,287 1,145,853 Other insurance related income 10,264 - 10,264 Expenses: Net losses and loss expenses (451,724) (234,746) (686,470) Acquisition costs (124,953) (10,779) (135,732) General and administrative expenses (35,052) (71,482) (106,534) -------------------------------- Underwriting income (a) 195,101 32,280 227,381 Corporate expenses Net investment income Realized gains on investments Foreign exchange gains Interest expense Income before income taxes Net loss and loss expense ratio 56.7% 67.2% 59.9% Acquisition cost ratio 15.7% 3.1% 11.8% General and administrative expense ratio 4.4% 20.5% 9.3% -------------------------------- Combined ratio 76.8% 90.8% 81.0% -------------------------------- Reinsurance Corporate Total -------------------------------- Revenues: Gross premiums written $1,092,748 - $3,012,311 Net premiums written 1,060,388 - 2,423,673 Net premiums earned 882,544 - 2,028,397 Other insurance related income 989 - 11,253 Expenses: Net losses and loss expenses (559,774) - (1,246,244) Acquisition costs (144,836) - (280,568) General and administrative expenses (41,662) - (148,196) -------------------------------- Underwriting income (a) 137,261 - 364,642 Corporate expenses (39,109) (39,109) Net investment income 152,072 152,072 Realized gains on investments 13,634 13,634 Foreign exchange gains 14,484 14,484 Interest expense (5,285) (5,285) ----------- Income before income taxes $500,438 =========== Net loss and loss expense ratio 63.5% 61.4% Acquisition cost ratio 16.4% 13.8% General and administrative expense ratio 4.7% 1.9% 9.2% -------------------------------- Combined ratio 84.5% 84.4% ------------ ----------- (a) The Company utilizes underwriting income (loss) as a measure of underwriting profitability as it evaluates profitability solely on underwriting related revenues and costs. Items not considered to be part of underwriting include corporate expenses, investment income, realized losses and gains on the sale of investments, foreign exchange and interest expense. These items are evaluated separately from our underwriting results. Underwriting income (loss) takes into account net premiums earned and other insurance related income as revenue and net losses and loss expenses, acquisition costs and underwriting related general and administrative expenses as expenses. Underwriting income (loss) is the difference between the revenue and expense items.
Cautionary Note Regarding Forward-Looking Statements
This release contains forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements contained in this release include our estimate of losses related to Hurricanes Katrina, Rita and Wilma and our expectations regarding market conditions. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause actual events or results to be materially different from our expectations include our losses related to Hurricanes Katrina, Rita and Wilma exceeding our estimates. Additional important factors that could cause actual events or results to be materially different from our expectation include (1) our limited operating history, (2) the occurrence of natural and man-made disasters, (3) actual claims exceeding our loss reserves, (4) the failure of any of the loss limitation methods we employ, (5) the effects of emerging claims and coverage issues, (6) the failure of our cedants to adequately evaluate risks, (7) the loss of one or more key executives (8) a decline in our ratings with rating agencies, (9) the loss of business provided to us by our major brokers, (10) changes in governmental regulations, (11) increased competition and (12) general economic conditions. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Non-GAAP Financial Measures
In addition to the GAAP financial measures included within this release, we have presented "net income available to common shareholders, excluding net realized gains and losses on investments, net of tax", "net income available to common shareholders, excluding net realized gains and losses on investments and foreign exchange, net of tax" and "diluted book value per common share," which are non-GAAP financial measures. We have included the first and second measures as we believe that security analysts, rating agencies and investors believe that realized gains and losses and foreign exchange, where an actively managed foreign exchange program is not in place, are largely opportunistic and are a function of economic and interest rate conditions. As a result, we believe that they evaluate earnings before realized gains and losses and foreign exchange, adjusted for tax, to make performance comparisons with our industry peers. We have included the third measure because it takes into account the effect of dilutive securities and, therefore, we believe that this is a better measure of calculating shareholder returns than book value per share. -0- AXIS CAPITAL HOLDINGS LIMITED NON-GAAP FINANCIAL MEASURE RECONCILIATION NET INCOME AVAILABLE TO COMMON SHAREHOLDERS EXCLUDING REALIZED GAINS AND LOSSES ON INVESTMENTS, NET OF TAX For the Quarters and Years ended December 31, 2005 and 2004 (Expressed in thousands of U.S. dollars, except per share amounts) Quarters ended Years ended December 31, December 31, 2005 2004 2005 2004 Net income available to common shareholders $233,492 $181,075 $90,061 $494,998 Adjustment for net realized losses (gains) on investments 10,915 (4,216) 16,912 (13,634) Adjustment for associated tax impact of net realized (losses) gains on investments (775) 326 (1,813) 971 Net income available to common shareholders excluding realized (losses) gains on investments, net ------------ ------------ ------------ ------------ of tax $243,632 $177,185 $105,160 $482,235 ============ ============ ============ ============ Net income per common share - diluted $1.47 $1.09 $0.57 $2.98 ============ ============ ============ ============ Adjustment for net realized (losses) gains on investments 0.07 (0.03) 0.11 (0.08) Adjustment for associated tax impact of net realized (losses) gains on investments - - (0.01) 0.01 Net income excluding realized (losses) gains on investments, net of tax per diluted------------ ------------ ------------ ------------ common share $1.54 $1.06 $0.67 $2.91 ============ ============ ============ ============ Weighted average common shares and common share equivalents - diluted 159,123,364 165,397,980 157,523,952 165,875,823 ============ ============ ============ ============ AXIS CAPITAL HOLDINGS LIMITED NON-GAAP FINANCIAL MEASURE RECONCILIATION NET INCOME AVAILABLE TO COMMON SHAREHOLDERS EXCLUDING REALIZED GAINS AND LOSSES ON INVESTMENTS AND FOREIGN EXCHANGE LOSSES, NET OF TAX For the Quarters and Years ended December 31, 2005 and 2004 (Expressed in thousands of U.S. dollars, except per share amounts) Quarters ended Years ended December 31, December 31, 2005 2004 2005 2004 Net income available to common shareholders $233,492 $181,075 $90,061 $494,998 Adjustment for net realized losses (gains) on investments 10,915 (4,216) 16,912 (13,634) Adjustment for foreign exchange losses (gains) 1,719 (18,583) 54,090 (14,484) Adjustment for associated tax impact (891) 739 (3,454) 1,325 Net income available to common shareholders excluding realized (losses) gains on investments and foreign exchange gains, (losses) ------------ ------------ ------------ ------------ net of tax $245,235 $159,015 $157,609 $468,205 ============ ============ ============ ============ Net income per common share - diluted $1.47 $1.09 $0.57 $2.98 ============ ============ ============ ============ Adjustment for net realized losses (gains) on investments 0.07 (0.03) 0.11 (0.08) Adjustment for foreign exchange losses 0.01 (0.11) 0.34 (0.09) Adjustment for associated tax impact (0.01) - (0.02) 0.01 Net income excluding realized (losses) gains on investments and foreign exchange gains, (losses) net of tax per common diluted ------------ ------------ ------------ ------------ share $1.54 $0.95 $1.00 $2.82 ============ ============ ============ ============ Weighted average common shares and common share equivalents - diluted 159,123,364 165,397,980 157,523,952 165,875,823 ============ ============ ============ ============ AXIS CAPITAL HOLDINGS LIMITED NON-GAAP FINANCIAL MEASURE RECONCILIATION DILUTED BOOK VALUE PER COMMON SHARE As at December 31, 2005 and 2004 (Expressed in thousands of U.S. dollars, except share and per share amounts) December 31, December 31, 2005 2004 Total shareholders' equity $3,512,351 $3,238,064 less preferred equity (500,000) - ------------ ------------ Common shareholders' equity $3,012,351 $3,238,064 Common shares outstanding 148,868,759 152,764,917 ------------ ------------ Book value per common share $20.23 $21.20 ============ ============ Diluted book value on an "as if converted basis" Common shareholders' equity $3,012,351 $3,238,064 add in: proceeds on exercise of options 117,808 94,724 proceeds on exercise of warrants 244,812 244,812 ------------ ------------ Adjusted shareholders' equity 3,374,971 3,577,600 ------------ ------------ As if converted diluted shares outstanding Common shares outstanding 148,868,759 152,764,917 add in: vesting of restricted stock 1,172,550 2,182,700 exercise of options 6,174,464 5,694,181 exercise of warrants 19,650,509 19,619,152 ------------ ------------ Diluted common shares outstanding 175,866,282 180,260,950 ------------ ------------ ------------ ------------ Diluted book value per common share $19.19 $19.85 ============ ============