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 30,2017 2019
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)
BERMUDABermuda
(State or other jurisdiction of incorporation or organization)
98-0395986
(I.R.S. Employer Identification No.)
92 Pitts Bay Road, Pembroke, BermudaHM 08
(Address of principal executive offices and zip code)
(441) (441) 496-2600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: |
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common shares, par value $0.0125 per share | AXS | New York Stock Exchange |
5.50% Series D preferred shares | AXS PRD | New York Stock Exchange |
Depositary Shares, each representing a 1/100th interest in a 5.50% Series E preferred share | AXS PRE | New York Stock Exchange |
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. Yesx☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx☒ 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"large accelerated filer”filer", “accelerated filer”"accelerated filer", “smaller"smaller reporting company”company", and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act. |
| | | | |
Large accelerated filerx | ☒ | | Accelerated filer¨ | ☐ |
Non-accelerated filer¨ (do not check if a smaller reporting company) | ☐ | | 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☒
As of At October 31 2017,, 2019, there were 83,158,96283,957,597 Common Shares, $0.0125 par value per share, of the registrant outstanding.outstanding.
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. | | |
| | |
| |
PART I | FINANCIAL INFORMATION |
This quarterly reportQuarterly Report on Form 10-Q contains forward-looking statements within the meaning of section 27A of the United States federal securities laws.Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. 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. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the United States federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may”"may", “should”"should", “could”"could", “anticipate”"anticipate", “estimate”"estimate", “expect”"expect", “plan”"plan", “believe”"believe", “predict”"predict", “potential”"potential" and “intend”. "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, our expectations regarding the 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 related to our 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)insurance and reinsurance business leading to periods with excess underwriting capacity and unfavorable premium rates,rates;
the occurrence and magnitude of natural and man-made disasters,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,losses;
actual claims exceeding our loss reserves,reserves;
general economic, capital and credit market conditions,conditions;
the failure of any of the loss limitation methods we employ,employ;
the effects of emerging claims, coverage and regulatory issues, including uncertainty related to coverage definitions, limits, terms and conditions,conditions;
our inability to purchase reinsurance or collect amounts due to us,us;
the breach by third parties in our program business of their obligations to us,us;
difficulties with technology and/or data security,security;
the failure of our policyholders and intermediaries to pay premiums,premiums;
the failure of our cedants to adequately evaluate risks,risks;
inability to obtain additional capital on favorable terms, or at all,all;
the loss of one or more key executives,executives;
a decline in our ratings with rating agencies,agencies;
loss of business provided to us by our major brokers and credit risk due to our reliance on brokers,brokers;
changes in accounting policies or practices,practices;
the use of industry catastrophe models and changes to these models,models;
changes in governmental regulations and potential government intervention in our industry,industry;
failure to comply with certain laws and regulations relating to sanctions and foreign corrupt practices,practices;
increased competition,competition;
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,Union;
fluctuations in interest rates, credit spreads, equity securities' prices and/or currency values,values;
the failure to successfully integrate acquired businesses or to realize the expected synergies resulting from such acquisitions,acquisitions;
the failure to realize the expected benefits or synergies relating to our transformation initiative;
changes in tax laws; and
| |
• | other factors including but not limited to those described under Item 1A, 'Risk Factors' and Item 7, 'Management’s Discussion and Analysis of Financial Condition and Results of Operations' included in our most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission ("SEC"), 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. |
the other matters set forth under Item 1A, ‘Risk Factors’ and Item 7, ‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’ included in our Annual Report on Form 10-K for the year ended December 31, 2016.
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, e-mail alerts and other information about AXIS Capital may be received when enrolled in our "E-mail Alerts" program 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.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
|
| |
| Page |
| |
Consolidated Balance Sheets at September 30, 20172019 (Unaudited) and December 31, 20162018 | |
Consolidated Statements of Operations for the three and nine months ended September 30, 20172019 and 20162018 (Unaudited) | |
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 20172019 and 20162018 (Unaudited) | |
Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 20172019 and 20162018 (Unaudited) | |
Consolidated Statements of Cash Flows for the nine months ended September 30, 20172019 and 20162018 (Unaudited) | |
Notes to Consolidated Financial Statements (Unaudited) | |
Note 1 - Basis of Presentation and Significant Accounting Policies | |
Note 2 - Business CombinationsSegment Information | |
Note 3 - Segment InformationInvestments | |
Note 4 - InvestmentsFair Value Measurements | |
Note 5 - Fair Value MeasurementsDerivative Instruments | |
Note 6 - Derivative InstrumentsReserve for Losses and Loss Expenses | |
Note 7 - Reserve for Losses and Loss ExpensesEarnings Per Common Share | |
Note 8 - Earnings Per Common ShareShare-Based Compensation | |
Note 9 - Share-Based CompensationShareholders' Equity | |
Note 10 - Shareholders' EquityDebt and Financing Arrangements | |
Note 11 - DebtCommitments and Financing ArrangementsContingencies | |
Note 12 - Commitments and ContingenciesLeases | |
Note 13 - Other Comprehensive IncomeTransaction and Reorganization Expenses | |
Note 14 - Subsequent EventsOther Comprehensive Income (Loss) | |
Note 15 - Subsequent Events | |
AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,20172019 (UNAUDITED) AND DECEMBER 31,2016 2018
| | | 2017 | | 2016 | 2019 | | 2018 |
| (in thousands) | (in thousands) |
Assets | | | | | | |
Investments: | | | | | | |
Fixed maturities, available for sale, at fair value (Amortized cost 2017: $11,043,394; 2016: $11,523,316) | $ | 11,086,386 |
| | $ | 11,397,114 |
| |
Equity securities, available for sale, at fair value (Cost 2017: $563,110; 2016: $597,366) | 659,751 |
| | 638,744 |
| |
Mortgage loans, held for investment, at amortized cost and fair value | 360,381 |
| | 349,969 |
| |
Fixed maturities, available for sale, at fair value (Amortized cost 2019: $12,407,704; 2018: $11,616,312) | | $ | 12,616,241 |
| | $ | 11,435,347 |
|
Equity securities, at fair value (Cost 2019: $380,645; 2018: $365,905) | | 429,903 |
| | 381,633 |
|
Mortgage loans, held for investment, at fair value | | 407,790 |
| | 298,650 |
|
Other investments, at fair value | 830,253 |
| | 830,219 |
| 779,200 |
| | 787,787 |
|
Equity method investments | 108,597 |
| | 116,000 |
| 113,748 |
| | 108,103 |
|
Short-term investments, at amortized cost and fair value | 15,282 |
| | 127,461 |
| |
Short-term investments, at fair value | | 12,539 |
| | 144,040 |
|
Total investments | 13,060,650 |
| | 13,459,507 |
| 14,359,421 |
| | 13,155,560 |
|
Cash and cash equivalents | 1,350,613 |
| | 1,039,494 |
| 763,825 |
| | 1,232,814 |
|
Restricted cash and cash equivalents | 280,514 |
| | 202,013 |
| 444,726 |
| | 597,206 |
|
Accrued interest receivable | 68,023 |
| | 74,971 |
| 81,371 |
| | 80,335 |
|
Insurance and reinsurance premium balances receivable | 2,968,096 |
| | 2,313,512 |
| 3,322,316 |
| | 3,007,296 |
|
Reinsurance recoverable on unpaid and paid losses | 2,360,821 |
| | 2,334,922 |
| |
Reinsurance recoverable on unpaid losses and loss expenses | | 3,705,793 |
| | 3,501,669 |
|
Reinsurance recoverable on paid losses and loss expenses | | 252,087 |
| | 280,233 |
|
Deferred acquisition costs | 562,774 |
| | 438,636 |
| 586,440 |
| | 566,622 |
|
Prepaid reinsurance premiums | 734,129 |
| | 556,344 |
| 1,243,040 |
| | 1,013,573 |
|
Receivable for investments sold | 9,357 |
| | 14,123 |
| 9,711 |
| | 32,627 |
|
Goodwill and intangible assets | 87,206 |
| | 85,049 |
| |
Goodwill | | 102,003 |
| | 102,003 |
|
Intangible assets | | 233,305 |
| | 241,568 |
|
Value of business acquired | | 11,048 |
| | 35,714 |
|
Operating lease right-of-use assets | | 116,560 |
| | — |
|
Other assets | 335,967 |
| | 295,120 |
| 263,880 |
| | 285,346 |
|
Total assets | $ | 21,818,150 |
| | $ | 20,813,691 |
| $ | 25,495,526 |
| | $ | 24,132,566 |
|
| | | | |
Liabilities | | | | | | |
Reserve for losses and loss expenses | $ | 10,787,575 |
| | $ | 9,697,827 |
| $ | 12,498,507 |
| | $ | 12,280,769 |
|
Unearned premiums | 3,521,063 |
| | 2,969,498 |
| 4,153,003 |
| | 3,635,758 |
|
Insurance and reinsurance balances payable | 670,292 |
| | 493,183 |
| 1,276,123 |
| | 1,338,991 |
|
Senior notes | 993,797 |
| | 992,950 |
| 1,388,135 |
| | 1,341,961 |
|
Payable for investments purchased | 122,065 |
| | 62,550 |
| 89,805 |
| | 111,838 |
|
Operating lease liabilities | | 115,887 |
| | — |
|
Other liabilities | 268,659 |
| | 325,313 |
| 388,196 |
| | 393,178 |
|
Total liabilities | 16,363,451 |
| | 14,541,321 |
| 19,909,656 |
| | 19,102,495 |
|
| | | | |
Shareholders’ equity | | | | | | |
Preferred shares | 775,000 |
| | 1,126,074 |
| 775,000 |
| | 775,000 |
|
Common shares (2017: 176,580; 2016: 176,580 shares issued and 2017: 83,157; 2016: 86,441 shares outstanding) | 2,206 |
| | 2,206 |
| |
Common shares (shares issued 2019: 176,580; 2018: 176,580 shares outstanding 2019: 83,947; 2018: 83,586) | | 2,206 |
| | 2,206 |
|
Additional paid-in capital | 2,291,516 |
| | 2,299,857 |
| 2,309,483 |
| | 2,308,583 |
|
Accumulated other comprehensive income (loss) | 141,613 |
| | (121,841 | ) | 176,296 |
| | (177,110 | ) |
Retained earnings | 6,051,659 |
| | 6,527,627 |
| 6,101,902 |
| | 5,912,812 |
|
Treasury shares, at cost (2017: 93,423; 2016: 90,139 shares) | (3,807,295 | ) | | (3,561,553 | ) | |
Treasury shares, at cost (2019: 92,633; 2018: 92,994 shares) | | (3,779,017 | ) | | (3,791,420 | ) |
Total shareholders’ equity | 5,454,699 |
| | 6,272,370 |
| 5,585,870 |
| | 5,030,071 |
|
| | | | |
Total liabilities and shareholders’ equity | $ | 21,818,150 |
| | $ | 20,813,691 |
| $ | 25,495,526 |
| | $ | 24,132,566 |
|
See accompanying notes to Consolidated Financial Statements.
6
AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDEDSEPTEMBER 30,20172019 AND 20162018
|
| | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in thousands, except for per share amounts) |
Revenues | | | | | | | |
Net premiums earned | $ | 1,017,131 |
| | $ | 934,415 |
| | $ | 2,937,265 |
| | $ | 2,783,746 |
|
Net investment income | 95,169 |
| | 116,923 |
| | 299,899 |
| | 257,818 |
|
Other insurance related income (losses) | (3,197 | ) | | 5,944 |
| | (4,420 | ) | | 4,850 |
|
Bargain purchase gain | — |
| | — |
| | 15,044 |
| | — |
|
Net realized investment gains (losses): | | | | | | | |
Other-than-temporary impairment ("OTTI") losses | (5,412 | ) | | (4,247 | ) | | (13,493 | ) | | (20,346 | ) |
Other realized investment gains (losses) | 20,044 |
| | 9,452 |
| | (1,318 | ) | | (19,949 | ) |
Total net realized investment gains (losses) | 14,632 |
| | 5,205 |
| | (14,811 | ) | | (40,295 | ) |
Total revenues | 1,123,735 |
| | 1,062,487 |
| | 3,232,977 |
| | 3,006,119 |
|
| | | | | | | |
Expenses | | | | | | | |
Net losses and loss expenses | 1,235,367 |
| | 532,328 |
| | 2,447,640 |
| | 1,663,584 |
|
Acquisition costs | 194,724 |
| | 189,810 |
| | 588,879 |
| | 559,570 |
|
General and administrative expenses | 124,629 |
| | 142,906 |
| | 433,704 |
| | 439,554 |
|
Foreign exchange losses (gains) | 32,510 |
| | (13,795 | ) | | 90,093 |
| | (69,781 | ) |
Interest expense and financing costs | 12,835 |
| | 12,839 |
| | 38,377 |
| | 38,586 |
|
Transaction related expenses | 5,970 |
| | — |
| | 5,970 |
| | — |
|
Total expenses | 1,606,035 |
| | 864,088 |
| | 3,604,663 |
| | 2,631,513 |
|
| | | | | | | |
Income (loss) before income taxes and interest in income (loss) of equity method investments | (482,300 | ) | | 198,399 |
| | (371,686 | ) | | 374,606 |
|
Income tax (expense) benefit | 25,877 |
| | (9,352 | ) | | 38,547 |
| | (7,712 | ) |
Interest in loss of equity method investments | (661 | ) | | (2,434 | ) | | (8,402 | ) | | (2,434 | ) |
Net income (loss) | (457,084 | ) | | 186,613 |
| | (341,541 | ) | | 364,460 |
|
Preferred share dividends | 10,656 |
| | 9,969 |
| | 36,154 |
| | 29,906 |
|
Net income (loss) available to common shareholders | $ | (467,740 | ) | | $ | 176,644 |
| | $ | (377,695 | ) | | $ | 334,554 |
|
| | | | | | | |
Per share data | | | | | | | |
Net income (loss) per common share: | | | | | | | |
Basic net income (loss) | $ | (5.61 | ) | | $ | 1.97 |
| | $ | (4.47 | ) | | $ | 3.64 |
|
Diluted net income (loss) | $ | (5.61 | ) | | $ | 1.96 |
| | $ | (4.47 | ) | | $ | 3.61 |
|
Weighted average number of common shares outstanding - basic | 83,305 |
| | 89,621 |
| | 84,479 |
| | 91,852 |
|
Weighted average number of common shares outstanding - diluted | 83,305 |
| | 90,351 |
| | 84,479 |
| | 92,579 |
|
Cash dividends declared per common share | $ | 0.38 |
| | $ | 0.35 |
| | $ | 1.14 |
| | $ | 1.05 |
|
|
| | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| 2019 | | 2018 | | 2019 | | 2018 |
| (in thousands, except for per share amounts) |
Revenues | | | | | | | |
Net premiums earned | $ | 1,157,307 |
| | $ | 1,224,075 |
| | $ | 3,415,126 |
| | $ | 3,577,026 |
|
Net investment income | 115,763 |
| | 114,421 |
| | 361,014 |
| | 325,380 |
|
Other insurance related income | 1,533 |
| | 8,475 |
| | 11,385 |
| | 18,811 |
|
Net investment gains (losses): | | | | | | | |
Other-than-temporary impairment ("OTTI") losses | (1,458 | ) | | (5,546 | ) | | (6,328 | ) | | (7,634 | ) |
Other realized and unrealized investment gains (losses) | 15,985 |
| | (12,082 | ) | | 54,850 |
| | (69,917 | ) |
Total net investment gains (losses) | 14,527 |
| | (17,628 | ) | | 48,522 |
| | (77,551 | ) |
Total revenues | 1,289,130 |
| | 1,329,343 |
| | 3,836,047 |
| | 3,843,666 |
|
| | | | | | | |
Expenses | | | | | | | |
Net losses and loss expenses | 850,913 |
| | 794,959 |
| | 2,187,403 |
| | 2,162,945 |
|
Acquisition costs | 260,026 |
| | 248,314 |
| | 762,807 |
| | 709,527 |
|
General and administrative expenses | 155,522 |
| | 154,894 |
| | 496,008 |
| | 489,944 |
|
Foreign exchange losses (gains) | (59,543 | ) | | 8,305 |
| | (64,868 | ) | | 2,066 |
|
Interest expense and financing costs | 18,042 |
| | 16,897 |
| | 49,545 |
| | 50,758 |
|
Transaction and reorganization expenses | 11,215 |
| | 16,300 |
| | 29,310 |
| | 48,125 |
|
Amortization of value of business acquired | 4,368 |
| | 39,018 |
| | 24,666 |
| | 149,535 |
|
Amortization of intangible assets | 2,831 |
| | 1,753 |
| | 8,744 |
| | 8,564 |
|
Total expenses | 1,243,374 |
| | 1,280,440 |
| | 3,493,615 |
| | 3,621,464 |
|
| | | | | | | |
Income before income taxes and interest in income of equity method investments | 45,756 |
| | 48,903 |
| | 342,432 |
| | 222,202 |
|
Income tax (expense) benefit | (8,147 | ) | | 3,525 |
| | (23,850 | ) | | 3,565 |
|
Interest in income of equity method investments | 792 |
| | 1,667 |
| | 5,645 |
| | 5,045 |
|
Net income | 38,401 |
| | 54,095 |
| | 324,227 |
| | 230,812 |
|
Preferred share dividends | 10,656 |
| | 10,656 |
| | 31,969 |
| | 31,969 |
|
Net income available to common shareholders | $ | 27,745 |
| | $ | 43,439 |
| | $ | 292,258 |
| | $ | 198,843 |
|
| | | | | | | |
Per share data | | | | | | | |
Earnings per common share: | | | | | | | |
Earnings per common share | $ | 0.33 |
| | $ | 0.52 |
| | $ | 3.48 |
| | $ | 2.38 |
|
Earnings per diluted common share | $ | 0.33 |
| | $ | 0.52 |
| | $ | 3.46 |
| | $ | 2.37 |
|
Weighted average common shares outstanding | 83,947 |
| | 83,558 |
| | 83,872 |
| | 83,474 |
|
Weighted average diluted common shares outstanding | 84,582 |
| | 84,107 |
| | 84,420 |
| | 83,939 |
|
| | | | | | | |
See accompanying notes to Consolidated Financial Statements.
7
AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDEDSEPTEMBER 30,20172019 AND 20162018
|
| | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in thousands) |
Net income (loss) | $ | (457,084 | ) | | $ | 186,613 |
| | $ | (341,541 | ) | | $ | 364,460 |
|
Other comprehensive income, net of tax: | | | | | | | |
Available for sale investments: | | | | | | | |
Unrealized investment gains arising during the period | 62,505 |
| | 36,336 |
| | 206,461 |
| | 238,656 |
|
Adjustment for reclassification of net realized investment (gains) losses and OTTI losses recognized in net income | (13,286 | ) | | (2,642 | ) | | 10,169 |
| | 42,620 |
|
Unrealized investment gains arising during the period, net of reclassification adjustment | 49,219 |
| | 33,694 |
| | 216,630 |
| | 281,276 |
|
Foreign currency translation adjustment | 8,088 |
| | 1,722 |
| | 46,824 |
| | 5,694 |
|
Total other comprehensive income, net of tax | 57,307 |
| | 35,416 |
| | 263,454 |
| | 286,970 |
|
Comprehensive income (loss) | $ | (399,777 | ) | | $ | 222,029 |
| | $ | (78,087 | ) | | $ | 651,430 |
|
|
| | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| 2019 | | 2018 | | 2019 | | 2018 |
| (in thousands) |
Net income | $ | 38,401 |
| | $ | 54,095 |
| | $ | 324,227 |
| | $ | 230,812 |
|
Other comprehensive income (loss), net of tax: | | | | | | | |
Available for sale investments: | | | | | | | |
Unrealized investment gains (losses) arising during the period | 39,569 |
| | (26,061 | ) | | 361,220 |
| | (257,521 | ) |
Adjustment for reclassification of net realized investment (gains) losses and OTTI losses recognized in net income | (14,808 | ) | | 25,924 |
| | (8,423 | ) | | 77,189 |
|
Unrealized investment gains (losses) arising during the period, net of reclassification adjustment | 24,761 |
| | (137 | ) | | 352,797 |
| | (180,332 | ) |
Foreign currency translation adjustment | (4,610 | ) | | 994 |
| | 609 |
| | (6,864 | ) |
Total other comprehensive income (loss), net of tax | 20,151 |
| | 857 |
| | 353,406 |
| | (187,196 | ) |
Comprehensive income | $ | 58,552 |
| | $ | 54,952 |
| | $ | 677,633 |
| | $ | 43,616 |
|
See accompanying notes to Consolidated Financial Statements.
8
AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THETHREE AND NINE MONTHS ENDED SEPTEMBER 30, 20172019 AND 20162018
| | | | | | | | Three months ended | | Nine months ended |
| 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| (in thousands) | (in thousands) |
Preferred shares | | | | | | | | | | |
Balance at beginning of period | $ | 1,126,074 |
| | $ | 627,843 |
| |
Shares repurchased | (351,074 | ) | | (2,843 | ) | |
Balance at end of period | 775,000 |
| | 625,000 |
| |
Balance at beginning and end of period | | 775,000 |
| | 775,000 |
| | $ | 775,000 |
| | $ | 775,000 |
|
| | | | | | | | | | |
Common shares (par value) | | | | | | | | | | |
Balance at beginning of period | 2,206 |
| | 2,202 |
| |
Shares issued | — |
| | 4 |
| |
Balance at end of period | 2,206 |
| | 2,206 |
| |
Balance at beginning and end of period | | 2,206 |
| | 2,206 |
| | 2,206 |
| | 2,206 |
|
| | | | | | | | | | |
Additional paid-in capital | | | | | | | | | | |
Balance at beginning of period | 2,299,857 |
| | 2,241,388 |
| 2,303,592 |
| | 2,295,633 |
| | 2,308,583 |
| | 2,299,166 |
|
Shares issued - common shares | — |
| | (4 | ) | |
Cost of treasury shares reissued | (39,033 | ) | | (19,647 | ) | |
Settlement of accelerated share repurchase | — |
| | 60,000 |
| |
Treasury shares reissued | | (57 | ) | | (56 | ) | | (20,114 | ) | | (21,935 | ) |
Share-based compensation expense | 30,692 |
| | 26,129 |
| 5,948 |
| | 8,530 |
| | 21,014 |
| | 26,876 |
|
Balance at end of period | 2,291,516 |
| | 2,307,866 |
| 2,309,483 |
| | 2,304,107 |
| | 2,309,483 |
| | 2,304,107 |
|
| | | | | | | | | | |
Accumulated other comprehensive income | | | | |
Accumulated other comprehensive income (loss) | | | | | | | | |
Balance at beginning of period | (121,841 | ) | | (188,465 | ) | 156,145 |
| | (163,168 | ) | | (177,110 | ) | | 92,382 |
|
Unrealized gains (losses) on available for sale investments, net of tax: | | | | | | | | | | |
Balance at beginning of period | (82,323 | ) | | (149,585 | ) | 159,671 |
| | (157,730 | ) | | (168,365 | ) | | 89,962 |
|
Unrealized gains arising during the period, net of reclassification adjustment | 216,630 |
| | 281,276 |
| |
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, net of reclassification adjustment | | 24,761 |
| | (138 | ) | | 352,797 |
| | (180,332 | ) |
Balance at end of period | 134,307 |
| | 131,691 |
| 184,432 |
| | (157,868 | ) | | 184,432 |
| | (157,868 | ) |
Cumulative foreign currency translation adjustments, net of tax: | | | | | | | | | | |
Balance at beginning of period | (39,518 | ) | | (38,880 | ) | (3,526 | ) | | (5,438 | ) | | (8,745 | ) | | 2,420 |
|
Foreign currency translation adjustment | 46,824 |
| | 5,694 |
| (4,610 | ) | | 994 |
| | 609 |
| | (6,864 | ) |
Balance at end of period | 7,306 |
| | (33,186 | ) | (8,136 | ) | | (4,444 | ) | | (8,136 | ) | | (4,444 | ) |
Balance at end of period | 141,613 |
| | 98,505 |
| 176,296 |
| | (162,312 | ) | | 176,296 |
| | (162,312 | ) |
| | | | | | | | | | |
Retained earnings | | | | | | | | | | |
Balance at beginning of period | 6,527,627 |
| | 6,194,353 |
| 6,108,577 |
| | 6,135,625 |
| | 5,912,812 |
| | 5,979,666 |
|
Net income (loss) | (341,541 | ) | | 364,460 |
| |
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 | | 38,401 |
| | 54,095 |
| | 324,227 |
| | 230,812 |
|
Preferred share dividends | (36,154 | ) | | (29,906 | ) | (10,656 | ) | | (10,656 | ) | | (31,969 | ) | | (31,969 | ) |
Common share dividends | (98,273 | ) | | (98,334 | ) | (34,420 | ) | | (33,582 | ) | | (103,168 | ) | | (100,525 | ) |
Balance at end of period | 6,051,659 |
| | 6,430,573 |
| 6,101,902 |
| | 6,145,482 |
| | 6,101,902 |
| | 6,145,482 |
|
| | | | | | | | | | |
Treasury shares, at cost | | | | | | | | | | |
Balance at beginning of period | (3,561,553 | ) | | (3,010,439 | ) | (3,779,043 | ) | | (3,792,291 | ) | | (3,791,420 | ) | | (3,807,156 | ) |
Shares repurchased for treasury | (285,659 | ) | | (449,086 | ) | |
Cost of treasury shares reissued | 39,917 |
| | 21,033 |
| |
Shares repurchased | | (31 | ) | | (23 | ) | | (9,445 | ) | | (8,699 | ) |
Shares reissued | | 57 |
| | 103 |
| | 21,848 |
| | 23,644 |
|
Balance at end of period | (3,807,295 | ) | | (3,438,492 | ) | (3,779,017 | ) | | (3,792,211 | ) | | (3,779,017 | ) | | (3,792,211 | ) |
| | | | | | | | | | |
Total shareholders’ equity | $ | 5,454,699 |
| | $ | 6,025,658 |
| $ | 5,585,870 |
| | $ | 5,272,272 |
| | $ | 5,585,870 |
| | $ | 5,272,272 |
|
| | | | | | | | | | |
See accompanying notes to Consolidated Financial Statements.
9
AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDEDSEPTEMBER 30,20172019 AND 20162018 |
| | | | | | | |
| Nine months ended |
| 2019 | | 2018 |
| (in thousands) |
Cash flows from operating activities: | | | |
Net income | $ | 324,227 |
| | $ | 230,812 |
|
Adjustments to reconcile net income to net cash used in operating activities: | | | |
Net investment (gains) losses | (48,522 | ) | | 71,799 |
|
Net realized and unrealized gains on other investments | (49,271 | ) | | (41,924 | ) |
Amortization of fixed maturities | 13,616 |
| | 20,547 |
|
Interest in income of equity method investments | (5,645 | ) | | (3,557 | ) |
Amortization of value of business acquired | 24,666 |
| | 149,535 |
|
Other amortization and depreciation | 56,964 |
| | 32,934 |
|
Share-based compensation expense, net of cash payments | 21,160 |
| | 26,145 |
|
Changes in: | | | |
Accrued interest receivable | (1,291 | ) | | 1,085 |
|
Reinsurance recoverable balances on unpaid and paid losses | (165,247 | ) | | (419,226 | ) |
Deferred acquisition costs | (20,249 | ) | | (214,500 | ) |
Prepaid reinsurance premiums | (228,973 | ) | | (311,498 | ) |
Reserve for losses and loss expenses | 216,086 |
| | 179,018 |
|
Unearned premiums | 517,798 |
| | 632,912 |
|
Insurance and reinsurance balances, net | (377,826 | ) | | (290,728 | ) |
Other items | (35,978 | ) | | 67,813 |
|
Net cash provided by operating activities | 241,515 |
| | 131,167 |
|
| | | |
Cash flows from investing activities: | | | |
Purchases of: | | | |
Fixed maturities | (7,705,671 | ) | | (6,707,576 | ) |
Equity securities | (45,086 | ) | | (59,040 | ) |
Mortgage loans | (129,711 | ) | | (78,079 | ) |
Other investments | (166,728 | ) | | (79,319 | ) |
Short-term investments | (126,960 | ) | | (285,103 | ) |
Proceeds from the sale of: | | | |
Fixed maturities | 6,022,475 |
| | 5,956,644 |
|
Equity securities | 32,682 |
| | 223,098 |
|
Other investments | 222,982 |
| | 211,395 |
|
Short-term investments | 243,293 |
| | 153,687 |
|
Proceeds from redemption of fixed maturities | 885,128 |
| | 982,010 |
|
Proceeds from redemption of short-term investments | 15,794 |
| | 37,831 |
|
Proceeds from the repayment of mortgage loans
| 20,759 |
| | 70,481 |
|
Purchase of other assets | (41,800 | ) | | (16,918 | ) |
Net cash provided by (used in) investing activities | (772,843 | ) | | 409,111 |
|
| | | |
Cash flows from financing activities: | | | |
Taxes paid on withholding shares | (9,445 | ) | | (8,699 | ) |
Dividends paid - common shares | (103,526 | ) | | (100,770 | ) |
Dividends paid - preferred shares | (31,969 | ) | | (31,969 | ) |
Net proceeds from issuance of senior notes | 296,334 |
| | — |
|
Redemption of senior notes | (250,000 | ) | | — |
|
Net cash used in financing activities | (98,606 | ) | | (141,438 | ) |
| | | |
Effect of exchange rate changes on foreign currency cash, cash equivalents, and restricted cash | 8,465 |
| | (10,228 | ) |
Increase (decrease) in cash, cash equivalents, and restricted cash | (621,469 | ) | | 388,612 |
|
Cash, cash equivalents, and restricted cash - beginning of period | 1,830,020 |
| | 1,363,786 |
|
Cash, cash equivalents, and restricted cash - end of period | $ | 1,208,551 |
| | $ | 1,752,398 |
|
| | | |
Supplemental disclosures of cash flow information: | | | |
Income taxes paid | $ | 12,149 |
| | $ | 12,108 |
|
Interest paid | $ | 37,875 |
| | $ | 42,856 |
|
|
| | | | | | | |
| 2017 | | 2016 |
| (in thousands) |
Cash flows from operating activities: | | | |
Net income (loss) | $ | (341,541 | ) | | $ | 364,460 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Net realized investment losses | 14,811 |
| | 40,295 |
|
Net realized and unrealized gains on other investments | (56,759 | ) | | (23,117 | ) |
Amortization of fixed maturities | 32,528 |
| | 51,660 |
|
Interest in loss of equity method investments | 8,402 |
| | 2,434 |
|
Other amortization and depreciation | 19,279 |
| | 17,370 |
|
Share-based compensation expense, net of cash payments | 1,516 |
| | 28,580 |
|
Non-cash foreign exchange losses
| 24,149 |
| | — |
|
Bargain purchase gain | (15,044 | ) | | — |
|
Changes in: | | | |
Accrued interest receivable | 8,730 |
| | 3,286 |
|
Reinsurance recoverable balances | 60,522 |
| | (163,212 | ) |
Deferred acquisition costs | (123,961 | ) | | (73,759 | ) |
Prepaid reinsurance premiums | (178,464 | ) | | (184,648 | ) |
Reserve for loss and loss expenses | 918,511 |
| | 216,828 |
|
Unearned premiums | 540,108 |
| | 682,686 |
|
Insurance and reinsurance balances, net | (465,436 | ) | | (623,170 | ) |
Other items | (135,266 | ) | | (74,383 | ) |
Net cash provided by operating activities | 312,085 |
| | 265,310 |
|
| | | |
Cash flows from investing activities: | | | |
Purchases of: | | | |
Fixed maturities | (6,250,608 | ) | | (6,624,573 | ) |
Equity securities | (108,804 | ) | | (295,827 | ) |
Mortgage loans | (20,812 | ) | | (131,087 | ) |
Other investments | (135,526 | ) | | (177,500 | ) |
Equity method investments | (1,000 | ) | | (103,548 | ) |
Short-term investments | (20,792 | ) | | (81,479 | ) |
Proceeds from the sale of: | | | |
Fixed maturities | 5,354,398 |
| | 6,067,663 |
|
Equity securities | 232,755 |
| | 296,182 |
|
Other investments | 203,896 |
| | 170,111 |
|
Short-term investments | 19,284 |
| | 67,408 |
|
Proceeds from redemption of fixed maturities | 1,546,998 |
| | 977,852 |
|
Proceeds from redemption of short-term investments | 116,261 |
| | 8,185 |
|
Proceeds from the repayment of mortgage loans
| 10,702 |
| | 4,808 |
|
Purchase of other assets | (25,842 | ) | | (19,055 | ) |
Change in restricted cash and cash equivalents | (78,501 | ) | | (42,445 | ) |
Purchase of subsidiary, net | (73,067 | ) | | — |
|
Net cash provided by investing activities | 769,342 |
| | 116,695 |
|
| | | |
Cash flows from financing activities: | | | |
Repurchase of common shares | (290,496 | ) | | (389,086 | ) |
Dividends paid - common shares | (102,868 | ) | | (100,670 | ) |
Repurchase of preferred shares | (351,074 | ) | | (2,843 | ) |
Dividends paid - preferred shares | (42,188 | ) | | (29,940 | ) |
Proceeds from issuance of common shares | — |
| | 8 |
|
Net cash used in financing activities | (786,626 | ) | | (522,531 | ) |
| | | |
Effect of exchange rate changes on foreign currency cash and cash equivalents | 16,318 |
| | 593 |
|
Increase (decrease) in cash and cash equivalents | 311,119 |
| | (139,933 | ) |
Cash and cash equivalents - beginning of period | 1,039,494 |
| | 988,133 |
|
Cash and cash equivalents - end of period | $ | 1,350,613 |
| | $ | 848,200 |
|
| | | |
Supplemental disclosures of cash flow information: Non-cash foreign exchange losses are attributableIn 2018, total consideration paid for an agreement for the Reinsurance to the reclassificationClose ("RITC") of the cumulative translation adjustment related to AXIS Specialty Australia from accumulated other comprehensive income to foreign exchange losses due to2015 and prior years of account of Syndicate 2007 was $819 million of which $600 million was settled by way of a transfer of securities and was treated as a non-cash activity in the wind-downconsolidated statement of this operation which was substantially complete as of March 31, 2017. Also refercash flows (refer to Note 7 'Reserve6 'Reserve for Losses and LossExpenses' and Note 13 'Other Comprehensive Income').
See accompanying notes to Consolidated Financial Statements.
10
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
1. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
These interim consolidated financial statements include the accounts of AXIS Capital Holdings Limited (“AXIS Capital”unaudited Consolidated Financial Statements (the "financial statements") and its subsidiaries (herein referred to as “we,” “us,” “our,” or the “Company”).
The consolidated balance sheet at September 30,2017 and the consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for the periods ended September 30,2017 and 2016 have not been audited. The balance sheet at December 31, 2016 is derived from our audited financial statements.
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. Generally Accepted Accounting Principles (“U.S. GAAP”GAAP") for interim financial information and with the U.S. Securities and Exchange Commission's (“SEC”("SEC") instructions to Form 10-Q and Article 10 of Regulation S-X.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 footnotesnotes 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, 2018, 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 ourthe 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.
The followingTo facilitate comparison of information should be read in conjunction with our Annual Report on Form 10-K foracross periods, certain reclassifications have been made to prior year amounts to conform to the year ended December 31, 2016. 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 werewas no notable changes in ourchange to the Company's significant accounting policies subsequent to ourits Annual Report on Form 10-K for the year ended December 31, 2016.2018.
New Accounting Standards Adopted in 20172019
Stock Compensation - Improvements to Employee Share-Based Payment AccountingLeases
Effective January 1, 2017,2019, the Company adopted Accounting Standards Update ("ASU" ) ASU 2016-09, "Compensation - Stock Compensation2016-02, "Leases (Topic 718) - Improvements842)", which provides a new comprehensive model for lease accounting. Topic 842 requires a lessee to Employee Share-Based Payment Accounting" which simplifies several aspectsrecognize 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. The adoption of this standard resulted in the accounting for share-based payments to employees including the income tax consequences, classificationrecognition of awards as either equity orlease liabilities and classification on the statementright-of-use assets of cash flows. The guidance requires all excess tax benefits and tax deficiencies to be recognized$144 million in the income statementCompany's consolidated balance sheet at March 31, 2019, related to office property and equipment leases.
In addition, the Company adopted ASU 2018-11, "Leases (Topic 842) - Targeted Improvements", which provides an additional (and optional) transition method to adopt the new lease guidance. Under the alternative transition method, the Company's reporting for the comparative periods presented in its financial statements will be in accordance with the tax effectspre-effective date lease accounting requirements (Topic 840).
The Company also elected the package of exercised or vested awardspractical expedients permitted under the transition guidance of Topic 842, which were elected as a package and applied consistently to be treated as discrete items inall leases. At the reporting period in which they occur. Excess tax benefits should be classified along with other income tax cash flows as an operating activity onadoption date, the statementpackage of cash flows. practical expedients permitted the Company not to reassess the following:
| |
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 companies will be required to makeelecting the package of practical expedients, the Company made an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The guidance allows withholding up tonon-lease components separately from lease components. As a result, the maximum statutory tax ratesnon-lease components associated with the Company's leases are not included in the applicable jurisdictions to cover income taxes on share-based compensation awards without requiring liability classification. Cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. The adoption of this guidance did not have a material impact on our results of operations, financial conditionlease liabilities and liquidity.right-of-use assets in the Company's consolidated balance at September 30, 2019.
Issued Accounting Standards Not Yet Adopted
Revenue From Contracts With Customers
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)". 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 (for example, insurance contracts are not in scope of the new guidance). 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
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
1. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
those goodsFurther, the Company made an accounting policy election not to record office property and equipment leases with an initial term of 12 months or services. In August 2015, the FASB delayed the effective date by one year through the issuance of ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date". This guidance is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2016. Accounting for insurance contracts is outside the scope of ASU 2014-09. The Company generates an insignificant amount of fee income, primarily from strategic capital partners, which is reported in other insurance related income (losses)less (short-term) in the Consolidated StatementsCompany's consolidated balance sheets. For the nine months ended September 30, 2019, the Company recognized expense for short-term leases of Operations and is subject to this accounting standard update. The Company's current accounting policy to recognize fee income$1.0 million in the period when related services are performed, principally aligns with this update. As a result, the Company does not expect theCompany's consolidated statements of operations. The adoption of this guidance todid not impact the Company's retained earnings or liquidity and did not have a material impact on ourits results of operations, financial condition and liquidity.operations.
Recently Issued Accounting Standards Not Yet Adopted
Premium Amortization on Purchased Callable Debt Securities
In March 2017,Effective January 1, 2019, the FASB issuedCompany adopted 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. The adoption of this guidance did not impact the Company's results of operations, financial condition or liquidity.
Changes to Disclosures on Fair Value Measurement
Effective January 1, 2019, the Company adopted ASU 2018-13 "Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement" which aims to improve the effectiveness of fair value measurement disclosures. The adoption of this guidance did not impact the Company's results of operations, financial condition or liquidity.
Recently Issued Accounting Standards Not Yet Adopted
Measurement of Credit Losses on Financial Instruments
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 Company's insurance and reinsurance premium balances receivable and its reinsurance recoverable on unpaid and paid losses and loss expenses are its most significant financial assets within the scope of ASU 2016-13. The guidance requires financial assets 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 cost of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early2019. The Company does not anticipate that the adoption permitted.of this guidance will have a material impact on its results of operations, financial condition or liquidity.
The Company will also be impacted by the targeted changes to the impairment model for available for sale securities introduced in ASU 2016-13. Credit losses relating to available for sale debt securities will be recorded through an allowance for credit losses. This guidance is effective for interim and annual periods beginning after December 15, 2019. The Company is currently evaluating the impact of this guidance on ourits results of operations, financial condition and liquidity.
Stock Compensation - Scope of Modification Accounting
In May 2017, the FASB issued ASU 2017-09 "Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting" to provide clarity and reduce 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 (3) 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. 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. This guidance is effective for interim and annual reporting periods, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of this guidance on our results of operations, financial condition and liquidity.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. BUSINESS COMBINATIONS
On April 1, 2017 ("the closing date" or the "acquisition date"), the Company acquired a 100% ownership interest in Compagnie Belge d'Assurances Aviation NV/SA (“Aviabel”). Aviabel is an insurer operating under Belgian law that has its head office in Belgium, a branch office in the Netherlands and a re-insurance company, Aviabel RE S.A. (“Aviabel RE”), in Luxembourg. The Company acquired Aviabel to increase its scale and relevance in the global aviation market.
The purchase price was allocated to the acquired assets and liabilities of Aviabel based on estimated fair values on the closing date. Consequently, the Company recognized investments with a fair value of $182 million, reserves for losses and loss expenses with a fair value of $79 million, and a bargain purchase gain of $15 million. The bargain purchase gain arose as the fair values of the net identifiable assets acquired exceeded the fair value of the consideration transferred at the acquisition date.
The allocation of the purchase price was based on information included in unaudited financial statements prepared by Aviabel's management at March 31, 2017. The allocation is subject to change if additional information becomes available within the measurement period, which cannot exceed 12 months from the acquisition date. The fair values of the acquired assets and liabilities may be subject to adjustments, which may impact the amounts recorded for the acquired assets and liabilities, as well as the bargain purchase gain.
The underwriting results of Aviabel are included in the underwriting results of the Company's insurance segment from the acquisition date.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OurAXIS Capital's underwriting operations are organized around ourits global underwriting platforms, AXIS Insurance and AXIS Re, therefore we haveRe. The Company has determined that we have twoit has 2 reportable segments, insurance and reinsurance. We doThe Company does not allocate ourits assets by segment, with the exception of goodwill and intangible assets, as we evaluateit evaluates the underwriting results of each segment separately from the results of ourits investment portfolio.
Insurance
OurThe Company's insurance segment providesoffers specialty insurance coverageproducts 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, and accident and health.health, and discontinued lines - Novae.
Reinsurance
OurThe Company's reinsurance segment provides non-life 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, and marine and other. The reinsurance segment also writes derivative based risk management products designed to address weatherother accident and commodity price risks.health, and discontinued lines - Novae.
The following tables summarizepresent the underwriting results of ourthe Company's reportable segments, as well as the carrying values of allocated goodwill and intangible assets:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2018 | |
| Three months ended and at September 30, | Insurance | | Reinsurance | | Total | | Insurance | | Reinsurance | | Total | |
| | | | | | | | | | | | | |
| Gross premiums written | $ | 894,902 |
| | $ | 511,604 |
| | $ | 1,406,506 |
| | $ | 969,364 |
| | $ | 454,343 |
| | $ | 1,423,707 |
| |
| Net premiums written | 517,050 |
| | 339,031 |
| | 856,081 |
| | 602,070 |
| | 317,868 |
| | 919,938 |
| |
| Net premiums earned | 536,451 |
| | 620,856 |
| | 1,157,307 |
| | 614,795 |
| | 609,280 |
| | 1,224,075 |
| |
| Other insurance related income | 733 |
| | 800 |
| | 1,533 |
| | 1,526 |
| | 6,949 |
| | 8,475 |
| |
| Net losses and loss expenses | (338,966 | ) | | (511,947 | ) | | (850,913 | ) | | (415,488 | ) | | (379,471 | ) | | (794,959 | ) | |
| Acquisition costs | (115,551 | ) | | (144,475 | ) | | (260,026 | ) | | (111,888 | ) | | (136,426 | ) | | (248,314 | ) | |
| General and administrative expenses | (100,559 | ) | | (26,060 | ) | | (126,619 | ) | | (100,656 | ) | | (29,595 | ) | | (130,251 | ) | |
| Underwriting income (loss) | $ | (17,892 | ) | | $ | (60,826 | ) | | (78,718 | ) | | $ | (11,711 | ) | | $ | 70,737 |
| | 59,026 |
| |
| | | | | | | | | | | | | |
| Net investment income | | | | | 115,763 |
| | | | | | 114,421 |
| |
| Net investment gains (losses) | | | | | 14,527 |
| | | | | | (17,628 | ) | |
| Corporate expenses | | | | | (28,903 | ) | | | | | | (24,643 | ) | |
| Foreign exchange (losses) gains | | | | | 59,543 |
| | | | | | (8,305 | ) | |
| Interest expense and financing costs | | | | | (18,042 | ) | | | | | | (16,897 | ) | |
| Transaction and reorganization expenses | | | | | (11,215 | ) | | | | | | (16,300 | ) | |
| Amortization of value of business acquired | | | | | (4,368 | ) | | | | | | (39,018 | ) | |
| Amortization of intangible assets | | | | | (2,831 | ) | | | | | | (1,753 | ) | |
| Income before income taxes and interest in income of equity method investments | | | | | $ | 45,756 |
| | | | | | $ | 48,903 |
| |
| | | | | | | | | | | | | |
| Net losses and loss expenses ratio | 63.2 | % | | 82.5 | % | | 73.5 | % | | 67.6 | % | | 62.3 | % | | 64.9 | % | |
| Acquisition cost ratio | 21.5 | % | | 23.3 | % | | 22.5 | % | | 18.2 | % | | 22.4 | % | | 20.3 | % | |
| General and administrative expense ratio | 18.8 | % | | 4.1 | % | | 13.4 | % | | 16.4 | % | | 4.8 | % | | 12.7 | % | |
| Combined ratio | 103.5 | % | | 109.9 | % | | 109.4 | % | | 102.2 | % | | 89.5 | % | | 97.9 | % | |
| | | | | | | | | | | | | |
| Total intangible assets | $ | 346,356 |
| | $ | — |
| | $ | 346,356 |
| | $ | 408,441 |
| | $ | — |
| | $ | 408,441 |
| |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | |
| Three months ended and at September 30, | Insurance | | Reinsurance | | Total | | Insurance | | Reinsurance | | Total | |
| | | | | | | | | | | | | |
| Gross premiums written | $ | 744,366 |
| | $ | 441,208 |
| | $ | 1,185,574 |
| | $ | 675,430 |
| | $ | 284,532 |
| | $ | 959,962 |
| |
| Net premiums written | 500,022 |
| | 332,721 |
| | 832,743 |
| | 433,131 |
| | 162,300 |
| | 595,431 |
| |
| Net premiums earned | 496,004 |
| | 521,127 |
| | 1,017,131 |
| | 444,691 |
| | 489,724 |
| | 934,415 |
| |
| Other insurance related income (losses) | 526 |
| | (3,723 | ) | | (3,197 | ) | | 39 |
| | 5,905 |
| | 5,944 |
| |
| Net losses and loss expenses | (628,865 | ) | | (606,502 | ) | | (1,235,367 | ) | | (273,226 | ) | | (259,102 | ) | | (532,328 | ) | |
| Acquisition costs | (74,231 | ) | | (120,493 | ) | | (194,724 | ) | | (61,755 | ) | | (128,055 | ) | | (189,810 | ) | |
| General and administrative expenses | (75,038 | ) | | (21,658 | ) | | (96,696 | ) | | (84,588 | ) | | (29,635 | ) | | (114,223 | ) | |
| Underwriting income (loss) | $ | (281,604 | ) | | $ | (231,249 | ) | | (512,853 | ) | | $ | 25,161 |
| | $ | 78,837 |
| | 103,998 |
| |
| | | | | | | | | | | | | |
| Corporate expenses | | | | | (27,933 | ) | | | | | | (28,683 | ) | |
| Net investment income | | | | | 95,169 |
| | | | | | 116,923 |
| |
| Net realized investment gains | | | | | 14,632 |
| | | | | | 5,205 |
| |
| Foreign exchange (losses) gains | | | | | (32,510 | ) | | | | | | 13,795 |
| |
| Interest expense and financing costs | | | | | (12,835 | ) | | | | | | (12,839 | ) | |
| Transaction related expenses | | | | | (5,970 | ) | | | | | | — |
| |
| Income (loss) before income taxes and interest in income (loss) of equity method investments | | | | | $ | (482,300 | ) | | | | | | $ | 198,399 |
| |
| | | | | | | | | | | | | |
| Net loss and loss expense ratio | 126.8 | % | | 116.4 | % | | 121.5 | % | | 61.4 | % | | 52.9 | % | | 57.0 | % | |
| Acquisition cost ratio | 15.0 | % | | 23.1 | % | | 19.1 | % | | 13.9 | % | | 26.1 | % | | 20.3 | % | |
| General and administrative expense ratio | 15.1 | % | | 4.2 | % | | 12.3 | % | | 19.1 | % | | 6.1 | % | | 15.3 | % | |
| Combined ratio | 156.9 | % | | 143.7 | % | | 152.9 | % | | 94.4 | % | | 85.1 | % | | 92.6 | % | |
| | | | | | | | | | | | | |
| Goodwill and intangible assets | $ | 87,206 |
| | $ | — |
| | $ | 87,206 |
| | $ | 85,501 |
| | $ | — |
| | $ | 85,501 |
| |
| | | | | | | | | | | | | |
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
3.2. | SEGMENT INFORMATION (CONTINUED) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2018 | |
| Nine months ended and at September 30, | Insurance | | Reinsurance | | Total | | Insurance | | Reinsurance | | Total | |
| | | | | | | | | | | | | |
| Gross premiums written | $ | 2,714,322 |
| | $ | 2,923,169 |
| | $ | 5,637,491 |
| | $ | 2,876,856 |
| | $ | 2,860,471 |
| | $ | 5,737,327 |
| |
| Net premiums written | 1,638,197 |
| | 2,065,263 |
| | 3,703,460 |
| | 1,748,142 |
| | 2,158,122 |
| | 3,906,264 |
| |
| Net premiums earned | 1,630,473 |
| | 1,784,653 |
| | 3,415,126 |
| | 1,772,126 |
| | 1,804,900 |
| | 3,577,026 |
| |
| Other insurance related income | 1,779 |
| | 9,606 |
| | 11,385 |
| | 3,359 |
| | 15,452 |
| | 18,811 |
| |
| Net losses and loss expenses | (961,444 | ) | | (1,225,959 | ) | | (2,187,403 | ) | | (1,065,799 | ) | | (1,097,146 | ) | | (2,162,945 | ) | |
| Acquisition costs | (344,981 | ) | | (417,826 | ) | | (762,807 | ) | | (290,082 | ) | | (419,445 | ) | | (709,527 | ) | |
| General and administrative expenses | (311,491 | ) | | (87,049 | ) | | (398,540 | ) | | (305,394 | ) | | (99,481 | ) | | (404,875 | ) | |
| Underwriting income | $ | 14,336 |
| | $ | 63,425 |
| | 77,761 |
| | $ | 114,210 |
| | $ | 204,280 |
| | 318,490 |
| |
| | | | | | | | | | | | | |
| Net investment income | | | | | 361,014 |
| | | | | | 325,380 |
| |
| Net investment gains (losses) | | | | | 48,522 |
| | | | | | (77,551 | ) | |
| Corporate expenses | | | | | (97,468 | ) | | | | | | (85,069 | ) | |
| Foreign exchange (losses) gains | | | | | 64,868 |
| | | | | | (2,066 | ) | |
| Interest expense and financing costs | | | | | (49,545 | ) | | | | | | (50,758 | ) | |
| Transaction and reorganization expenses | | | | | (29,310 | ) | | | | | | (48,125 | ) | |
| Amortization of value of business acquired | | | | | (24,666 | ) | | | | | | (149,535 | ) | |
| Amortization of intangible assets | | | | | (8,744 | ) | | | | | | (8,564 | ) | |
| Income before income taxes and interest in income of equity method investments | | | | | $ | 342,432 |
| | | | | | $ | 222,202 |
| |
| | | | | | | | | | | | | |
| Net losses and loss expenses ratio | 59.0 | % | | 68.7 | % | | 64.1 | % | | 60.1 | % | | 60.8 | % | | 60.5 | % | |
| Acquisition cost ratio | 21.2 | % | | 23.4 | % | | 22.3 | % | | 16.4 | % | | 23.2 | % | | 19.8 | % | |
| General and administrative expense ratio | 19.0 | % | | 4.9 | % | | 14.5 | % | | 17.2 | % | | 5.5 | % | | 13.7 | % | |
| Combined ratio | 99.2 | % | | 97.0 | % | | 100.9 | % | | 93.7 | % | | 89.5 | % | | 94.0 | % | |
| | | | | | | | | | | | | |
| Total intangible assets | $ | 346,356 |
| | $ | — |
| | $ | 346,356 |
| | $ | 408,441 |
| | $ | — |
| | $ | 408,441 |
| |
| �� | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | |
| Nine months ended and at September 30, | Insurance | | Reinsurance | | Total | | Insurance | | Reinsurance | | Total | |
| | | | | | | | | | | | | |
| Gross premiums written | $ | 2,234,395 |
| | $ | 2,225,377 |
| | $ | 4,459,772 |
| | $ | 2,112,796 |
| | $ | 2,126,762 |
| | $ | 4,239,558 |
| |
| Net premiums written | 1,533,029 |
| | 1,764,689 |
| | 3,297,718 |
| | 1,433,058 |
| | 1,855,529 |
| | 3,288,587 |
| |
| Net premiums earned | 1,448,270 |
| | 1,488,995 |
| | 2,937,265 |
| | 1,322,649 |
| | 1,461,097 |
| | 2,783,746 |
| |
| Other insurance related income (losses) | 1,077 |
| | (5,497 | ) | | (4,420 | ) | | (57 | ) | | 4,907 |
| | 4,850 |
| |
| Net losses and loss expenses | (1,241,495 | ) | | (1,206,145 | ) | | (2,447,640 | ) | | (853,771 | ) | | (809,813 | ) | | (1,663,584 | ) | |
| Acquisition costs | (223,665 | ) | | (365,214 | ) | | (588,879 | ) | | (184,982 | ) | | (374,588 | ) | | (559,570 | ) | |
| General and administrative expenses | (253,308 | ) | | (82,474 | ) | | (335,782 | ) | | (252,652 | ) | | (99,980 | ) | | (352,632 | ) | |
| Underwriting income (loss) | $ | (269,121 | ) | | $ | (170,335 | ) | | (439,456 | ) | | $ | 31,187 |
| | $ | 181,623 |
| | 212,810 |
| |
| | | | | | | | | | | | | |
| Corporate expenses | | | | | (97,922 | ) | | | | | | (86,922 | ) | |
| Net investment income | | | | | 299,899 |
| | | | | | 257,818 |
| |
| Net realized investment losses | | | | | (14,811 | ) | | | | | | (40,295 | ) | |
| Foreign exchange (losses) gains | | | | | (90,093 | ) | | | | | | 69,781 |
| |
| Interest expense and financing costs | | | | | (38,377 | ) | | | | | | (38,586 | ) | |
| Bargain purchase gain | | | | | 15,044 |
| | | | | | — |
| |
| Transaction related expenses | | | | | (5,970 | ) | | | | | | — |
| |
| Income (loss) before income taxes and interest in income (loss) of equity method investments | | | | | $ | (371,686 | ) | | | | | | $ | 374,606 |
| |
| | | | | | | | | | | | | |
| Net loss and loss expense ratio | 85.7 | % | | 81.0 | % | | 83.3 | % | | 64.6 | % | | 55.4 | % | | 59.8 | % | |
| Acquisition cost ratio | 15.4 | % | | 24.5 | % | | 20.0 | % | | 14.0 | % | | 25.6 | % | | 20.1 | % | |
| General and administrative expense ratio | 17.6 | % | | 5.6 | % | | 14.8 | % | | 19.0 | % | | 6.9 | % | | 15.8 | % | |
| Combined ratio | 118.7 | % | | 111.1 | % | | 118.1 | % | | 97.6 | % | | 87.9 | % | | 95.7 | % | |
| | | | | | | | | | | | | |
| Goodwill and intangible assets | $ | 87,206 |
| | $ | — |
| | $ | 87,206 |
| | $ | 85,501 |
| | $ | — |
| | $ | 85,501 |
| |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
a) Fixed Maturities and EquitiesEquity securities
Fixed maturities
The amortized cost or cost and fair values of ourthe Company's fixed maturities and equitiesclassified as available for sale were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Amortized Cost or Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Non-credit OTTI in AOCI(5) | |
| | | | | | | | | | | |
| At September 30, 2017 | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | |
| U.S. government and agency | $ | 1,556,963 |
| | $ | 2,729 |
| | $ | (12,374 | ) | | $ | 1,547,318 |
| | $ | — |
| |
| Non-U.S. government | 568,223 |
| | 13,961 |
| | (8,544 | ) | | 573,640 |
| | — |
| |
| Corporate debt | 4,460,337 |
| | 65,230 |
| | (21,600 | ) | | 4,503,967 |
| | — |
| |
| Agency RMBS(1) | 2,313,096 |
| | 12,218 |
| | (18,492 | ) | | 2,306,822 |
| | — |
| |
| CMBS(2) | 665,520 |
| | 5,954 |
| | (1,738 | ) | | 669,736 |
| | — |
| |
| Non-Agency RMBS | 42,653 |
| | 1,968 |
| | (804 | ) | | 43,817 |
| | (867 | ) | |
| ABS(3) | 1,285,080 |
| | 4,572 |
| | (782 | ) | | 1,288,870 |
| | — |
| |
| Municipals(4) | 151,522 |
| | 1,379 |
| | (685 | ) | | 152,216 |
| | — |
| |
| Total fixed maturities | $ | 11,043,394 |
| | $ | 108,011 |
| | $ | (65,019 | ) | | $ | 11,086,386 |
| | $ | (867 | ) | |
| | | | | | | | | | | |
| Equity securities | | | | | | | | | | |
| Common stocks | $ | 13,980 |
| | $ | 1,415 |
| | $ | (569 | ) | | $ | 14,826 |
| | | |
| Exchange-traded funds | 365,412 |
| | 88,782 |
| | — |
| | 454,194 |
| | | |
| Bond mutual funds | 183,718 |
| | 8,686 |
| | (1,673 | ) | | 190,731 |
| | | |
| Total equity securities | $ | 563,110 |
| | $ | 98,883 |
| | $ | (2,242 | ) | | $ | 659,751 |
| | | |
| | | | | | | | | | | |
| At December 31, 2016 | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | |
| U.S. government and agency | $ | 1,681,425 |
| | $ | 1,648 |
| | $ | (27,004 | ) | | $ | 1,656,069 |
| | $ | — |
| |
| Non-U.S. government | 613,282 |
| | 2,206 |
| | (49,654 | ) | | 565,834 |
| | — |
| |
| Corporate debt | 4,633,834 |
| | 42,049 |
| | (75,140 | ) | | 4,600,743 |
| | — |
| |
| Agency RMBS(1) | 2,487,837 |
| | 13,275 |
| | (35,977 | ) | | 2,465,135 |
| | — |
| |
| CMBS(2) | 664,368 |
| | 5,433 |
| | (3,564 | ) | | 666,237 |
| | — |
| |
| Non-Agency RMBS | 57,316 |
| | 1,628 |
| | (2,023 | ) | | 56,921 |
| | (823 | ) | |
| ABS(3) | 1,221,813 |
| | 3,244 |
| | (2,843 | ) | | 1,222,214 |
| | — |
| |
| Municipals(4) | 163,441 |
| | 1,510 |
| | (990 | ) | | 163,961 |
| | — |
| |
| Total fixed maturities | $ | 11,523,316 |
| | $ | 70,993 |
| | $ | (197,195 | ) | | $ | 11,397,114 |
| | $ | (823 | ) | |
| | | | | | | | | | | |
| Equity securities | | | | | | | | | | |
| Common stocks | $ | 379 |
| | $ | 41 |
| | $ | (342 | ) | | $ | 78 |
| | | |
| Exchange-traded funds | 463,936 |
| | 53,405 |
| | (2,634 | ) | | 514,707 |
| | | |
| Bond mutual funds | 133,051 |
| | — |
| | (9,092 | ) | | 123,959 |
| | | |
| Total equity securities | $ | 597,366 |
| | $ | 53,446 |
| | $ | (12,068 | ) | | $ | 638,744 |
| | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value | | Non-credit OTTI in AOCI(5) | |
| | | | | | | | | | | |
| At September 30, 2019 | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | |
| U.S. government and agency | $ | 2,106,902 |
| | $ | 30,012 |
| | $ | (2,958 | ) | | $ | 2,133,956 |
| | $ | — |
| |
| Non-U.S. government | 543,426 |
| | 6,214 |
| | (12,008 | ) | | 537,632 |
| | — |
| |
| Corporate debt | 4,966,942 |
| | 133,081 |
| | (22,928 | ) | | 5,077,095 |
| | — |
| |
| Agency RMBS(1) | 1,609,193 |
| | 26,811 |
| | (3,236 | ) | | 1,632,768 |
| | — |
| |
| CMBS(2) | 1,321,029 |
| | 48,726 |
| | (865 | ) | | 1,368,890 |
| | — |
| |
| Non-Agency RMBS | 59,308 |
| | 1,230 |
| | (1,586 | ) | | 58,952 |
| | (662 | ) | |
| ABS(3) | 1,600,758 |
| | 5,974 |
| | (6,197 | ) | | 1,600,535 |
| | — |
| |
| Municipals(4) | 200,146 |
| | 6,444 |
| | (177 | ) | | 206,413 |
| | — |
| |
| Total fixed maturities | $ | 12,407,704 |
| | $ | 258,492 |
| | $ | (49,955 | ) | | $ | 12,616,241 |
| | $ | (662 | ) | |
| | | | | | | | | | | |
| At December 31, 2018 | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | |
| U.S. government and agency | $ | 1,520,142 |
| | $ | 4,232 |
| | $ | (8,677 | ) | | $ | 1,515,697 |
| | $ | — |
| |
| Non-U.S. government | 507,550 |
| | 1,586 |
| | (16,120 | ) | | 493,016 |
| | — |
| |
| Corporate debt | 4,990,279 |
| | 15,086 |
| | (128,444 | ) | | 4,876,921 |
| | — |
| |
| Agency RMBS(1) | 1,666,684 |
| | 6,508 |
| | (29,884 | ) | | 1,643,308 |
| | — |
| |
| CMBS(2) | 1,103,507 |
| | 2,818 |
| | (13,795 | ) | | 1,092,530 |
| | — |
| |
| Non-Agency RMBS | 40,732 |
| | 1,237 |
| | (1,282 | ) | | 40,687 |
| | (857 | ) | |
| ABS(3) | 1,651,350 |
| | 1,493 |
| | (15,240 | ) | | 1,637,603 |
| | — |
| |
| Municipals(4) | 136,068 |
| | 914 |
| | (1,397 | ) | | 135,585 |
| | — |
| |
| Total fixed maturities | $ | 11,616,312 |
| | $ | 33,874 |
| | $ | (214,839 | ) | | $ | 11,435,347 |
| | $ | (857 | ) | |
| | | | | | | | | | | |
| |
(1) | Residential mortgage-backed securities (RMBS)("RMBS") originated by U.S. government-sponsored agencies. |
| |
(2) | Commercial mortgage-backed securities (CMBS)("CMBS"). |
| |
(3) | Asset-backed securities (ABS)("ABS") include debt tranched securities collateralized primarily by auto loans, student loans, credit cards,card receivables, collateralized debt obligations ("CDOs") and other asset types. This asset class also includes collateralized loan obligations (CLOs) and collateralized debt obligations (CDOs)("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)("OTTI") losses, adjusted for subsequent sales, maturities and redemptions. It does not include the change in fair value subsequent to the impairment measurement date. |
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
4.3. | 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, 2019 | | | | | | | | |
| Equity securities | | | | | | | | |
| Common stocks | $ | 504 |
| | $ | 67 |
| | $ | (387 | ) | | $ | 184 |
| |
| Exchange-traded funds | 215,620 |
| | 61,809 |
| | (3,707 | ) | | 273,722 |
| |
| Bond mutual funds | 164,521 |
| | — |
| | (8,524 | ) | | 155,997 |
| |
| Total equity securities | $ | 380,645 |
| | $ | 61,876 |
| | $ | (12,618 | ) | | $ | 429,903 |
| |
| | | | | | | | | |
| At December 31, 2018 | | | | | | | | |
| Equity securities | | | | | | | | |
| Common stocks | $ | 790 |
| | $ | 112 |
| | $ | (375 | ) | | $ | 527 |
| |
| Exchange-traded funds | 213,420 |
| | 33,498 |
| | (10,079 | ) | | 236,839 |
| |
| Bond mutual funds | 151,695 |
| | — |
| | (7,428 | ) | | 144,267 |
| |
| Total equity securities | $ | 365,905 |
| | $ | 33,610 |
| | $ | (17,882 | ) | | $ | 381,633 |
| |
| | | | | | | | | |
In the normal course of investing activities, wethe Company actively managemanages allocations to non-controlling tranches of structured securities (variable interests)which are variable interests issued by Variable Interest Entities ("VIEs"). These structured securities include RMBS, CMBS and ABS and are included in the above table. Additionally, within our other investments portfolio, we investABS. The Company also invests in limited partnerships (hedgeincluding hedge funds, direct lending funds, private equity funds and real estate funds) andfunds as well as CLO equity tranched securities, which are variable interests issued by VIEs (see(refer to Note 4(c)3(c) 'Other Investments'). For these variable interests, we doThe Company does not have the power to direct the activities that are most significant to the economic performance of the VIEs therefore we arethe Company is not the primary beneficiary of any of these VIEs. OurThe maximum exposure to loss on these interests is limited to the amount of our investment. We haveinvestment made by the Company. The Company has not provided financial or other support with respect to these structured securities other than ourthe original investment.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
3. | INVESTMENTS (CONTINUED) |
Contractual Maturities
The contractual maturities of fixed maturities are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The contractual maturities of fixed maturities are shown below:
|
| | | | | | | | | | | | |
| | Amortized cost | | Fair value | | % of Total fair value | |
| | | | | | | |
| At September 30, 2019 | | | | | | |
| Maturity | | | | | | |
| Due in one year or less | $ | 331,379 |
| | $ | 330,584 |
| | 2.6 | % | |
| Due after one year through five years | 4,980,949 |
| | 5,037,089 |
| | 39.9 | % | |
| Due after five years through ten years | 2,107,695 |
| | 2,173,611 |
| | 17.2 | % | |
| Due after ten years | 397,393 |
| | 413,812 |
| | 3.3 | % | |
| | 7,817,416 |
| | 7,955,096 |
| | 63.0 | % | |
| Agency RMBS | 1,609,193 |
| | 1,632,768 |
| | 12.9 | % | |
| CMBS | 1,321,029 |
| | 1,368,890 |
| | 10.9 | % | |
| Non-Agency RMBS | 59,308 |
| | 58,952 |
| | 0.5 | % | |
| ABS | 1,600,758 |
| | 1,600,535 |
| | 12.7 | % | |
| Total | $ | 12,407,704 |
| | $ | 12,616,241 |
| | 100.0 | % | |
| | | | | | | |
| At December 31, 2018 | | | | | | |
| Maturity | | | | | | |
| Due in one year or less | $ | 430,390 |
| | $ | 426,142 |
| | 3.7 | % | |
| Due after one year through five years | 4,751,064 |
| | 4,691,263 |
| | 41.0 | % | |
| Due after five years through ten years | 1,762,452 |
| | 1,697,737 |
| | 14.8 | % | |
| Due after ten years | 210,133 |
| | 206,077 |
| | 1.8 | % | |
| | 7,154,039 |
| | 7,021,219 |
| | 61.3 | % | |
| Agency RMBS | 1,666,684 |
| | 1,643,308 |
| | 14.4 | % | |
| CMBS | 1,103,507 |
| | 1,092,530 |
| | 9.6 | % | |
| Non-Agency RMBS | 40,732 |
| | 40,687 |
| | 0.4 | % | |
| ABS | 1,651,350 |
| | 1,637,603 |
| | 14.3 | % | |
| Total | $ | 11,616,312 |
| | $ | 11,435,347 |
| | 100.0 | % | |
| | | | | | | |
|
| | | | | | | | | | | | |
| | Amortized Cost | | Fair Value | | % of Total Fair Value | |
| | | | | | | |
| At September 30, 2017 | | | | | | |
| Maturity | | | | | | |
| Due in one year or less | $ | 434,283 |
| | $ | 432,662 |
| | 4.0 | % | |
| Due after one year through five years | 3,834,452 |
| | 3,850,174 |
| | 34.7 | % | |
| Due after five years through ten years | 2,258,136 |
| | 2,276,190 |
| | 20.5 | % | |
| Due after ten years | 210,174 |
| | 218,115 |
| | 2.0 | % | |
| | 6,737,045 |
| | 6,777,141 |
| | 61.2 | % | |
| Agency RMBS | 2,313,096 |
| | 2,306,822 |
| | 20.8 | % | |
| CMBS | 665,520 |
| | 669,736 |
| | 6.0 | % | |
| Non-Agency RMBS | 42,653 |
| | 43,817 |
| | 0.4 | % | |
| ABS | 1,285,080 |
| | 1,288,870 |
| | 11.6 | % | |
| Total | $ | 11,043,394 |
| | $ | 11,086,386 |
| | 100.0 | % | |
| | | | | | | |
| At December 31, 2016 | | | | | | |
| Maturity | | | | | | |
| Due in one year or less | $ | 313,287 |
| | $ | 305,972 |
| | 2.8 | % | |
| Due after one year through five years | 3,906,190 |
| | 3,850,149 |
| | 33.8 | % | |
| Due after five years through ten years | 2,546,299 |
| | 2,510,975 |
| | 22.0 | % | |
| Due after ten years | 326,206 |
| | 319,511 |
| | 2.8 | % | |
| | 7,091,982 |
| | 6,986,607 |
| | 61.4 | % | |
| Agency RMBS | 2,487,837 |
| | 2,465,135 |
| | 21.6 | % | |
| CMBS | 664,368 |
| | 666,237 |
| | 5.8 | % | |
| Non-Agency RMBS | 57,316 |
| | 56,921 |
| | 0.5 | % | |
| ABS | 1,221,813 |
| | 1,222,214 |
| | 10.7 | % | |
| Total | $ | 11,523,316 |
| | $ | 11,397,114 |
| | 100.0 | % | |
| | | | | | | |
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
4.3. | INVESTMENTS (CONTINUED) |
Gross Unrealized Losses
The following table summarizes fixed maturities and equitiesequity 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, 2019 | | | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | | | |
| U.S. government and agency | $ | 12,694 |
| | $ | (91 | ) | | $ | 558,741 |
| | $ | (2,867 | ) | | $ | 571,435 |
| | $ | (2,958 | ) | |
| Non-U.S. government | 114,923 |
| | (7,546 | ) | | 179,943 |
| | (4,462 | ) | | 294,866 |
| | (12,008 | ) | |
| Corporate debt | 218,327 |
| | (11,414 | ) | | 601,466 |
| | (11,514 | ) | | 819,793 |
| | (22,928 | ) | |
| Agency RMBS | 241,041 |
| | (2,394 | ) | | 200,089 |
| | (842 | ) | | 441,130 |
| | (3,236 | ) | |
| CMBS | 24,550 |
| | (65 | ) | | 100,241 |
| | (800 | ) | | 124,791 |
| | (865 | ) | |
| Non-Agency RMBS | 5,409 |
| | (1,135 | ) | | 19,393 |
| | (451 | ) | | 24,802 |
| | (1,586 | ) | |
| ABS | 402,080 |
| | (5,186 | ) | | 420,285 |
| | (1,011 | ) | | 822,365 |
| | (6,197 | ) | |
| Municipals | 7,747 |
| | (109 | ) | | 9,601 |
| | (68 | ) | | 17,348 |
| | (177 | ) | |
| Total fixed maturities | $ | 1,026,771 |
| | $ | (27,940 | ) | | $ | 2,089,759 |
| | $ | (22,015 | ) | | $ | 3,116,530 |
| | $ | (49,955 | ) | |
| | | | | | | | | | | | | |
| At December 31, 2018 | | | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | | | |
| U.S. government and agency | $ | 374,030 |
| | $ | (7,659 | ) | | $ | 424,439 |
| | $ | (1,018 | ) | | $ | 798,469 |
| | $ | (8,677 | ) | |
| Non-U.S. government | 44,339 |
| | (2,004 | ) | | 303,376 |
| | (14,116 | ) | | 347,715 |
| | (16,120 | ) | |
| Corporate debt | 1,439,378 |
| | (58,915 | ) | | 2,547,135 |
| | (69,529 | ) | | 3,986,513 |
| | (128,444 | ) | |
| Agency RMBS | 940,645 |
| | (29,255 | ) | | 117,181 |
| | (629 | ) | | 1,057,826 |
| | (29,884 | ) | |
| CMBS | 455,582 |
| | (11,430 | ) | | 353,802 |
| | (2,365 | ) | | 809,384 |
| | (13,795 | ) | |
| Non-Agency RMBS | 9,494 |
| | (1,170 | ) | | 11,432 |
| | (112 | ) | | 20,926 |
| | (1,282 | ) | |
| ABS | 237,237 |
| | (2,755 | ) | | 1,150,692 |
| | (12,485 | ) | | 1,387,929 |
| | (15,240 | ) | |
| Municipals | 68,814 |
| | (1,373 | ) | | 9,894 |
| | (24 | ) | | 78,708 |
| | (1,397 | ) | |
| Total fixed maturities | $ | 3,569,519 |
| | $ | (114,561 | ) | | $ | 4,917,951 |
| | $ | (100,278 | ) | | $ | 8,487,470 |
| | $ | (214,839 | ) | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 12 months or greater | | Less than 12 months | | Total | |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | |
| | | | | | | | | | | | | |
| At September 30, 2017 | | | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | | | |
| U.S. government and agency | $ | 161,425 |
| | $ | (5,641 | ) | | $ | 1,207,943 |
| | $ | (6,733 | ) | | $ | 1,369,368 |
| | $ | (12,374 | ) | |
| Non-U.S. government | 61,872 |
| | (7,354 | ) | | 163,477 |
| | (1,190 | ) | | 225,349 |
| | (8,544 | ) | |
| Corporate debt | 412,832 |
| | (12,553 | ) | | 990,308 |
| | (9,047 | ) | | 1,403,140 |
| | (21,600 | ) | |
| Agency RMBS | 350,010 |
| | (8,130 | ) | | 1,126,956 |
| | (10,362 | ) | | 1,476,966 |
| | (18,492 | ) | |
| CMBS | 13,919 |
| | (238 | ) | | 221,941 |
| | (1,500 | ) | | 235,860 |
| | (1,738 | ) | |
| Non-Agency RMBS | 8,342 |
| | (803 | ) | | 222 |
| | (1 | ) | | 8,564 |
| | (804 | ) | |
| ABS | 16,816 |
| | (409 | ) | | 323,886 |
| | (373 | ) | | 340,702 |
| | (782 | ) | |
| Municipals | 23,339 |
| | (474 | ) | | 40,913 |
| | (211 | ) | | 64,252 |
| | (685 | ) | |
| Total fixed maturities | $ | 1,048,555 |
| | $ | (35,602 | ) | | $ | 4,075,646 |
| | $ | (29,417 | ) | | $ | 5,124,201 |
| | $ | (65,019 | ) | |
| | | | | | | | | | | | | |
| Equity securities | | | | | | | | | | | | |
| Common stocks | $ | 33 |
| | $ | (135 | ) | | $ | 2,939 |
| | $ | (434 | ) | | $ | 2,972 |
| | $ | (569 | ) | |
| Exchange-traded funds | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Bond mutual funds | — |
| | — |
| | 24,145 |
| | (1,673 | ) | | 24,145 |
| | (1,673 | ) | |
| Total equity securities | $ | 33 |
| | $ | (135 | ) | | $ | 27,084 |
| | $ | (2,107 | ) | | $ | 27,117 |
| | $ | (2,242 | ) | |
| | | | | | | | | | | | | |
| At December 31, 2016 | | | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | | | |
| U.S. government and agency | $ | 54,051 |
| | $ | (2,729 | ) | | $ | 1,340,719 |
| | $ | (24,275 | ) | | $ | 1,394,770 |
| | $ | (27,004 | ) | |
| Non-U.S. government | 149,360 |
| | (38,683 | ) | | 283,796 |
| | (10,971 | ) | | 433,156 |
| | (49,654 | ) | |
| Corporate debt | 230,218 |
| | (30,652 | ) | | 1,948,976 |
| | (44,488 | ) | | 2,179,194 |
| | (75,140 | ) | |
| Agency RMBS | 76,694 |
| | (1,101 | ) | | 1,724,170 |
| | (34,876 | ) | | 1,800,864 |
| | (35,977 | ) | |
| CMBS | 84,640 |
| | (749 | ) | | 193,499 |
| | (2,815 | ) | | 278,139 |
| | (3,564 | ) | |
| Non-Agency RMBS | 13,642 |
| | (1,752 | ) | | 7,194 |
| | (271 | ) | | 20,836 |
| | (2,023 | ) | |
| ABS | 362,110 |
| | (1,950 | ) | | 266,763 |
| | (893 | ) | | 628,873 |
| | (2,843 | ) | |
| Municipals | 774 |
| | (29 | ) | | 68,598 |
| | (961 | ) | | 69,372 |
| | (990 | ) | |
| Total fixed maturities | $ | 971,489 |
| | $ | (77,645 | ) | | $ | 5,833,715 |
| | $ | (119,550 | ) | | $ | 6,805,204 |
| | $ | (197,195 | ) | |
| | | | | | | | | | | | | |
| Equity securities | | | | | | | | | | | | |
| Common stocks | $ | — |
| | $ | — |
| | $ | 37 |
| | $ | (342 | ) | | $ | 37 |
| | $ | (342 | ) | |
| Exchange-traded funds | 4,959 |
| | (461 | ) | | 87,760 |
| | (2,173 | ) | | 92,719 |
| | (2,634 | ) | |
| Bond mutual funds | — |
| | — |
| | 123,954 |
| | (9,092 | ) | | 123,954 |
| | (9,092 | ) | |
| Total equity securities | $ | 4,959 |
| | $ | (461 | ) | | $ | 211,751 |
| | $ | (11,607 | ) | | $ | 216,710 |
| | $ | (12,068 | ) | |
| | | | | | | | | | | | | |
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
4. | INVESTMENTS (CONTINUED) |
Fixed Maturities
At September 30,20172019, 1,6251,541 fixed maturities (2016: 1,881)(2018: 3,599) were in an unrealized loss position of $65$50 million (2016: $197(2018: $215 million), of which $611 million (2016: (2018: $1549 million) was related to securities below investment grade or not rated.
At September 30,20172019, 403 (2016: 330633 fixed maturities (2018: 1,656) securities had been in a continuous unrealized loss position for 12twelve months or greater and had a fair value of $1,049$1,027 million (2016: $971(2018: $3,570 million). Following oura credit impairment review, weit was concluded that these securities as well as the remaining securities in an unrealized loss position in the above table were temporarily impaired at September 30,20172019, and were expected to recover in value as the securities approach maturity. Further, at At September 30,20172019, wethe Company did not intend to sell thesethe securities in an unrealized loss position and it is more likely than not that wethe Company will not be required to sell these securities before the anticipated recovery of their amortized costs.
Equity Securities
At September 30,2017, 31 securities (2016: 23) were in an unrealized loss position18
At September 30,2017, 2 securities (2016: 3) was in a continuous unrealized loss position for 12 months or greater. Based on our impairment review process and our ability and intent to hold these securities for a reasonable period of time sufficient for a full recovery, we concluded that the above equities in an unrealized loss position were temporarily impaired at September 30,2017.AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
3. | INVESTMENTS (CONTINUED) |
b) Mortgage Loans
The following table provides a breakdowndetails of ourthe Company's mortgage loans held-for-investment: |
| | | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| | Carrying value | | % of Total | | Carrying value | | % of Total | |
| | | | | | | | | |
| Mortgage Loans held-for-investment: | | | | | | | | |
| Commercial | $ | 407,790 |
| | 100 | % | | $ | 298,650 |
| | 100 | % | |
| Total Mortgage Loans held-for-investment | $ | 407,790 |
| | 100 | % | | $ | 298,650 |
| | 100 | % | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 | |
| | Carrying Value | | % of Total | | Carrying Value | | % of Total | |
| | | | | | | | | |
| Mortgage Loans held-for-investment: | | | | | | | | |
| Commercial | $ | 360,381 |
| | 100 | % | | $ | 349,969 |
| | 100 | % | |
| | 360,381 |
| | 100 | % | | 349,969 |
| | 100 | % | |
| Valuation allowances | — |
| | — | % | | — |
| | — | % | |
| Total Mortgage Loans held-for-investment | $ | 360,381 |
| | 100 | % | | $ | 349,969 |
| | 100 | % | |
| | | | | | | | | |
For commercial mortgage loans, theThe primary credit quality indicator for commercial mortgage loans is the debt service coverage ratio (whichwhich compares a property’s net operating income to amounts needed to service the principal and interest due under the loan, generally,(generally, the lower the debt service coverage ratio, the higher the risk of experiencing a credit loss) and the loan-to-value ratio (loan-to-value ratios comparewhich compares the unpaid principal balance of the loan to the estimated fair value of the underlying collateral generally,(generally, the higher the loan-to-value ratio, the higher the risk of experiencing a credit loss). The debt service coverage ratio and loan-to-value ratio, as well as the values utilized in calculating these ratios, are updated annually, on a rolling basis.
We haveThe Company has a high quality mortgage loan portfolio with a weighted average debt service coverage ratios in excessratio of 3.0x2.1x and a weighted average loan-to-value ratiosratio of less than 60%57%. ThereAt September 30, 2019, there are no0 credit losses or past due amounts associated with the commercial mortgage loans that we hold at September 30, 2017.held by the Company.
There are no past due amounts at September 30, 2017.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
4.3. | INVESTMENTS (CONTINUED) |
c) Other Investments
The following table providestables provide a breakdownsummary of our investments in hedge funds, direct lending funds, private equity funds, real estate funds, CLO-Equities andthe Company's other privately held investments, together with additional information relating to the liquidity of each category:
|
| | | | | | | | | | | | |
| | Fair Value | | Redemption Frequency (if currently eligible) | | Redemption Notice Period | |
| | | | | | | | | |
| At September 30, 2017 | |
| | |
| | | | | |
| Long/short equity funds | $ | 64,067 |
| | 8 | % | | Annually | | 60 days | |
| Multi-strategy funds | 286,452 |
| | 35 | % | | Quarterly, Semi-annually | | 60-95 days | |
| Event-driven funds | 48,578 |
| | 6 | % | | Annually | | 45 days | |
| Direct lending funds | 232,389 |
| | 28 | % | | n/a | | n/a | |
| Private equity funds | 71,896 |
| | 9 | % | | n/a | | n/a | |
| Real estate funds | 46,691 |
| | 6 | % | | n/a | | n/a | |
| CLO-Equities | 36,782 |
| | 3 | % | | n/a | | n/a | |
| Other privately held investments | 43,398 |
| | 5 | % | | n/a | | n/a | |
| Total other investments | $ | 830,253 |
| | 100 | % | | | | | |
| | | | | | | | | |
| At December 31, 2016 | |
| | |
| | | | | |
| Long/short equity funds | $ | 118,619 |
| | 14 | % | | Semi-annually, Annually | | 45-60 days | |
| Multi-strategy funds | 285,992 |
| | 34 | % | | Quarterly, Semi-annually | | 60-95 days | |
| Event-driven funds | 93,539 |
| | 11 | % | | Annually | | 45 days | |
| Direct lending funds | 134,650 |
| | 16 | % | | n/a | | n/a | |
| Private equity funds | 81,223 |
| | 10 | % | | n/a | | n/a | |
| Real estate funds | 13,354 |
| | 2 | % | | n/a | | n/a | |
| CLO-Equities | 60,700 |
| | 8 | % | | n/a | | n/a | |
| Other privately held investments | 42,142 |
| | 5 | % | | n/a | | n/a | |
| Total other investments | $ | 830,219 |
| | 100 | % | | | | | |
| | | | | | | | | |
|
| | | | | | | | | | | | |
| | Fair value | | Redemption frequency (if currently eligible) | | Redemption notice period | |
| | | | | | | | | |
| At September 30, 2019 | |
| | |
| | | | | |
| Long/short equity funds | $ | 30,617 |
| | 4 | % | | Annually | | 60 days | |
| Multi-strategy funds | 166,079 |
| | 21 | % | | Quarterly, Semi-annually | | 60-90 days | |
| Direct lending funds | 275,619 |
| | 35 | % | | n/a | | n/a | |
| Private equity funds | 67,210 |
| | 9 | % | | n/a | | n/a | |
| Real estate funds | 130,209 |
| | 17 | % | | n/a | | n/a | |
| CLO-Equities | 15,454 |
| | 2 | % | | n/a | | n/a | |
| Other privately held investments | 30,719 |
| | 4 | % | | n/a | | n/a | |
| Overseas deposits | 63,293 |
| | 8 | % | | n/a | | n/a | |
| Total other investments | $ | 779,200 |
| | 100 | % | | | | | |
| | | | | | | | | |
| At December 31, 2018 | |
| | |
| | | | | |
| Long/short equity funds | $ | 26,779 |
| | 3 | % | | Annually | | 60 days | |
| Multi-strategy funds | 167,819 |
| | 22 | % | | Quarterly, Semi-annually, Annually | | 45-95 days | |
| Direct lending funds | 274,478 |
| | 35 | % | | n/a | | n/a | |
| Private equity funds | 64,566 |
| | 8 | % | | n/a | | n/a | |
| Real estate funds | 84,202 |
| | 11 | % | | n/a | | n/a | |
| CLO-Equities | 21,271 |
| | 2 | % | | n/a | | n/a | |
| Other privately held investments | 44,518 |
| | 6 | % | | n/a | | n/a | |
| Overseas deposits | 104,154 |
| | 13 | % | | n/a | | n/a | |
| Total other investments | $ | 787,787 |
| | 100 | % | | | | | |
| | | | | | | | | |
n/a -notapplicable
The investment strategies for the above funds are as follows:
Long/short equity funds: Seek to achieve attractive returns primarily by executing an equity trading strategy involving both long and short investments in publicly-traded equities.
Multi-strategy funds: Seek to achieve above-market returns by pursuing multiple investment strategies to diversify risks and reduce volatility. This category includes funds of hedge funds which invest in a large pool of hedge funds across a diversified range of hedge fund strategies.
Event-driven funds: Seek to achieve attractive returns by exploiting situations where announced or anticipated events create opportunities.
Direct lending funds: Seek to achieve attractive risk-adjusted returns, including current income generation, by investing in funds which provide financing directly to borrowers.
Private equity funds: Seek to achieve attractive risk-adjusted returns by investing in private transactions over the course of several years.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
4.• | INVESTMENTS (CONTINUED)Long/short equity funds: Seek to achieve attractive returns primarily by executing an equity trading strategy involving long and short investments in publicly-traded equity securities. |
| |
• | Multi-strategy funds: Seek to achieve above-market returns by pursuing multiple investment strategies to diversify risks and reduce volatility. This category primarily includes funds of hedge funds which invest in a large pool of hedge funds across a diversified range of hedge fund strategies. |
| |
• | Direct lending funds: Seek to achieve attractive risk-adjusted returns, including current income generation, by investing in funds which provide financing directly to borrowers. |
| |
• | Private equity funds: Seek to achieve attractive risk-adjusted returns by investing in private transactions over the course of several years. |
| |
• | Real estate funds: Seek to achieve attractive risk-adjusted returns by making and managing investments in real estate and real estate securities and businesses. |
Real estate funds: Seek to achieve attractive risk-adjusted returns by making and managing investments in real estate and real estate securities and businesses.
Two common redemption restrictions which may impact ourthe Company's ability to redeem our hedge funds are gates and lockups. A gate is a suspension of redemptions which may be implemented by the general partner or investment manager of the fund in order to defer, in
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
3. | INVESTMENTS (CONTINUED) |
whole or in part, the redemption request in the event the aggregate amount of redemption requests exceeds a predetermined percentage of the fund's net assets which may otherwise hinder the general partner or investment manager's ability to liquidate holdings in an orderly fashion in order to generate the cash necessary to fund extraordinarily large redemption payouts. A lockup period is the initial amount of time an investor is contractually required to hold the security before having the ability to redeem. During 2017the nine months ended September 30, 2019 and 2016,2018, neither of these restrictions impacted ourthe Company's redemption requests. At September 30, 2017, $64 2019, $65 million (2016: $60(2018: $27 million), representing 16% (2016: 12%33% (2018: 14%) of our total hedge funds, relate to holdings where we arethe Company is still within the lockup period. The expiration of these lockup periods range from December 2017October 2020 to March 2019. 2022.
At September 30,2017, we 2019, the Company had $142$184 million (2016: $176 (2018: $210 million) of unfunded commitments as a limited partner in direct lending funds. Once the full amount of committed capital has been called by the General Partner of each of these funds, the assets will not be fully returned until the completion of the fund's investment term. These funds have investment terms ranging from 5-10five to ten years and the General Partners of certain funds have the option to extend the term by up to 3three years.
At September 30,2017, we 2019, the Company had $16$37 million (2016: $12(2018: $84 million) of unfunded commitments as a limited partner in multi-strategy hedge funds. Once the full amount of committed capital has been called by the General Partner of each of these funds, the assets will not be fully returned until after the completion of the funds' investment term. These funds have investment terms ranging from 2two years to the dissolution of the underlying fund.
At September 30, 2017, we2019, the Company had $120$97 million (2016: $140(2018: $147 million) of unfunded commitments as a limited partner in funds which invest in real estate and real estate securities and businesses. These funds haveinclude an open-ended fund and funds with investment terms ranging from 7seven years to the dissolution of the underlying fund.
At September 30, 2017, we2019, the Company had $21$171 million (2016: $24(2018: $16 million) of unfunded commitments as a limited partner in a private equity fund.funds. The life of the fundfunds is subject to the dissolution of the underlying funds. We expectThe Company expects the overall holding period to be over 10five years.
During 2015, wethe Company made a $50 million commitment as a limited partner of a bank revolver opportunity fund. The fund is subject tohas an investment term of 7seven years and the General Partners have the option to extend the term by up to 2two years. At September 30, 2017,2019, this commitment remains unfunded. It is not anticipated that the full amount of this fund will be drawn.
Syndicate 2007 holds overseas deposits which include investments in private funds where the underlying investments are primarily U.S. government, non-U.S. government and corporate debt securities. The funds do not trade on an exchange and therefore are not included within available for sale investments.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
4.3. | INVESTMENTS (CONTINUED) |
d) Equity Method Investments
During 2016, wethe Company paid $108 million including direct transaction costs to acquire 19% of the common equity of Harrington Reinsurance Holdings Limited ("Harrington"), the parent company of Harrington Re Ltd. ("Harrington Re"), an independent reinsurance company jointly sponsored by AXIS Capital and The Blackstone Group L.P. ("Blackstone"). Through long-term service agreements, AXIS Capital will serve as Harrington Re's reinsurance underwriting manager and Blackstone will serve as exclusive investment management service provider. As an investor, we expectthe Company expects to benefit from underwriting profit generated by Harrington Re and the income and capital appreciation Blackstone seeks to deliver through its investment management services. In addition, we havethe Company has entered into an arrangement with Blackstone under which underwriting and investment related fees will be shared equally. Harrington is not a variableVIE that is required to be included in the Company's consolidated financial statements. The Company accounts for its ownership interest entity. Given that we exercise significant influence over the operating and financial policies of this investee we account for our ownership in Harrington under the equity method of accounting. The Company's proportionate share of the underlying equity in net assets resulted in a basis difference of $5 million which represents initial transactions costs.
During the nine months ended September 30, 2017, we recorded an impairment charge of $9 million, related to a U.S. based insurance company, which reduced the carrying value of the investment to $nil. This charge is included in interest in income (loss) of equity method investments in the Consolidated Statement of Operations.
e) Net Investment Income
Net investment income was derived from the following sources:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| Fixed maturities | $ | 74,978 |
| | $ | 75,827 |
| | $ | 230,603 |
| | $ | 229,423 |
| |
| Other investments | 17,373 |
| | 38,248 |
| | 59,973 |
| | 25,770 |
| |
| Equity securities | 3,223 |
| | 4,633 |
| | 11,048 |
| | 12,843 |
| |
| Mortgage loans | 2,895 |
| | 2,191 |
| | 7,970 |
| | 5,683 |
| |
| Cash and cash equivalents | 3,111 |
| | 3,768 |
| | 9,640 |
| | 7,071 |
| |
| Short-term investments | 698 |
| | 337 |
| | 1,797 |
| | 708 |
| |
| Gross investment income | 102,278 |
| | 125,004 |
| | 321,031 |
| | 281,498 |
| |
| Investment expenses | (7,109 | ) | | (8,081 | ) | | (21,132 | ) | | (23,680 | ) | |
| Net investment income | $ | 95,169 |
| | $ | 116,923 |
| | $ | 299,899 |
| | $ | 257,818 |
| |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Fixed maturities | $ | 96,311 |
| | $ | 89,887 |
| | $ | 285,062 |
| | $ | 262,165 |
| |
| Other investments | 11,143 |
| | 15,933 |
| | 49,271 |
| | 44,179 |
| |
| Equity securities | 2,232 |
| | 2,099 |
| | 7,757 |
| | 7,015 |
| |
| Mortgage loans | 3,984 |
| | 3,322 |
| | 10,735 |
| | 9,805 |
| |
| Cash and cash equivalents | 7,034 |
| | 6,992 |
| | 20,974 |
| | 16,770 |
| |
| Short-term investments | 973 |
| | 3,413 |
| | 5,975 |
| | 5,933 |
| |
| Gross investment income | 121,677 |
| | 121,646 |
| | 379,774 |
| | 345,867 |
| |
| Investment expenses | (5,914 | ) | | (7,225 | ) | | (18,760 | ) | | (20,487 | ) | |
| Net investment income | $ | 115,763 |
| | $ | 114,421 |
| | $ | 361,014 |
| | $ | 325,380 |
| |
| | | | | | | | | |
f) Net Investment Gains (Losses)
The following table provides an analysis of net investment gains (losses):
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Gross realized investment gains | | | | | | | | |
| Fixed maturities and short-term investments | $ | 32,475 |
| | $ | 4,543 |
| | $ | 61,882 |
| | $ | 41,932 |
| |
| Equity securities | 1,825 |
| | 15 |
| | 3,424 |
| | 18,675 |
| |
| Gross realized investment gains | 34,300 |
| | 4,558 |
| | 65,306 |
| | 60,607 |
| |
| Gross realized investment losses | | | | | | | | |
| Fixed maturities and short-term investments | (14,557 | ) | | (25,926 | ) | | (44,813 | ) | | (113,903 | ) | |
| Equity securities | (80 | ) | | — |
| | (203 | ) | | (1,231 | ) | |
| Gross realized investment losses | (14,637 | ) | | (25,926 | ) | | (45,016 | ) | | (115,134 | ) | |
| Net OTTI recognized in net income | (1,458 | ) | | (5,546 | ) | | (6,328 | ) | | (7,634 | ) | |
| Change in fair value of investment derivatives(1) | 2,592 |
| | 2,626 |
| | 287 |
| | 9,782 |
| |
| Net unrealized gains (losses) on equity securities | (6,270 | ) | | 6,660 |
| | 34,273 |
| | (25,172 | ) | |
| Net investment gains (losses) | $ | 14,527 |
| | $ | (17,628 | ) | | $ | 48,522 |
| | $ | (77,551 | ) | |
| | | | | | | | | |
(1) Refer to Note 5 'Derivative Instruments'.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
4.3. | INVESTMENTS (CONTINUED) |
f) Net Realized Investment Gains (Losses)
The following table provides an analysis of net realized investment gains (losses):
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| Gross realized gains | | | | | | | | |
| Fixed maturities and short-term investments | $ | 19,297 |
| | $ | 26,211 |
| | $ | 57,524 |
| | $ | 67,833 |
| |
| Equities | 17,980 |
| | 5,570 |
| | 33,794 |
| | 18,804 |
| |
| Gross realized gains | 37,277 |
| | 31,781 |
| | 91,318 |
| | 86,637 |
| |
| Gross realized losses | | | | | | | | |
| Fixed maturities and short-term investments | (15,893 | ) | | (21,908 | ) | | (83,183 | ) | | (90,702 | ) | |
| Equities | (45 | ) | | (576 | ) | | (258 | ) | | (15,923 | ) | |
| Gross realized losses | (15,938 | ) | | (22,484 | ) | | (83,441 | ) | | (106,625 | ) | |
| Net OTTI recognized in earnings | (5,412 | ) | | (4,247 | ) | | (13,493 | ) | | (20,346 | ) | |
| Change in fair value of investment derivatives(1) | (1,295 | ) | | 155 |
| | (9,195 | ) | | 39 |
| |
| Net realized investment gains (losses) | $ | 14,632 |
| | $ | 5,205 |
| | $ | (14,811 | ) | | $ | (40,295 | ) | |
| | | | | | | | | |
(1) Refer to Note 6 'Derivative Instruments'
The following table summarizes the OTTI recognized in earningsnet income by asset class: |
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| Fixed maturities: | | | | | | | | |
| Non-U.S. government | $ | 3,905 |
| | $ | 2,456 |
| | $ | 8,187 |
| | $ | 2,953 |
| |
| Corporate debt | 1,507 |
| | 1,791 |
| | 5,306 |
| | 14,833 |
| |
| | 5,412 |
| | 4,247 |
| | 13,493 |
| | 17,786 |
| |
| Equity Securities | | | | | | | | |
| Exchange-traded funds | — |
| | — |
| | — |
| | 2,560 |
| |
| | — |
| | — |
| | — |
| | 2,560 |
| |
| Total OTTI recognized in earnings | $ | 5,412 |
| | $ | 4,247 |
| | $ | 13,493 |
| | $ | 20,346 |
| |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Fixed maturities: | | | | | | | | |
| Non-U.S. government | $ | 30 |
| | $ | 4,426 |
| | $ | 90 |
| | $ | 4,448 |
| |
| Corporate debt | 1,428 |
| | 1,079 |
| | 6,238 |
| | 3,145 |
| |
| CMBS | — |
| | 41 |
| | — |
| | 41 |
| |
| Total OTTI recognized in net income | $ | 1,458 |
| | $ | 5,546 |
| | $ | 6,328 |
| | $ | 7,634 |
| |
| | | | | | | | | |
23
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
4. | INVESTMENTS (CONTINUED) |
The following table provides a roll forward of the credit losses ("credit loss table") before income taxes, for which a portioncomponent of the OTTI charge was recognized in AOCI:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| Balance at beginning of period | $ | 1,481 |
| | $ | 1,513 |
| | $ | 1,493 |
| | $ | 1,506 |
| |
| Credit impairments recognized on securities not previously impaired | — |
| | — |
| | — |
| | — |
| |
| Additional credit impairments recognized on securities previously impaired | 2 |
| | — |
| | 2 |
| | 7 |
| |
| Change in timing of future cash flows on securities previously impaired | — |
| | — |
| | — |
| | — |
| |
| Intent to sell of securities previously impaired | — |
| | — |
| | — |
| | — |
| |
| Securities sold/redeemed/matured | — |
| | (33 | ) | | (12 | ) | | (33 | ) | |
| Balance at end of period | $ | 1,483 |
| | $ | 1,480 |
| | $ | 1,483 |
| | $ | 1,480 |
| |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Balance at beginning of period | $ | 393 |
| | $ | 1,472 |
| | $ | 510 |
| | $ | 1,494 |
| |
| Credit impairments recognized on securities not previously impaired | — |
| | — |
| | — |
| | — |
| |
| Additional credit impairments recognized on securities previously impaired | — |
| | 8 |
| | — |
| | 8 |
| |
| Change in timing of future cash flows on securities previously impaired | — |
| | — |
| | — |
| | — |
| |
| Intent to sell of securities previously impaired | — |
| | — |
| | — |
| | — |
| |
| Securities sold/redeemed/matured | (79 | ) | | — |
| | (196 | ) | | (22 | ) | |
| Balance at end of period | $ | 314 |
| | $ | 1,480 |
| | $ | 314 |
| | $ | 1,480 |
| |
| | | | | | | | | |
g) Reverse Repurchase Agreements
At September 30, 2017, we2019, the Company held $34$9 million (December 31, 2016: $176(2018: $189 million) of reverse repurchase agreements. These loans are fully collateralized, are generally outstanding for a short period of time and are presented on a gross basis as part of cash and cash equivalents in the Consolidated Balance Sheet.Company's consolidated balance sheets. The required collateral for these loans is either cash or U.S. Treasuries at a minimum rate of 102% of the loan principal. Upon maturity, we receivethe Company receives principal and interest income. We monitorThe Company monitors the estimated fair value of the securities loaned and borrowed on a daily basis with additional collateral obtained as necessary throughout the duration of the transaction.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5.4. | FAIR VALUE MEASUREMENTS |
Fair Value Hierarchy
Fair value is defined as the price to sell an asset or transfer a liability (i.e. the “exit price”"exit price") in an orderly transaction between market participants. U.S. GAAP prescribes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement. The hierarchy is broken down into three levels as follows:
Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we havethe Company has the ability to access.
Level 2 - Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect ourthe Company's own judgments about assumptions that market participants might use.
The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment.
Accordingly, the degree of judgment exercised by management in determining fair value is greatest for financial instruments categorized inas Level 3. In periods of market dislocation, the observability of prices and inputs may be reduced for many financial instruments. This may lead usthe Company to change the selection of our valuation technique (from market to cash flow approach) or may cause usthe Company to use multiple valuation techniques to estimate the fair value of a financial instrument. This circumstance could cause an instrument to be reclassified between levels within the fair value hierarchy.
Valuation Techniques
The valuation techniques, including significant inputs and assumptions generally used to determine the fair values of ourthe Company's financial instruments as well as the classification of the fair values of ourits financial instruments in the fair value hierarchy are described in detail below.
Fixed Maturities
At each valuation date, we usethe Company uses the market approach valuation technique to estimate the fair value of ourits fixed maturities portfolio, when possible. ThisThe market approach includes, but is not limited to, prices obtained from third party pricing services for identical or comparable securities and the use of “pricing"pricing matrix models”models" using observable market inputs such as yield curves, credit risks and spreads, measures of volatility, and prepayment speeds. Pricing from third party pricing services is sourced from multiple vendors, when available, and we maintainthe Company maintains a vendor hierarchy by asset type based on historical pricing experience and vendor expertise. When prices are unavailable from pricing services, we obtainthe Company obtains non-binding quotes from broker-dealers who are active in the corresponding markets. The valuation techniques including significant inputs and assumptions generally used to determine the fair values of ourthe Company's fixed maturities by asset class as well as the classifications of the fair values of these securities in the fair value hierarchy are described in detail below.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5.4. | FAIR VALUE MEASUREMENTS (CONTINUED) |
U.S. governmentGovernment and agencyAgency
U.S. government and agency securities consist primarily of bonds issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. As the fair values of U.S. Treasury securities are based on unadjusted market prices in active markets, the fair values of these securities are classified as Level 1. The fair values of U.S. government agency securities are determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads are observable market inputs, the fair values of U.S. government agency securities are classified as Level 2.
Non-U.S. governmentGovernment
Non-U.S. government securities include bonds issued by non-U.S. governments and their agencies along with supranational organizations (collectively also known as sovereign debt securities). The fair values of these securities are based on prices obtained from international indices or valuation models that include inputs such as interest rate yield curves, cross-currency basis index spreads, and country credit spreads for structures similar to the sovereign bond in terms of issuer, maturity and seniority. As the significant inputs used to price these securities are observable market inputs, the fair values of non-U.S. government securities are classified as Level 2.
Corporate debtDebt
Corporate debt securities consist primarily of investment-grade debt of a wide variety of corporate issuers and industries. The fair values of these securities are generally determined using the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and broker-dealer quotes. As the yields for the risk-free yield curve and the spreads are observable market inputs, the fair values of corporate debt securities are generally classified as Level 2. Where pricing is unavailable from pricing services, we obtainthe Company obtains non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, the fair values of these securities are classified as Level 3.
Agency RMBS
Agency RMBS consist of bonds issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. The fair values of these securities are priced using a mortgage pool specific model which uses daily inputs from the active to be announced market and the spread associated with each mortgage pool based on vintage. As the significant inputs used to price these securities are observable market inputs, the fair values of Agency RMBS are classified as Level 2.
CMBS
CMBS include mostly investment-grade bonds originated by non-agencies. The fair values of these securities are determined using a pricing model which uses dealer quotes and other available trade information along with security level characteristics to determine deal specific spreads. As the significant inputs used to price these securities are observable market inputs, the fair values of CMBS securities are generally classified as Level 2. Where pricing is unavailable from pricing services, we obtainthe Company obtains non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, the fair values of these securities are classified as Level 3.
Non-Agency RMBS
Non-Agency RMBS include mostly investment-grade bonds originated by non-agencies. The fair values of these securities are determined using an option adjusted spread model or other relevant models, which use inputs including available trade information or broker quotes, prepayment and default projections based on historical statistics of the underlying collateral and current market data. As the significant inputs used to price these securities are observable market inputs, the fair values of Non-Agency RMBS are generally classified as Level 2. Where pricing is unavailable from pricing services, the Company obtains non-binding quotes from broker-
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5.4. | FAIR VALUE MEASUREMENTS (CONTINUED) |
dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, the fair values of these securities are classified as Level 3.
ABS
ABS include mostly investment-grade bonds backed by pools of loans with a variety of underlying collateral, including automobile loan receivables,auto loans, student loans, credit card receivables, CDOs and CLO debtCLOs, originated by a variety of financial institutions. The fair values of these securities are determined using a model which uses prepayment speeds and spreads sourced primarily from the new issue market. As the significant inputs used to price these securities are observable market inputs, the fair values of ABS are generally classified as Level 2. Where pricing is unavailable from pricing services, we obtainthe Company obtains non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, the fair values of these securities are classified as Level 3.
Municipals
Municipals comprise revenue and general obligation bonds issued by U.S. domiciled state and municipal entities. The fair values of these securities are determined using spreads obtained from the new issue market, trade prices and broker-dealers quotes. As the significant inputs used to price these securities are observable market inputs, the fair values of municipals are classified as Level 2.
Equity Securities
Equity securities include common stocks, exchange-traded funds and bond mutual funds. As the fair values of common stocks and exchange-traded funds are based on unadjusted quoted market prices in active markets, the fair value of these securities are classified as Level 1.
As bond mutual funds have daily liquidity, with redemption based on the Net Asset Values per share ("NAV") of the funds, the fair values of these securities are classified as Level 2.
Other Investments
Other privately held securities include convertible preferred shares, common shares, convertible notes and notes payable. These securities are initially valued at cost which approximates fair value. In subsequent measurement periods, the fair values of these securities are determined using an income approach valuation technique, specifically an internally developed discounted cash flow model. As the significant inputs used to price these securities are unobservable, the fair valuevalues of these securitiesother investments are classified as Level 3.
Indirect investmentsThe fair value of the indirect investment in CLO-Equities are classified as Level 3 as the fair values of these securities areis estimated using an income approach valuation technique, (discountedspecifically an externally developed discounted cash flow model)model due to the lack of observable and relevant trades in secondary markets. Direct investmentsAs the significant inputs used to price this security are unobservable, the fair value of the indirect investment in CLO-Equities are alsois classified as Level 33.
Overseas deposits include investments in private funds held by Syndicate 2007 where the underlying investments are primarily U.S. government, Non-U.S. government and corporate debt securities. The funds do not trade on an exchange therefore are not included within available for sale investments. As the significant inputs used to price the underlying investments are observable market inputs, the fair values of overseas deposits are classified as these securities are estimated using a liquidation valuation.Level 2.
Short-TermShort-term Investments
Short-term investments primarily comprise highly liquid securities with maturities greater than three months but less than one year from the date of purchase. TheseThe fair values of these securities are classified as Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their amortized cost approximates fair value.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
4. | FAIR VALUE MEASUREMENTS (CONTINUED) |
Derivative Instruments
Derivative Instrumentsinstruments include foreign currencyexchange forward contracts and exchange traded interest rate swaps and commodity contracts that are customized to ourthe Company's economic hedging strategies and trade in the over-the-counter derivative market. The fair values of these derivatives are determined using thea market approach valuation technique based on significant observable market inputs from third party pricing vendors, non-binding broker-dealer quotes and/or recent trading activity. Accordingly,As the significant inputs used to price these securities are observable market inputs, the fair values of these derivatives are classified as Level 2.
Weather derivatives relate to non-exchange traded derivative-based risk management products addressing weather risks. The fair values of these derivatives are determined using observable market inputs and unobservable inputs in combination with industry or internally developed valuation and forecasting techniques. Accordingly, the fair values of these derivatives are classified as Level 3.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5. | FAIR VALUE MEASUREMENTS (CONTINUED) |
Other underwriting-related derivatives include insurance and reinsurance contracts that are required to be accounted for as derivatives. These derivative contracts are initially valued at cost which approximates fair value. In subsequent measurement periods, the fair values of these derivatives are determined using an income approach valuation technique, specifically internally developed discounted cash flow models. As the significant inputs used to price these derivatives are unobservable, the fair valuevalues of these contracts are classified as Level 3.
Insurance-linked Securities
Insurance-linked securities comprise an investment in a catastrophe bond. As pricing is unavailable from pricing services, we obtainthe Company obtains non-binding quotes from broker-dealers to estimate the fair valuesvalue of these securities.this security. Pricing is generally unavailable when there is a low volume of trading activity and current transactions are not orderly. Accordingly,orderly therefore the fair valuesvalue of these securities arethis security is classified as Level 3.
Cash Settled Awards
Cash settled awards comprise restricted stock units that form part of ourthe Company's compensation program. Although the fair values of these awards are determined using observable quoted market prices in active markets, the restricted stock units are not actively traded. Accordingly,As the significant inputs used to price these securities are observable market inputs, the fair values of these liabilities are classified as Level 2.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5.4. | FAIR VALUE MEASUREMENTS (CONTINUED) |
The tables below present the financial instruments measured at fair value on a recurring basis for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Fair value based on NAV practical expedient | | Total fair value | |
| | | | | | | | | | | |
| At September 30, 2019 | | | | | | | | | | |
| Assets | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | |
| U.S. government and agency | $ | 2,081,388 |
| | $ | 52,568 |
| | $ | — |
| | $ | — |
| | $ | 2,133,956 |
| |
| Non-U.S. government | — |
| | 537,632 |
| | — |
| | — |
| | 537,632 |
| |
| Corporate debt | — |
| | 5,038,544 |
| | 38,551 |
| | — |
| | 5,077,095 |
| |
| Agency RMBS | — |
| | 1,632,768 |
| | — |
| | — |
| | 1,632,768 |
| |
| CMBS | — |
| | 1,354,116 |
| | 14,774 |
| | — |
| | 1,368,890 |
| |
| Non-Agency RMBS | — |
| | 58,952 |
| | — |
| | — |
| | 58,952 |
| |
| ABS | — |
| | 1,600,043 |
| | 492 |
| | — |
| | 1,600,535 |
| |
| Municipals | — |
| | 206,413 |
| | — |
| | — |
| | 206,413 |
| |
| | 2,081,388 |
| | 10,481,036 |
| | 53,817 |
| | — |
| | 12,616,241 |
| |
| Equity securities | | | | | | | | | | |
| Common stocks | 184 |
| | — |
| | — |
| | — |
| | 184 |
| |
| Exchange-traded funds | 273,722 |
| | — |
| | — |
| | — |
| | 273,722 |
| |
| Bond mutual funds | — |
| | 155,997 |
| | — |
| | — |
| | 155,997 |
| |
| | 273,906 |
| | 155,997 |
| | — |
| | — |
| | 429,903 |
| |
| Other investments | | | | | | | | | | |
| Hedge funds (1) | — |
| | — |
| | — |
| | 196,696 |
| | 196,696 |
| |
| Direct lending funds | — |
| | — |
| | — |
| | 275,619 |
| | 275,619 |
| |
| Private equity funds | — |
| | — |
| | — |
| | 67,210 |
| | 67,210 |
| |
| Real estate funds | — |
| | — |
| | — |
| | 130,209 |
| | 130,209 |
| |
| Other privately held investments | — |
| | — |
| | 30,719 |
| | — |
| | 30,719 |
| |
| CLO-Equities | — |
| | — |
| | 15,454 |
| | — |
| | 15,454 |
| |
| Overseas deposits | — |
| | 63,293 |
| | — |
| | — |
| | 63,293 |
| |
| | — |
| | 63,293 |
| | 46,173 |
| | 669,734 |
| | 779,200 |
| |
| Short-term investments | — |
| | 12,539 |
| | — |
| | — |
| | 12,539 |
| |
| Other assets | | | | | | | | | | |
| Derivative instruments (refer to Note 5) | — |
| | 1,343 |
| | — |
| | — |
| | 1,343 |
| |
| Total Assets | $ | 2,355,294 |
| | $ | 10,714,208 |
| | $ | 99,990 |
| | $ | 669,734 |
| | $ | 13,839,226 |
| |
| Liabilities | | | | | | | | | | |
| Derivative instruments (refer to Note 5) | $ | — |
| | $ | 7,465 |
| | $ | 10,136 |
| | $ | — |
| | $ | 17,601 |
| |
| Cash settled awards (refer to Note 8) | — |
| | 19,060 |
| | — |
| | — |
| | 19,060 |
| |
| Total Liabilities | $ | — |
| | $ | 26,525 |
| | $ | 10,136 |
| | $ | — |
| | $ | 36,661 |
| |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Fair value based on NAV practical expedient | | Total Fair Value | |
| | | | | | | | | | | |
| At September 30, 2017 | | | | | | | | | | |
| Assets | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | |
| U.S. government and agency | $ | 1,495,423 |
| | $ | 51,895 |
| | $ | — |
| | $ | — |
| | $ | 1,547,318 |
| |
| Non-U.S. government | — |
| | 573,640 |
| | — |
| | — |
| | 573,640 |
| |
| Corporate debt | — |
| | 4,442,951 |
| | 61,016 |
| | — |
| | 4,503,967 |
| |
| Agency RMBS | — |
| | 2,306,822 |
| | — |
| | — |
| | 2,306,822 |
| |
| CMBS | — |
| | 669,736 |
| | — |
| | — |
| | 669,736 |
| |
| Non-Agency RMBS | — |
| | 43,817 |
| | — |
| | — |
| | 43,817 |
| |
| ABS | — |
| | 1,264,855 |
| | 24,015 |
| | — |
| | 1,288,870 |
| |
| Municipals | — |
| | 152,216 |
| | — |
| | — |
| | 152,216 |
| |
| | 1,495,423 |
| | 9,505,932 |
| | 85,031 |
| | — |
| | 11,086,386 |
| |
| Equity securities | | | | | | | | | | |
| Common stocks | 14,826 |
| | — |
| | — |
| | — |
| | 14,826 |
| |
| Exchange-traded funds | 454,194 |
| | — |
| | — |
| | — |
| | 454,194 |
| |
| Bond mutual funds | — |
| | 190,731 |
| | — |
| | — |
| | 190,731 |
| |
| | 469,020 |
| | 190,731 |
| | — |
| | — |
| | 659,751 |
| |
| Other investments | | | | | | | | | | |
| Hedge funds | — |
| | — |
| | — |
| | 399,097 |
| | 399,097 |
| |
| Direct lending funds | — |
| | — |
| | — |
| | 232,389 |
| | 232,389 |
| |
| Private equity funds | — |
| | — |
| | — |
| | 71,896 |
| | 71,896 |
| |
| Real estate funds | — |
| | — |
| | — |
| | 46,691 |
| | 46,691 |
| |
| Other privately held investments | — |
| | — |
| | 43,398 |
| | — |
| | 43,398 |
| |
| CLO-Equities | — |
| | — |
| | 36,782 |
| | — |
| | 36,782 |
| |
| | — |
| | — |
| | 80,180 |
| | 750,073 |
| | 830,253 |
| |
| Short-term investments | — |
| | 15,282 |
| | — |
| | — |
| | 15,282 |
| |
| Other assets | | | | | | | | | | |
| Derivative instruments (see Note 6) | — |
| | 5,859 |
| | — |
| | — |
| | 5,859 |
| |
| Insurance-linked securities | — |
| | — |
| | 24,976 |
| | — |
| | 24,976 |
| |
| Total Assets | $ | 1,964,443 |
| | $ | 9,717,804 |
| | $ | 190,187 |
| | $ | 750,073 |
| | $ | 12,622,507 |
| |
| Liabilities | | | | | | | | | | |
| Derivative instruments (see Note 6) | $ | — |
| | $ | 1,873 |
| | $ | 11,844 |
| | $ | — |
| | $ | 13,717 |
| |
| Cash settled awards (see Note 9) | — |
| | 18,369 |
| | — |
| | — |
| | 18,369 |
| |
| Total Liabilities | $ | — |
| | $ | 20,242 |
| | $ | 11,844 |
| | $ | — |
| | $ | 32,086 |
| |
| | | | | | | | | | | |
(1) Includes Long/short equity and Multi-strategy funds.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5.4. | FAIR VALUE MEASUREMENTS (CONTINUED) |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Fair value based on NAV practical expedient | | Total Fair Value | |
| | | | | | | | | | | |
| At December 31, 2016 | | | | | | | | | | |
| Assets | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | |
| U.S. government and agency | $ | 1,583,106 |
| | $ | 72,963 |
| | $ | — |
| | $ | — |
| | $ | 1,656,069 |
| |
| Non-U.S. government | — |
| | 565,834 |
| | — |
| | — |
| | 565,834 |
| |
| Corporate debt | — |
| | 4,524,868 |
| | 75,875 |
| | — |
| | 4,600,743 |
| |
| Agency RMBS | — |
| | 2,465,135 |
| | — |
| | — |
| | 2,465,135 |
| |
| CMBS | — |
| | 663,176 |
| | 3,061 |
| | — |
| | 666,237 |
| |
| Non-Agency RMBS | — |
| | 56,921 |
| | — |
| | — |
| | 56,921 |
| |
| ABS | — |
| | 1,204,750 |
| | 17,464 |
| | — |
| | 1,222,214 |
| |
| Municipals | — |
| | 163,961 |
| | — |
| | — |
| | 163,961 |
| |
| | 1,583,106 |
| | 9,717,608 |
| | 96,400 |
| | — |
| | 11,397,114 |
| |
| Equity securities | | | | | | | | | | |
| Common stocks | 78 |
| | — |
| | — |
| | — |
| | 78 |
| |
| Exchange-traded funds | 514,707 |
| | — |
| | — |
| | — |
| | 514,707 |
| |
| Bond mutual funds | — |
| | 123,959 |
| | — |
| | — |
| | 123,959 |
| |
| | 514,785 |
| | 123,959 |
| | — |
| | — |
| | 638,744 |
| |
| Other investments | | | | | | | | | | |
| Hedge funds | — |
| | — |
| | — |
| | 498,150 |
| | 498,150 |
| |
| Direct lending funds | — |
| | — |
| | — |
| | 134,650 |
| | 134,650 |
| |
| Private equity funds | — |
| | — |
| | — |
| | 81,223 |
| | 81,223 |
| |
| Real estate funds | — |
| | — |
| | — |
| | 13,354 |
| | 13,354 |
| |
| Other privately held investments | — |
| | — |
| | 42,142 |
| | — |
| | 42,142 |
| |
| CLO-Equities | — |
| | — |
| | 60,700 |
| | — |
| | 60,700 |
| |
| | — |
| | — |
| | 102,842 |
| | 727,377 |
| | 830,219 |
| |
| Short-term investments | — |
| | 127,461 |
| | — |
| | — |
| | 127,461 |
| |
| Other assets | | | | | | | | | | |
| Derivative instruments (see Note 6) | — |
| | 14,365 |
| | 2,532 |
| | — |
| | 16,897 |
| |
| Insurance-linked securities | — |
| | — |
| | 25,023 |
| | — |
| | 25,023 |
| |
| Total Assets | $ | 2,097,891 |
| | $ | 9,983,393 |
| | $ | 226,797 |
| | $ | 727,377 |
| | $ | 13,035,458 |
| |
| Liabilities | | | | | | | | | | |
| Derivative instruments (see Note 6) | $ | — |
| | $ | 9,076 |
| | $ | 6,500 |
| | $ | — |
| | $ | 15,576 |
| |
| Cash settled awards (see Note 9) | — |
| | 48,432 |
| | — |
| | — |
| | 48,432 |
| |
| Total Liabilities | $ | — |
| | $ | 57,508 |
| | $ | 6,500 |
| | $ | — |
| | $ | 64,008 |
| |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Fair value based on NAV practical expedient | | Total fair value | |
| | | | | | | | | | | |
| At December 31, 2018 | | | | | | | | | | |
| Assets | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | |
| U.S. government and agency | $ | 1,480,466 |
| | $ | 35,231 |
| | $ | — |
| | $ | — |
| | $ | 1,515,697 |
| |
| Non-U.S. government | — |
| | 493,016 |
| | — |
| | — |
| | 493,016 |
| |
| Corporate debt | — |
| | 4,827,909 |
| | 49,012 |
| | — |
| | 4,876,921 |
| |
| Agency RMBS | — |
| | 1,643,308 |
| | — |
| | — |
| | 1,643,308 |
| |
| CMBS | — |
| | 1,073,396 |
| | 19,134 |
| | — |
| | 1,092,530 |
| |
| Non-Agency RMBS | — |
| | 40,687 |
| | — |
| | — |
| | 40,687 |
| |
| ABS | — |
| | 1,619,070 |
| | 18,533 |
| | — |
| | 1,637,603 |
| |
| Municipals | — |
| | 135,585 |
| | — |
| | — |
| | 135,585 |
| |
| | 1,480,466 |
| | 9,868,202 |
| | 86,679 |
| | — |
| | 11,435,347 |
| |
| Equity securities | | | | | | | | | | |
| Common stocks | 527 |
| | — |
| | — |
| | — |
| | 527 |
| |
| Exchange-traded funds | 236,839 |
| | — |
| | — |
| | — |
| | 236,839 |
| |
| Bond mutual funds | — |
| | 144,267 |
| | — |
| | — |
| | 144,267 |
| |
| | 237,366 |
| | 144,267 |
| | — |
| | — |
| | 381,633 |
| |
| Other investments | | | | | | | | | | |
| Hedge funds (1) | — |
| | — |
| | — |
| | 194,598 |
| | 194,598 |
| |
| Direct lending funds | — |
| | — |
| | — |
| | 274,478 |
| | 274,478 |
| |
| Private equity funds | — |
| | — |
| | — |
| | 64,566 |
| | 64,566 |
| |
| Real estate funds | — |
| | — |
| | — |
| | 84,202 |
| | 84,202 |
| |
| Other privately held investments | — |
| | — |
| | 44,518 |
| | — |
| | 44,518 |
| |
| CLO-Equities | — |
| | — |
| | 21,271 |
| | — |
| | 21,271 |
| |
| Overseas deposits | — |
| | 104,154 |
| | — |
| | — |
| | 104,154 |
| |
| | — |
| | 104,154 |
| | 65,789 |
| | 617,844 |
| | 787,787 |
| |
| Short-term investments | — |
| | 144,040 |
| | — |
| | — |
| | 144,040 |
| |
| Other assets | | | | | | | | | | |
| Derivative instruments (refer to Note 5) | — |
| | 8,237 |
| | — |
| | — |
| | 8,237 |
| |
| Total Assets | $ | 1,717,832 |
| | $ | 10,268,900 |
| | $ | 152,468 |
| | $ | 617,844 |
| | $ | 12,757,044 |
| |
| Liabilities | | | | | | | | | | |
| Derivative instruments (refer to Note 5) | $ | — |
| | $ | 4,223 |
| | $ | 10,299 |
| | $ | — |
| | $ | 14,522 |
| |
| Cash settled awards (refer to Note 8) | — |
| | 20,648 |
| | — |
| | — |
| | 20,648 |
| |
| Total Liabilities | $ | — |
| | $ | 24,871 |
| | $ | 10,299 |
| | $ | — |
| | $ | 35,170 |
| |
| | | | | | | | | | | |
(1) Includes Long/short equity and Multi-strategy funds.
During 2017 and 2016, there were no transfers between Levels 1 and 2.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5.4. | FAIR VALUE MEASUREMENTS (CONTINUED) |
Except certain fixed maturities and insurance-linked securities priced using broker-dealer quotes (underlying inputs are not available), theThe following table quantifies the significant unobservable inputs used in estimating fair values at September 30,2017 for 2019 of investments classified as Level 3 in the fair value hierarchy.
|
| | | | | | | | | |
| | Fair value | Valuation technique | Unobservable input | Range | Weighted average | |
| | | | | | | |
| Other investments - CLO-Equities | $ | 15,454 |
| Discounted cash flow | Default rates | 3.5% | 3.5% | |
| | | | Loss severity rate | 35.0% | 35.0% | |
| | | | Collateral spreads | 3.0% | 3.0% | |
| | | | Estimated maturity dates | 7 years | 7 years | |
| | | | | | | |
| Other investments - Other privately held investments | $ | 30,719 |
| Discounted cash flow | Discount rate | 3.0% | 3.0% | |
| | | | | | | |
| Derivatives - Other underwriting-related derivatives | $ | (10,136 | ) | Discounted cash flow | Discount rate | 1.6% | 1.6% | |
| | | | | | | |
|
| | | | | | | | | |
| | Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average | |
| | | | | | | |
| Other investments - CLO-Equities | $ | 32,141 |
| Discounted cash flow | Default rates | 3.8% | 3.8% | |
| | | | Loss severity rate | 35.0% | 35.0% | |
| | | | Collateral spreads | 3.0% | 3.0% | |
| | | | Estimated maturity dates | 7 years | 7 years | |
| | | | | | | |
| | 4,641 |
| Liquidation value | Fair value of collateral | 100% | 100% | |
| | | | Discount margin | 0% - 17.8% | 2.7% | |
| | | | | | | |
| Other investments - Other privately held investments | 43,398 |
| Discounted cash flow | Discount rate | 6.0% - 8.0% | 7.5% | |
| | | | | | | |
| Derivatives - Other underwriting-related derivatives | $ | (11,844 | ) | Discounted cash flow | Discount rate | 2.3% | 2.3% | |
| | | | | | | |
Note: Fixed maturities and insurance-linked securities that are classified as Level 3 are excluded from the above table as these securities are priced using broker-dealer quotes.
Other Investments - CLO-Equities
The CLO-Equities market continues to be relatively inactive with only a small number of transactions being observed, particularly as it relates to transactions involving our CLO-Equities.CLO-Equities held by the Company. Accordingly, the fair valuesvalue of investmentsthe Company's indirect investment in CLO-Equities areis determined using models. Given that all of our direct investments in CLO-Equities are past their reinvestment period, there is uncertainty over the remaining time to maturity. As such our direct investments in CLO-Equities are estimated using a liquidation valuation. Indirect investments in CLO-Equities are valued using a discounted cash flow model prepared by an external investment manager.
The liquidation valuation is based on the fair values of the net underlying collateral which is determined by applying market discount margins by credit quality bucket. An increase (decrease) in the market discount margin would result in a decrease (increase) in value of our CLO-Equities.
Regarding the discounted cash flow model, the default and loss severity rates are the most judgmental unobservable market inputs to the discounted cash flow model to which the valuation of the Company's indirect investment in CLO-Equities is most sensitive. A significant increase (decrease) in either of these significant inputs in isolation would result in a lower (higher) fair value estimatesestimate for investmentsthe investment in CLO-Equities and, in general, a change in default rate assumptions willwould be accompanied by a directionally similar change in loss severity rate assumptions. Collateral spreads and estimated maturity dates are less judgmental inputs as they are based on the historical average of actual spreads and the weighted average life of the current underlying portfolios, respectively. A significant increase (decrease) in either of these significant inputs in isolation would result in a higher (lower) fair value estimatesestimate for investmentsthe investment in CLO-Equities. In general, these inputs have no significant interrelationship with each other or with default and loss severity rates.
On a quarterly basis, ourthe Company's valuation process for its indirect investment in CLO-Equities includes a review of the underlying collateral along with related discount margins by credit quality bucket used in the liquidation valuation and a review of the underlying cash flows and key assumptions used in the discounted cash flow model. The above significant unobservable inputs are reviewed and updated based on information obtained from secondary markets, including information received from the managers of ourthe Company's CLO-Equities portfolio. In order to assess the reasonableness of the inputs we usethe Company uses in ourits models, we maintainthe Company maintains an understanding of current market conditions, historical results, as well as emerging trends that may impact future cash flows. In addition,we update the assumptions we usethe Company uses in ourits models are updated through regular communication with industry participants and ongoing monitoring of the deals in which we participate (e.g. default and loss severity rate trends).the Company participates.
Other Investments - Other Privately Held Securities
Other privately held securities are initially valued at cost which approximates fair value. In subsequent measurement periods, the fair values of these securities are determined using internally developed discounted cash flow models. These models include inputs that are specific to each investment. The inputs used in the fair value measurements include dividend or interest rates and appropriate discount rates. The selection of an appropriate discount rate is judgmental and is the most significant unobservable input used in the valuation
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5. | FAIR VALUE MEASUREMENTS (CONTINUED) |
of these securities. A significant increase (decrease) in this input in isolation could result in a significantly lower (higher) fair value measurement for other privately held securities. Where relevant, wethe Company also considerconsiders the contractual agreements which stipulate methodologies for calculating the dividend rate to be paid upon liquidation, conversion or redemption. In order to assess the reasonableness of the inputs we usethe Company uses in the discounted cash flow models, we maintainthe Company maintains an understanding of current market conditions, historical results, as well as investee specific information that may impact future cash flows.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
4. | FAIR VALUE MEASUREMENTS (CONTINUED) |
Derivatives - Other Underwriting-related Derivatives
Other underwriting-related derivatives are initially valued at cost which approximates fair value. In subsequent measurement periods, the fair values of these derivatives are determined using internally developed discounted cash flow models which usesuse appropriate discount rates. The selection of an appropriate discount rate is judgmental and is the most significant unobservable input used in the valuation of these derivatives. A significant increase (decrease) in this input in isolation could result in a significantly lower (higher) fair value measurement for the derivative contracts. In order to assess the reasonableness of the inputs we usethe Company uses in the discounted cash flow model, we maintainthe Company maintains an understanding of current market conditions, historical results, as well as contract specific information that may impact future cash flows.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5. | FAIR VALUE MEASUREMENTS (CONTINUED) |
The following tables present changes in Level 3 for financial instruments measured at fair value on a recurring basis for the periods indicated: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Opening balance | | Transfers into Level 3 | | Transfers out of Level 3 | | Included in net income(1) | | Included in OCI (2) | | Purchases | | Sales | | Settlements/ distributions | | Closing balance | | Change in unrealized investment gains/(losses) (3) | |
| | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2019 | | | | | | | | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | | | | | | | | | | | |
| Corporate debt | $ | 39,137 |
| | $ | — |
| | $ | (489 | ) | | $ | — |
| | $ | (97 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 38,551 |
| | $ | — |
| |
| CMBS | 9,892 |
| | 5,285 |
| | — |
| | — |
| | (13 | ) | | — |
| | — |
| | (390 | ) | | 14,774 |
| | — |
| |
| ABS | 491 |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 492 |
| | — |
| |
| | 49,520 |
| | 5,285 |
| | (489 | ) | | — |
| | (109 | ) | | — |
| | — |
| | (390 | ) | | 53,817 |
| | — |
| |
| Other investments | | | | | | | | | | | | | | | | | | | |
| Other privately held investments | 28,452 |
| | — |
| | — |
| | 2,016 |
| | — |
| | 15,000 |
| | (14,749 | ) | | — |
| | 30,719 |
| | 2,502 |
| |
| CLO - Equities | 17,798 |
| | — |
| | — |
| | (1,308 | ) | | — |
| | — |
| | — |
| | (1,036 | ) | | 15,454 |
| | (1,308 | ) | |
| | 46,250 |
| | — |
| | — |
| | 708 |
| | — |
| | 15,000 |
| | (14,749 | ) | | (1,036 | ) | | 46,173 |
| | 1,194 |
| |
| Total assets | $ | 95,770 |
| | $ | 5,285 |
| | $ | (489 | ) | | $ | 708 |
| | $ | (109 | ) | | $ | 15,000 |
| | $ | (14,749 | ) | | $ | (1,426 | ) | | $ | 99,990 |
| | $ | 1,194 |
| |
| | | | | | | | | | | | | | | | | | | | |
| |
| Other liabilities | | | | | | | | | | | | | | | | | | | |
| Derivative instruments | $ | 10,262 |
| | $ | — |
| | $ | — |
| | $ | (126 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,136 |
| | $ | (126 | ) | |
| Total liabilities | $ | 10,262 |
| | $ | — |
| | $ | — |
| | $ | (126 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,136 |
| | $ | (126 | ) | |
| | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2019 | | | | | | | | | | | | | | | | | |
| Fixed maturities | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Corporate debt | $ | 49,012 |
| | $ | — |
| | $ | (489 | ) | | $ | (1,459 | ) | | $ | 836 |
| | $ | — |
| | $ | (5,578 | ) | | $ | (3,771 | ) | | $ | 38,551 |
| | $ | — |
| |
| CMBS | 19,134 |
| | 5,285 |
| | (4,767 | ) | | — |
| | 151 |
| | — |
| | — |
| | (5,029 | ) | | 14,774 |
| | — |
| |
| ABS | 18,533 |
| | — |
| | (27,966 | ) | | — |
| | 175 |
| | 9,750 |
| | — |
| | — |
| | 492 |
| | — |
| |
| | 86,679 |
| | 5,285 |
| | (33,222 | ) | | (1,459 | ) | | 1,162 |
| | 9,750 |
| | (5,578 | ) | | (8,800 | ) | | 53,817 |
| | — |
| |
| Other investments | | | | | | | | | | | | | | | | | | | | |
| Other privately held investments | 44,518 |
| | — |
| | — |
| | 16,877 |
| | — |
| | 17,500 |
| | (48,176 | ) | | — |
| | 30,719 |
| | 3,936 |
| |
| CLO - Equities | 21,271 |
| | — |
| | — |
| | (60 | ) | | — |
| | — |
| | — |
| | (5,757 | ) | | 15,454 |
| | (60 | ) | |
| | 65,789 |
| | — |
| | — |
| | 16,817 |
| | — |
| | 17,500 |
| | (48,176 | ) | | (5,757 | ) | | 46,173 |
| | 3,876 |
| |
| Total assets | $ | 152,468 |
| | $ | 5,285 |
| | $ | (33,222 | ) | | $ | 15,358 |
| | $ | 1,162 |
| | $ | 27,250 |
| | $ | (53,754 | ) | | $ | (14,557 | ) | | $ | 99,990 |
| | $ | 3,876 |
| |
| | | | | | | | | | | | | | | | | | | | | |
| Other liabilities | | | | | | | | | | | | | | | | | | | |
| Derivative instruments | $ | 10,299 |
| | $ | — |
| | $ | — |
| | $ | (163 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,136 |
| | $ | (163 | ) | |
| Total liabilities | $ | 10,299 |
| | $ | — |
| | $ | — |
| | $ | (163 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,136 |
| | $ | (163 | ) | |
| | | | | | | | | | | | | | | | | | | | | |
(1) Realized investment gains (losses) on fixed maturities, and realized and unrealized gains (losses) on other assets and other liabilities included in net income are included in net investment gains (losses). Realized and unrealized gains (losses) on other investments included in net income are included in net investment income. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Opening Balance | | Transfers into Level 3 | | Transfers out of Level 3 | | Included in earnings (1) | | Included in OCI (2) | | Purchases | | Sales | | Settlements/ Distributions | | Closing Balance | | Change in unrealized investment gain/(loss) (3) | |
| | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2017 | | | | | | | | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | | | | | | | | | | | |
| Corporate debt | $ | 68,320 |
| | $ | — |
| | $ | (1,208 | ) | | $ | (835 | ) | | $ | (9 | ) | | $ | — |
| | $ | (2,274 | ) | | $ | (2,978 | ) | | $ | 61,016 |
| | $ | — |
| |
| CMBS | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| ABS | 5,999 |
| | — |
| | (6,001 | ) | | — |
| | 10 |
| | 24,007 |
| | — |
| | — |
| | 24,015 |
| | — |
| |
| | 74,319 |
| | — |
| | (7,209 | ) | | (835 | ) | | 1 |
| | 24,007 |
| | (2,274 | ) | | (2,978 | ) | | 85,031 |
| | — |
| |
| Other investments | | | | | | | | | | | | | | | | | | | |
| Other privately held investments | 42,938 |
| | — |
| | — |
| | 460 |
| | — |
| | — |
| | — |
| | — |
| | 43,398 |
| | 460 |
| |
| CLO - Equities | 47,076 |
| | — |
| | — |
| | 1,402 |
| | — |
| | — |
| | — |
| | (11,696 | ) | | 36,782 |
| | 1,402 |
| |
| | 90,014 |
| | — |
| | — |
| | 1,862 |
| | — |
| | — |
| | — |
| | (11,696 | ) | | 80,180 |
| | 1,862 |
| |
| Other assets | | | | | | | | | | | | | | | | | | | |
| Derivative instruments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Insurance-linked securities | 25,047 |
| | — |
| | — |
| | (71 | ) | | — |
| | — |
| | — |
| | — |
| | 24,976 |
| | (71 | ) | |
| | 25,047 |
| | — |
| | — |
| | (71 | ) | | — |
| | — |
| | — |
| | — |
| | 24,976 |
| | (71 | ) | |
| Total assets | $ | 189,380 |
| | $ | — |
| | $ | (7,209 | ) | | $ | 956 |
| | $ | 1 |
| | $ | 24,007 |
| | $ | (2,274 | ) | | $ | (14,674 | ) | | $ | 190,187 |
| | $ | 1,791 |
| |
| | | | | | | | | | | | | | | | | | | | |
| |
| Other liabilities | | | | | | | | | | | | | | | | | | | |
| Derivative instruments | $ | 12,209 |
| | $ | — |
| | $ | — |
| | $ | (291 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (74 | ) | | $ | 11,844 |
| | $ | (291 | ) | |
| Total liabilities | $ | 12,209 |
| | $ | — |
| | $ | — |
| | $ | (291 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (74 | ) | | $ | 11,844 |
| | $ | (291 | ) | |
| | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2017 | | | | | | | | | | | | | | | | | |
| Fixed maturities | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Corporate debt | $ | 75,875 |
| | $ | 1,536 |
| | $ | (3,112 | ) | | $ | (762 | ) | | $ | (392 | ) | | $ | 19,181 |
| | $ | (21,475 | ) | | $ | (9,835 | ) | | $ | 61,016 |
| | $ | — |
| |
| CMBS | 3,061 |
| | — |
| | (9,418 | ) | | — |
| | 17 |
| | 9,400 |
| | — |
| | (3,060 | ) | | — |
| | — |
| |
| ABS | 17,464 |
| | — |
| | (24,949 | ) | | — |
| | 1,493 |
| | 30,007 |
| | — |
| | — |
| | 24,015 |
| | — |
| |
| | 96,400 |
| | 1,536 |
| | (37,479 | ) | | (762 | ) | | 1,118 |
| | 58,588 |
| | (21,475 | ) | | (12,895 | ) | | 85,031 |
| | — |
| |
| Other investments | | | | | | | | | | | | | | | | | | | | |
| Other privately held investments | 42,142 |
| | — |
| | — |
| | 1,256 |
| | — |
| | — |
| | — |
| | — |
| | 43,398 |
| | 1,256 |
| |
| CLO - Equities | 60,700 |
| | — |
| | — |
| | 3,930 |
| | — |
| | — |
| | — |
| | (27,848 | ) | | 36,782 |
| | 3,930 |
| |
| | 102,842 |
| | — |
| | — |
| | 5,186 |
| | — |
| | — |
| | — |
| | (27,848 | ) | | 80,180 |
| | 5,186 |
| |
| Other assets | | | | | | | | | | | | | | | | | | | |
| Derivative instruments | 2,532 |
| | — |
| | — |
| | 653 |
| | — |
| | — |
| | — |
| | (3,185 | ) | | — |
| | — |
| |
| Insurance-linked securities | 25,023 |
| | — |
| | — |
| | (47 | ) | | — |
| | — |
| | — |
| | — |
| | 24,976 |
| | (47 | ) | |
| | 27,555 |
| | — |
| | — |
| | 606 |
| | — |
| | — |
| | — |
| | (3,185 | ) | | 24,976 |
| | (47 | ) | |
| Total assets | $ | 226,797 |
| | $ | 1,536 |
| | $ | (37,479 | ) | | $ | 5,030 |
| | $ | 1,118 |
| | $ | 58,588 |
| | $ | (21,475 | ) | | $ | (43,928 | ) | | $ | 190,187 |
| | $ | 5,139 |
| |
| | | | | | | | | | | | | | | | | | | | | |
| Other liabilities | | | | | | | | | | | | | | | | | | | |
| Derivative instruments | $ | 6,500 |
| | $ | — |
| | $ | — |
| | $ | 9,991 |
| | $ | — |
| | $ | 12,135 |
| | $ | — |
| | $ | (16,782 | ) | | $ | 11,844 |
| | $ | (291 | ) | |
| Total liabilities | $ | 6,500 |
| | $ | — |
| | $ | — |
| | $ | 9,991 |
| | $ | — |
| | $ | 12,135 |
| | $ | — |
| | $ | (16,782 | ) | | $ | 11,844 |
| | $ | (291 | ) | |
| | | | | | | | | | | | | | | | | | | | | |
(2) Unrealized investment gains (losses) on fixed maturities are included in other comprehensive income ("OCI").
(3) Change in unrealized investment gains (losses) relating to assets held at the reporting date.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5.4. | FAIR VALUE MEASUREMENTS (CONTINUED) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Opening Balance | | Transfers into Level 3 | | Transfers out of Level 3 | | Included in earnings (1) | | Included in OCI (2) | | Purchases | | Sales | | Settlements/ Distributions | | Closing Balance | | Change in unrealized investment gain/(loss) (3) | |
| | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2016 | | | | | | | | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | | | | | | | | | | | |
| Corporate debt | $ | 62,022 |
| | $ | — |
| | $ | — |
| | $ | (9 | ) | | $ | 100 |
| | $ | 7,563 |
| | $ | — |
| | $ | (584 | ) | | $ | 69,092 |
| | $ | — |
| |
| CMBS | 10,210 |
| | — |
| | — |
| | — |
| | (48 | ) | | — |
| | — |
| | (1,242 | ) | | 8,920 |
| | — |
| |
| ABS | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| | 72,232 |
| | — |
| | — |
| | (9 | ) | | 52 |
| | 7,563 |
| | — |
| | (1,826 | ) | | 78,012 |
| | — |
| |
| Other investments | | | | | | | | | | | | | | | | | | | | |
| Other privately held investments | 41,755 |
| | — |
| | — |
| | (355 | ) | | — |
| | 1,500 |
| | — |
| | — |
| | 42,900 |
| | (355 | ) | |
| CLO - Equities | 65,883 |
| | — |
| | — |
| | 8,419 |
| | — |
| | — |
| | — |
| | (10,519 | ) | | 63,783 |
| | 8,419 |
| |
| | 107,638 |
| | — |
| | — |
| | 8,064 |
| | — |
| | 1,500 |
| | — |
| | (10,519 | ) | | 106,683 |
| | 8,064 |
| |
| Other assets | | | | | | | | | | | | | | | | | | | |
| Derivative instruments | 5 |
| | — |
| | — |
| | 665 |
| | — |
| | 1,818 |
| | — |
| | — |
| | 2,488 |
| | 665 |
| |
| Insurance-linked securities | 25,025 |
| | — |
| | — |
| | 258 |
| | — |
| | — |
| | — |
| | — |
| | 25,283 |
| | 258 |
| |
| | 25,030 |
| | — |
| | — |
| | 923 |
| | — |
| | 1,818 |
| | — |
| | — |
| | 27,771 |
| | 923 |
| |
| Total assets | $ | 204,900 |
| | $ | — |
| | $ | — |
| | $ | 8,978 |
| | $ | 52 |
| | $ | 10,881 |
| | $ | — |
| | $ | (12,345 | ) | | $ | 212,466 |
| | $ | 8,987 |
| |
| | | | | | | | | | | | | | | | | | | | | |
| Other liabilities | | | | | | | | | | | | | | | | | | | |
| Derivative instruments | $ | 1,978 |
| | $ | — |
| | $ | — |
| | $ | (169 | ) | | $ | — |
| | $ | 6,384 |
| | $ | — |
| | $ | (9 | ) | | $ | 8,184 |
| | $ | 335 |
| |
| Total liabilities | $ | 1,978 |
| | $ | — |
| | $ | — |
| | $ | (169 | ) | | $ | — |
| | $ | 6,384 |
| | $ | — |
| | $ | (9 | ) | | $ | 8,184 |
| | $ | 335 |
| |
| | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2016 | | | | | | | | | | | | | | | | | |
| Fixed maturities | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Corporate debt | $ | 38,518 |
| | $ | 20,412 |
| | $ | (1,955 | ) | | $ | (988 | ) | | $ | 1,188 |
| | $ | 17,107 |
| | $ | (4,015 | ) | | $ | (1,175 | ) | | $ | 69,092 |
| | $ | — |
| |
| CMBS | 10,922 |
| | — |
| | — |
| | — |
| | (134 | ) | | — |
| | — |
| | (1,868 | ) | | 8,920 |
| | — |
| |
| ABS | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| | 49,440 |
| | 20,412 |
| | (1,955 | ) | | (988 | ) | | 1,054 |
| | 17,107 |
| | (4,015 | ) | | (3,043 | ) | | 78,012 |
| | — |
| |
| Other investments | | | | | | | | | | | | | | | | | | | | |
| Other privately held investments | — |
| | — |
| | — |
| | (1,505 | ) | | — |
| | 44,405 |
| | — |
| | — |
| | 42,900 |
| | (1,505 | ) | |
| CLO - Equities | 27,257 |
| | 36,378 |
| | — |
| | 17,431 |
| | — |
| | — |
| | — |
| | (17,283 | ) | | 63,783 |
| | 17,431 |
| |
| | 27,257 |
| | 36,378 |
| | — |
| | 15,926 |
| | — |
| | 44,405 |
| | — |
| | (17,283 | ) | | 106,683 |
| | 15,926 |
| |
| Other assets | | | | | | | | | | | | | | | | | | | |
| Derivative instruments | 4,395 |
| | — |
| | — |
| | 3,255 |
| | — |
| | 3,623 |
| | — |
| | (8,785 | ) | | 2,488 |
| | 669 |
| |
| Insurance-linked securities | 24,925 |
| | — |
| | — |
| | 358 |
| | — |
| | — |
| | — |
| | — |
| | 25,283 |
| | 358 |
| |
| | 29,320 |
| | — |
| | — |
| | 3,613 |
| | — |
| | 3,623 |
| | — |
| | (8,785 | ) | | 27,771 |
| | 1,027 |
| |
| Total assets | $ | 106,017 |
| | $ | 56,790 |
| | $ | (1,955 | ) | | $ | 18,551 |
| | $ | 1,054 |
| | $ | 65,135 |
| | $ | (4,015 | ) | | $ | (29,111 | ) | | $ | 212,466 |
| | $ | 16,953 |
| |
| | | | | | | | | | | | | | | | | | | | | |
| Other liabilities | | | | | | | | | | | | | | | | | | | |
| Derivative instruments | $ | 10,937 |
| | $ | — |
| | $ | — |
| | $ | 2,445 |
| | $ | — |
| | $ | 7,189 |
| | $ | — |
| | $ | (12,387 | ) | | $ | 8,184 |
| | $ | 457 |
| |
| Total liabilities | $ | 10,937 |
| | $ | — |
| | $ | — |
| | $ | 2,445 |
| | $ | — |
| | $ | 7,189 |
| | $ | — |
| | $ | (12,387 | ) | | $ | 8,184 |
| | $ | 457 |
| |
| | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Opening balance | | Transfers into Level 3 | | Transfers out of Level 3 | | Included in net income(1) | | Included in OCI (2) | | Purchases | | Sales | | Settlements/ distributions | | Closing balance | | Change in unrealized investment gains/(losses) (3) | |
| | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2018 | | | | | | | | | | | | | | | | | |
| Fixed maturities | | | | | | | | | | | | | | | | | | | | |
| Corporate debt | $ | 42,553 |
| | $ | 1,346 |
| | $ | — |
| | $ | (579 | ) | | $ | 4,962 |
| | $ | 13,871 |
| | $ | (3,960 | ) | | $ | (5,093 | ) | | $ | 53,100 |
| | $ | — |
| |
| Non-Agency RMBS | 903 |
| | — |
| | (790 | ) | | — |
| | (1 | ) | | — |
| | — |
| | (112 | ) | | — |
| | — |
| |
| CMBS | 18,149 |
| | 3,160 |
| | (10,422 | ) | | — |
| | (55 | ) | | — |
| | — |
| | (61 | ) | | 10,771 |
| | — |
| |
| ABS | — |
| | 3,657 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,657 |
| | — |
| |
| | 61,605 |
| | 8,163 |
| | (11,212 | ) | | (579 | ) | | 4,906 |
| | 13,871 |
| | (3,960 | ) | | (5,266 | ) | | 67,528 |
| | — |
| |
| Other investments | | | | | | | | | | | | | | | | | | | | |
| Other privately held investments | 47,613 |
| | — |
| | — |
| | (224 | ) | | — |
| | — |
| | — |
| | — |
| | 47,389 |
| | (224 | ) | |
| CLO - Equities | 26,153 |
| | — |
| | — |
| | 2,035 |
| | — |
| | — |
| | — |
| | (3,924 | ) | | 24,264 |
| | 2,035 |
| |
| | 73,766 |
| | — |
| | — |
| | 1,811 |
| | — |
| | — |
| | — |
| | (3,924 | ) | | 71,653 |
| | 1,811 |
| |
| Other assets | | | | | | | | | | | | | | | | | | | |
| Insurance-linked securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Total assets | $ | 135,371 |
| | $ | 8,163 |
| | $ | (11,212 | ) | | $ | 1,232 |
| | $ | 4,906 |
| | $ | 13,871 |
| | $ | (3,960 | ) | | $ | (9,190 | ) | | $ | 139,181 |
| | $ | 1,811 |
| |
| | | | | | | | | | | | | | | | | | | | | |
| Other liabilities | | | | | | | | | | | | | | | | | | | |
| Derivative instruments | $ | 10,589 |
| | $ | — |
| | $ | — |
| | $ | (377 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,212 |
| | $ | (377 | ) | |
| Total liabilities | $ | 10,589 |
| | $ | — |
| | $ | — |
| | $ | (377 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,212 |
| | $ | (377 | ) | |
| | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2018 | | | | | | | | | | | | | | | | | |
| Fixed maturities | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Corporate debt | $ | 52,897 |
| | $ | 2,935 |
| | $ | (4,279 | ) | | $ | (698 | ) | | $ | 5,977 |
| | $ | 17,056 |
| | $ | (9,714 | ) | | $ | (11,074 | ) | | $ | 53,100 |
| | $ | — |
| |
| Non-Agency RMBS | — |
| | — |
| | (789 | ) | | — |
| | 1 |
| | 900 |
| | — |
| | (112 | ) | | — |
| | — |
| |
| CMBS | — |
| | 5,096 |
| | (10,422 | ) | | — |
| | (57 | ) | | 16,215 |
| | — |
| | (61 | ) | | 10,771 |
| | — |
| |
| ABS | — |
| | 3,657 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,657 |
| | — |
| |
| | 52,897 |
| | 11,688 |
| | (15,490 | ) | | (698 | ) | | 5,921 |
| | 34,171 |
| | (9,714 | ) | | (11,247 | ) | | 67,528 |
| | — |
| |
| Other investments | | | | | | | | | | | | | | | | | | | | |
| Other privately held investments | 46,430 |
| | — |
| | — |
| | (652 | ) | | — |
| | 3,111 |
| | (1,500 | ) | | — |
| | 47,389 |
| | (652 | ) | |
| CLO - Equities | 31,413 |
| | — |
| | — |
| | 6,719 |
| | — |
| | — |
| | — |
| | (13,868 | ) | | 24,264 |
| | 6,719 |
| |
| | 77,843 |
| | — |
| | — |
| | 6,067 |
| | — |
| | 3,111 |
| | (1,500 | ) | | (13,868 | ) | | 71,653 |
| | 6,067 |
| |
| Other assets | | | | | | | | | | | | | | | | | | | |
| Insurance-linked securities | 25,090 |
| | — |
| | — |
| | (90 | ) | | — |
| | — |
| | — |
| | (25,000 | ) | | — |
| | — |
| |
| | 25,090 |
| | — |
| | — |
| | (90 | ) | | — |
| | — |
| | — |
| | (25,000 | ) | | — |
| | — |
| |
| Total assets | $ | 155,830 |
| | $ | 11,688 |
| | $ | (15,490 | ) | | $ | 5,279 |
| | $ | 5,921 |
| | $ | 37,282 |
| | $ | (11,214 | ) | | $ | (50,115 | ) | | $ | 139,181 |
| | $ | 6,067 |
| |
| | | | | | | | | | | | | | | | | | | | | |
| Other liabilities | | | | | | | | | | | | | | | | | | | |
| Derivative instruments | $ | 11,510 |
| | $ | — |
| | $ | — |
| | $ | (1,298 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,212 |
| | $ | (1,298 | ) | |
| Total liabilities | $ | 11,510 |
| | $ | — |
| | $ | — |
| | $ | (1,298 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,212 |
| | $ | (1,298 | ) | |
| | | | | | | | | | | | | | | | | | | | | |
1) Realized investment gains (losses) on fixed maturities, and realized and unrealized gains (losses) on other assets and other liabilities included in net income are included in net investment gains (losses). Realized and unrealized gains (losses) on other investments included in net income are included in net investment income.
(2) Unrealized investment gains (losses) on fixed maturities are included in other comprehensive income ("OCI").
(3) Change in unrealized investment gains (losses) relating to assets held at the reporting date.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
(1)4. | Gains and losses included in earnings on fixed maturities are included in net realized investment gains (losses). Gains and (losses) included in earnings on other investments are included in net investment income. Gains (losses) on weather derivatives included in earnings are included in other insurance-related income.FAIR VALUE MEASUREMENTS (CONTINUED) |
| |
(2) | Gains and losses included in other comprehensive income (“OCI”) on fixed maturities are included in unrealized gains (losses) arising during the period. |
| |
(3) | Change in unrealized investment gain (loss) relating to assets held at the reporting date. |
The transfers into and out of fair value hierarchy levels reflect the fair value of the securities at the end of the reporting period.
Transfers into Level 3 from Level 2
There were noThe transfers tointo Level 3 from Level 2 made during the three months ended September 30, 2017. The transfers to Level 3 from Level 2 made during theand nine months ended September 30, 20172019 and 2018 were primarily due to the lack of observable market inputs and multiple quotes from pricing vendors and broker-dealers for certain fixed maturities.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5. | FAIR VALUE MEASUREMENTS (CONTINUED) |
There were no transfers to Level 3 from Level 2 made during the three months ended September 30, 2016. The transfers into Level 3 made during the nine months ended September 30, 2016 were primarily due to the lack of observable market inputs and multiple quotes from pricing vendors and broker-dealers for certain fixed maturities and as a result of a change in the valuation methodology used to fair value the CLO-equity fund. An income approach valuation technique (discounted cash flow model) was used to estimate the fair value of the CLO-equity fund at September 30, 2016. As the NAV practical expedient was not used to determine the fair value of the CLO-equity fund, the fair value of the fund was categorized within the fair value hierarchy.
Transfers out of Level 3 into Level 2
The transfers out of Level 3 into Level 2 from Level 3 made during the three and nine months ended September 30, 20172019 and 2018 were primarily due to the availability of observable market inputs and multiple quotes from pricing vendors onfor certain fixed maturities.
There were no transfers to Level 2 from Level 3 made during the three months ended September 30, 2016. The transfers to Level 2 from Level 3 made during the nine months ended September 30, 2016 were primarily due to the availability of observable market inputs and quotes from pricing vendors on certain fixed maturities.
Measuring the Fair Value of Other Investments Using Net Asset Valuations ("NAVs")
The fair values of hedge funds, direct lending funds, private equity funds and real estate funds are estimated using NAVs as advised by external fund managers or third party administrators. For these funds, NAVs are based on the manager's or administrator's valuation of the underlying holdings in accordance with the fund's governing documents and in accordance with U.S. GAAP.
If there is a reporting lag between the current period end and reporting date of the latest available fund valuation for any hedge fund, we estimatethe Company estimates fair values by starting with the most recently available fund valuation and adjusting for return estimates as well as any subscriptions, redemptions and distributions that took place during the current period. Return estimates are obtained from the relevant fund managers. Accordingly, we domanagers therefore the Company does not typically have a reporting lag in fair value measurements of these funds. Historically, ourthe Company's valuation estimates incorporating these return estimates have not significantly diverged from the subsequently received NAVs.
For direct lending funds, private equity funds, real estate funds and two2 of ourthe Company's hedge funds, valuation statements are typically released on a three month reporting lag therefore we estimatethe Company estimates the fair value of these funds by starting with the prior quarter-endmost recent fund valuations and adjusting for capital calls, redemptions, drawdowns and distributions. Return estimates are not available from the relevant fund managers for these funds. Accordingly, wefunds therefore the Company typically havehas a reporting lag in ourits fair value measurements of these funds. In 2017,For the nine months ended September 30,2019, funds reported on a lag represented 51% (2016: 35%66% (2018: 61%) of ourthe Company's total other investments balance.
WeThe Company often dodoes not have access to financial information relating to the underlying securities held within the funds, therefore management is unable to corroborate the fair values placed on the securities underlying the asset valuations provided by fund managers or fund administrators. In order to assess the reasonableness of the NAVs, we performthe Company performs a number of monitoring procedures on a quarterly basis, to assess the quality of the information provided by fund managers and fundsfund administrators. These procedures include, but are not limited to, regular review and discussion of each fund's performance with its manager, regular evaluation of fund performance against applicable benchmarks and the backtesting of ourthe Company's fair value estimates against subsequently received NAVs. Backtesting involves comparing ourthe Company's previously reported fair values for each fund against NAVs per audited financial statements (for year-end values) and final NAVs from fund managers and fund administrators (for interim values).
The fair values of hedge funds, direct lending funds, private equity funds and real estate funds are measured using the NAV practical expedient, therefore the fair values of these funds have not been categorized within the fair value hierarchy.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5.4. | FAIR VALUE MEASUREMENTS (CONTINUED) |
Financial Instruments Disclosed But Not Carried at Fair Value
The fair value of financial instruments accounting guidance also applies to financial instruments disclosed but not carried at fair value, except for certain financial instruments, including insurance contracts.
TheAt September 30,2019, the carrying values of cash and cash equivalents (includingincluding restricted amounts),amounts, accrued investment income, receivable for investments sold, certain other assets, payable for investments purchased and certain other liabilities approximated their fair values at September 30,2017, due to their respective short maturities. As these financial instruments are not actively traded, their fair values are classified as Level 2.
TheAt September 30,2019, the carrying value of mortgage loans held-for-investment approximated their fair value at September 30,2017.value. The fair values of mortgage loans are primarily determined by estimating expected future cash flows and discounting them using current interest rates for similar mortgage loans with similar credit risk or are determined from pricing for similar loans. As mortgage loans are not actively traded their fair values are classified as Level 3.
At September 30,2017, 2019, senior notes are recorded at amortized cost with a carrying value of $994$1,388 million (2016: $993(2018: $1,342 million) and a fair value of $1.1 billion (2016: $1.0 billion)$1,471 million (2018: $1,334 million). The fair values of these senior notes are based on prices obtained from a third party pricing service and are determined using the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and broker-dealer quotes. As these spreads and the yields for the risk-free yield curve and the spreads are observable market inputs, the fair values of senior notes are classified as Level 2.
| |
6.5. | DERIVATIVE INSTRUMENTS |
The following table summarizes the balance sheet classificationclassifications of derivatives recorded at fair value. The notional amount of derivative contracts represents the basis upon which pay or receive amountsvalue are calculated and is presentedshown in the table to quantify the volume of our derivative activities. Notional amounts are not reflective of credit risk.
None of our derivative instruments are designated as hedges under current accounting guidance.following table:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 | |
| | Derivative Notional Amount | | Derivative Asset Fair Value(1) | | Derivative Liability Fair Value(1) | | Derivative Notional Amount | | Derivative Asset Fair Value(1) | | Derivative Liability Fair Value(1) | |
| | | | | | | | | | | | | |
| Relating to investment portfolio: | | | | | | | | | | | | |
| Foreign exchange forward contracts | $ | 147,015 |
| | $ | — |
| | $ | 439 |
| | $ | 195,979 |
| | $ | 12,331 |
| | $ | 87 |
| |
| Interest rate swaps | 180,000 |
| | 393 |
| | — |
| | — |
| | — |
| | — |
| |
| Relating to underwriting portfolio: | | | | | | | | | | | | |
| Foreign exchange forward contracts | 479,818 |
| | 5,466 |
| | 1,434 |
| | 492,899 |
| | 2,034 |
| | 8,989 |
| |
| Weather-related contracts | — |
| | — |
| | — |
| | 67,957 |
| | 2,532 |
| | 6,500 |
| |
| Commodity contracts | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Other underwriting-related contracts | 85,000 |
| | — |
| | 11,844 |
| | — |
| | — |
| | — |
| |
| Total derivatives | | | $ | 5,859 |
| | $ | 13,717 |
| | | | $ | 16,897 |
| | $ | 15,576 |
| |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| | Derivative notional amount | | Derivative asset fair value(1) | | Derivative liability fair value(1) | | Derivative notional amount | | Derivative asset fair value(1) | | Derivative liability fair value(1) | |
| | | | | | | | | | | | | |
| Relating to investment portfolio: | | | | | | | | | | | | |
| Foreign exchange forward contracts | $ | 152,963 |
| | $ | 517 |
| | $ | 425 |
| | $ | 79,336 |
| | $ | 262 |
| | $ | 531 |
| |
| Interest rate swaps | — |
| | — |
| | — |
| | 150,000 |
| | — |
| | 1,116 |
| |
| Relating to underwriting portfolio: | | | | | | | | | | | | |
| Foreign exchange forward contracts | 531,864 |
| | 826 |
| | 7,040 |
| | 737,419 |
| | 7,975 |
| | 2,576 |
| |
| Other underwriting-related contracts | 85,000 |
| | — |
| | 10,136 |
| | 85,000 |
| | — |
| | 10,299 |
| |
| Total derivatives | | | $ | 1,343 |
| | $ | 17,601 |
| | | | $ | 8,237 |
| | $ | 14,522 |
| |
| | | | | | | | | | | | | |
| |
(1) | Asset and liability derivatives are classified within other assets and other liabilities in the Consolidated Balance Sheets.consolidated balance sheets. |
The notional amounts of derivative contracts which represent the basis upon which amounts paid or received are calculated and are presented in the above table to quantify the volume of the Company's derivative activities. Notional amounts are not reflective of credit risk.
None of the Company's derivative instruments are designated as hedges under current accounting guidance.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
6.5. | DERIVATIVE INSTRUMENTS (CONTINUED) |
Offsetting Assets and Liabilities
OurThe Company's derivative instruments are generally traded under International Swaps and Derivatives Association master netting agreements, which establish terms that apply to all transactions. In the event of a bankruptcy or other stipulated event, master netting agreements provide that individual positions be replaced with a new amount, usually referred to as the termination amount, determined by taking into account market prices and converting into a single currency. Effectively, this contractual close-out netting reduces credit exposure from gross to net exposure. The table below presents a
A reconciliation of our gross derivative assets and liabilities to the net amounts presented in the Consolidated Balance Sheets,consolidated balance sheets, with the difference being attributable to the impact of master netting agreements.agreements, is shown in the following table:
|
| | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 | |
| | Gross Amounts | Gross Amounts Offset | Net Amounts(1) | | Gross Amounts | Gross Amounts Offset | Net Amounts(1) | |
| | | | | | | | | |
| Derivative assets | $ | 9,682 |
| $ | (3,823 | ) | $ | 5,859 |
| | $ | 22,270 |
| $ | (5,373 | ) | $ | 16,897 |
| |
| Derivative liabilities | $ | 17,540 |
| $ | (3,823 | ) | $ | 13,717 |
| | $ | 20,949 |
| $ | (5,373 | ) | $ | 15,576 |
| |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| | Gross amounts | Gross amounts offset | Net amounts(1) | | Gross amounts | Gross amounts offset | Net amounts(1) | |
| | | | | | | | | |
| Derivative assets | $ | 2,357 |
| $ | (1,014 | ) | $ | 1,343 |
| | $ | 11,967 |
| $ | (3,730 | ) | $ | 8,237 |
| |
| Derivative liabilities | $ | 18,615 |
| $ | (1,014 | ) | $ | 17,601 |
| | $ | 18,252 |
| $ | (3,730 | ) | $ | 14,522 |
| |
| | | | | | | | | |
| |
(1) | Net asset and liability derivatives are classified within other assets and other liabilities in the Consolidated Balance Sheets.consolidated balance sheets. |
Refer to Note 43 'Investments' for information on reverse repurchase agreements.
a) Relating to Investment Portfolio
Foreign Currency Risk
Within ourThe Company's investment portfolio we areis exposed to foreign currency risk. Accordingly,risk therefore the fair values of our investment portfolioits investments are partially influenced by the change in foreign exchange rates. WeThe Company may enter into foreign currency exchange forward contracts to manage the effect of this foreign currency risk. These foreign currency hedging activities are not designated as specific hedges for financial reporting purposes.
Interest Rate Risk
OurThe Company's investment portfolio contains a large percentage of fixed maturities which exposes usit to significant interest rate risk. As part of our overall management of this risk, wethe Company may use interest rate swaps.
b) Relating to Underwriting Portfolio
Foreign Currency Risk
Our (re)The Company's insurance and reinsurance subsidiaries and branches operate in various foreign countries. Consequently, someSome of ourits business is written in currencies other than the U.S. dollar, and, therefore ourthe underwriting portfolio is exposed to significant foreign currency risk. We manageThe Company manages foreign currency risk by seeking to match ourits foreign-denominated net liabilities under (re)insurance and reinsurance contracts with cash and investments that are denominated in suchthe same currencies. We may also useThe Company uses derivative instruments, specifically, forward contracts and currency options, to economically hedge foreign currency exposures.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
6. | DERIVATIVE INSTRUMENTS (CONTINUED) |
Weather Risk
We write derivative-based risk management products designed to address weather risks with the objective of generating profits on a portfolio basis. The majority of this business consists of receiving a payment at contract inception in exchange for bearing the risk of variations in a quantifiable weather-related phenomenon, such as temperature. Where a client wishes to minimize the upfront payment, these transactions may be structured as swaps or collars. In general, our portfolio of such derivative contracts is of short duration, with contracts being predominantly seasonal in nature. In order to economically hedge a portion of this portfolio, we may also purchase weather derivatives.
Commodity Risk
Within our (re)insurance portfolio we are exposed to commodity price risk. We may hedge a portion of this price risk by entering into commodity derivative contracts.
Other Underwriting-related Risks
We enterThe Company enters into insurance and reinsurance contracts that are required to be accounted for as derivatives. These insurance or reinsurance contract providescontracts provide indemnification to an insured or cedant as a result of a change in a variable as opposed to a change in an identifiable insuredinsurable event. We considerThe Company considers these contracts to be part of ourits underwriting operations.
The total unrealized and realized gains (losses) recognized in earnings for derivatives not designated as hedges were as follows:
|
| | | | | | | | | | | | | | | | | | |
| | Location of Gain (Loss) Recognized in Income on Derivative | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | | |
| | | | | | | | | |
| Relating to investment portfolio: | | | | | | | | | |
| Foreign exchange forward contracts | Net realized investment gains (losses) | $ | (1,815 | ) | | $ | 155 |
| | $ | (6,534 | ) | | $ | 39 |
| |
| Interest rate swaps | Net realized investment gains (losses) | 520 |
| | — |
| | (2,661 | ) | | — |
| |
| Relating to underwriting portfolio: | | | | | | | | | |
| Foreign exchange forward contracts | Foreign exchange losses (gains) | (12,481 | ) | | (182 | ) | | (26,109 | ) | | (2,958 | ) | |
| Weather-related contracts | Other insurance related income (losses) | — |
| | 833 |
| | (9,629 | ) | | 809 |
| |
| Commodity contracts | Other insurance related income (losses) | — |
| | 1,799 |
| | — |
| | 1,499 |
| |
| Other underwriting-related contracts | Other insurance related income (losses) | 514 |
| | — |
| | 852 |
| | — |
| |
| Total | | $ | (13,262 | ) | | $ | 2,605 |
| | $ | (44,081 | ) | | $ | (611 | ) | |
| | | | | | | | | | |
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
5. | DERIVATIVE INSTRUMENTS (CONTINUED) |
7.
The total unrealized and realized gains (losses) recognized in net income for derivatives not designated as hedges are shown in the following table:
|
| | | | | | | | | | | | | | | | | | |
| | Location of gain (loss) recognized in net income | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | | |
| | | | | | | | | |
| Relating to investment portfolio: | | | | | | | | | |
| Foreign exchange forward contracts | Net investment gains (losses) | $ | 2,592 |
| | $ | 766 |
| | $ | 3,964 |
| | $ | 2,090 |
| |
| Interest rate swaps | Net investment gains (losses) | — |
| | 1,859 |
| | (3,677 | ) | | 7,692 |
| |
| Relating to underwriting portfolio: | | | | | | | | | |
| Foreign exchange forward contracts | Foreign exchange gains (losses) | (6,883 | ) | | (3,965 | ) | | (16,598 | ) | | (4,103 | ) | |
| Other underwriting-related contracts | Other insurance related income (losses) | 417 |
| | 677 |
| | 1,035 |
| | 2,225 |
| |
| Total | | $ | (3,874 | ) | | $ | (663 | ) | | $ | (15,276 | ) | | $ | 7,904 |
| |
| | | | | | | | | | |
6. RESERVE FOR LOSSES AND LOSS EXPENSES
Reserve Roll-Forward
The following table presents a reconciliation of ourthe Company's beginning and ending gross reserve for losses and loss expenses and net reservereserves for unpaid losses and loss expenses for the periods indicated:expenses:
|
| | | | | | | | | |
| | Nine months ended September 30, | |
| | 2019 | | 2018 | |
| | | | | |
| Gross reserve for losses and loss expenses, beginning of period | $ | 12,280,769 |
| | $ | 12,997,553 |
| |
| Less reinsurance recoverable on unpaid losses, beginning of period | (3,501,669 | ) | | (3,159,514 | ) | |
| Net reserve for unpaid losses and loss expenses, beginning of period | 8,779,100 |
| | 9,838,039 |
| |
| | | | | |
| Net incurred losses and loss expenses related to: | | | | |
| Current year | 2,252,424 |
| | 2,323,028 |
| |
| Prior years | (65,021 | ) | | (160,083 | ) | |
| | 2,187,403 |
| | 2,162,945 |
| |
| Net paid losses and loss expenses related to: | | | | |
| Current year | (329,519 | ) | | (381,158 | ) | |
| Prior years | (1,791,233 | ) | | (1,770,667 | ) | |
| | (2,120,752 | ) | | (2,151,825 | ) | |
| | | | | |
| Foreign exchange and other | (53,037 | ) | | (1,040,999 | ) | |
| | | | | |
| Net reserve for unpaid losses and loss expenses, end of period | 8,792,714 |
| | 8,808,160 |
| |
| Reinsurance recoverable on unpaid losses, end of period | 3,705,793 |
| | 3,217,787 |
| |
| Gross reserve for losses and loss expenses, end of period | $ | 12,498,507 |
| | $ | 12,025,947 |
| |
| | | | | |
|
| | | | | | | | | |
| | | | | |
| Nine months ended September 30, | 2017 | | 2016 | |
| | | | | |
| Gross reserve for losses and loss expenses, beginning of period | $ | 9,697,827 |
| | $ | 9,646,285 |
| |
| Less reinsurance recoverable on unpaid losses, beginning of period | (2,276,109 | ) | | (2,031,309 | ) | |
| Net reserve for unpaid losses and loss expenses, beginning of period | 7,421,718 |
| | 7,614,976 |
| |
| | | | | |
| Net incurred losses and loss expenses related to: | | | | |
| Current year | 2,591,135 |
| | 1,887,715 |
| |
| Prior years | (143,495 | ) | | (224,131 | ) | |
| | 2,447,640 |
| | 1,663,584 |
| |
| Net paid losses and loss expenses related to: | | | | |
| Current year | (328,751 | ) | | (233,124 | ) | |
| Prior years | (1,384,510 | ) | | (1,334,772 | ) | |
| | (1,713,261 | ) | | (1,567,896 | ) | |
| | | | | |
| Foreign exchange and other | 333,456 |
| | (112,649 | ) | |
| | | | | |
| Net reserve for unpaid losses and loss expenses, end of period | 8,489,553 |
| | 7,598,015 |
| |
| Reinsurance recoverable on unpaid losses, end of period | 2,298,022 |
| | 2,276,792 |
| |
| Gross reserve for losses and loss expenses, end of period | $ | 10,787,575 |
| | $ | 9,874,807 |
| |
| | | | | |
We writeThe Company writes business with loss experience generally characterized as low frequency and high severity in nature, which can result in volatility in ourits financial results. During the nine months ended September 30, 2017 and 2016, we2019, the Company recognized aggregate net losses and loss expenses net of reinstatement premiums of $702$206 million and $145 million, respectively, in relation(2018: $162 million) attributable to catastrophe and weather relatedweather-related events.
The transfer of the insurance business of AXIS Specialty Australia to a reinsurer was approved by the Irish High Court on February 1, 2017 and the Federal Court of Australia on February 10, 2017. Consequently, the insurance policies, assets and liabilities of AXIS Specialty Australia were transferred to the reinsurer with effect from February 13, 2017. This resulted in the reduction of reserves for losses and loss expenses by $223 million and a reduction in reinsurance recoverables on unpaid and paid losses by $223 million.
On April 1, 2017, the Company acquired a 100% ownership interest in Aviabel. Foreign exchange and other includes reserves for losses and loss expenses of $79 million and reinsurance recoverables on unpaid and paid losses of $5 million related to this acquisition.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
7.6. | RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED) |
On April 16, 2018, the Company entered into a quota share retrocessional agreement with Harrington Re, a related party, which was deemed to have met the established criteria for retroactive reinsurance accounting. The Company recognized reinsurance recoverable on unpaid losses of $108 million related to this reinsurance agreement. This transaction was conducted at market rates consistent with negotiated arms-length contracts.
On January 1, 2018, AXIS Managing Agency Limited, the managing agent of Syndicate 2007 entered into an agreement for the RITC of the 2015 and prior years of account of Syndicate 2007. This agreement was accounted for as a novation reinsurance contract. At September 30, 2018, foreign exchange and other included a reduction in reserves for losses and loss expenses of $819 million related to this transaction.
Prior Year Reserve Development
PriorThe Company's net favorable prior year reserve development arises from changes to lossestimates of losses and loss expense estimatesexpenses related to losses incurredloss events that occurred in previous calendar years. Such development is summarized by segment in theThe following table: |
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| Insurance | $ | 2,603 |
| | $ | 20,688 |
| | $ | 30,740 |
| | $ | 43,181 |
| |
| Reinsurance | 45,165 |
| | 55,331 |
| | 112,755 |
| | 180,950 |
| |
| Total | $ | 47,768 |
| | $ | 76,019 |
| | $ | 143,495 |
| | $ | 224,131 |
| |
| | | | | | | | | |
Net favorabletable presents net prior year reserve development
forby segment: |
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Insurance | $ | 14,609 |
| | $ | 13,478 |
| | $ | 42,849 |
| | $ | 60,547 |
| |
| Reinsurance | 12,118 |
| | 32,182 |
| | 22,172 |
| | 99,536 |
| |
| Total | $ | 26,727 |
| | $ | 45,660 |
| | $ | 65,021 |
| | $ | 160,083 |
| |
| | | | | | | | | |
The following tables map the three months ended September 30, 2017 included significant contributions from our mediumCompany's lines of business to reserve classes and long tail reserve classes. Net favorable prior year reserve development for the nine months ended September 30, 2017 included significant contributions from short, medium, and long tail reserve classes. Net favorable prior year reserve development for the three and nine months ended September 30, 2016 included significant contributions from our short and long tail reserve classes.expected claim tails:
Our short |
| | | | | | |
Insurance segment | | | | | |
| Reserve class and tail |
| | | | | | |
| Property and other | Marine | Aviation | Credit and political risk | Professional lines | Liability |
| | | | | | |
| Short | Short | Short/Medium | Medium | Medium | Long |
| | | | | | |
Reported lines of business | | | | | | |
Property | X | | | | | |
Marine | | X | | | | |
Terrorism | X | | | | | |
Aviation | | | X | | | |
Credit and political risk | | | | X | | |
Professional lines | | | | | X | |
Liability | | | | | | X |
Accident and health | X | | | | | |
Discontinued lines - Novae | X | | | | X | X |
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
6. | RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED) |
|
| | | | | |
Reinsurance segment | | | | |
| Reserve class and tail |
| | | | | |
| Property and other | Credit and surety | Professional lines | Motor | Liability |
| | | | | |
| Short | Medium | Medium | Long | Long |
| | | | | |
Reported lines of business | | | | | |
Catastrophe | X | | | | |
Property | X | | | | |
Credit and surety | | X | | | |
Professional lines | | | X | | |
Motor | | | | X | |
Liability | | | | | X |
Engineering | X | | | | |
Agriculture | X | | | | |
Marine and other | X | | | | |
Accident and health | X | | | | |
Discontinued lines - Novae | X | | | X | X |
Short-tail business
Short-tail business includes the underlying exposures in our property and other, marine and aviation reserve classes within ourin the insurance segment, and the property and other reserve class within ourin the reinsurance segment. Development from these classes contributed $5 million and $41 million of net favorable prior year reserve development for the three and nine months ended September 30, 2017, respectively. These short-tail lines contributed $41 million and $116 million of net favorable prior year reserve development for the three and nine months ended September 30, 2016, respectively. The net favorable development for these classes primarily reflected the recognition of better than expected loss emergence.
Our medium-tail business consists primarily of professional insurance and reinsurance reserve classes, credit and political risk insurance reserve class, and credit and surety reinsurance reserve class. For the three months ended September 30, 2017, the professional reinsurance2019, these reserve classclasses contributed net favorable prior year reserve development of $9 million. $2 million, including net favorable prior year reserve development of $11 million contributed by the insurance property and other reserve class and net favorable prior year reserve development of $3 million contributed by the insurance marine and aviation reserve classes, partially offset by of net adverse prior year reserve development of $12 million recognized by the reinsurance property and other reserve class.
For the nine months ended September 30, 2017,2019, these reserve classes recognized net adverse prior year reserve development of $50 million, including net adverse prior year reserve development of $71 million recognized by the professional insurancereinsurance property and reinsuranceother reserve class contributedand net adverse prior year reserve development of $4 million recognized by the insurance property and other reserve class, partially offset by net favorable prior year reserve development of $54 million. $24 million contributed by the insurance marine reserve class. The net adverse prior year reserve development of $71 million recognized by the reinsurance property and other reserve class reflected overall better than expected loss emergence related to the 2018 catastrophe events and reserve strengthening within our European proportional book of business.
For the three and nine months ended September 30, 2017, the credit and surety reinsurance reserve class recorded net favorable prior year development of $17 million and $18 million, respectively. This net favorable prior year reserve development reflected the recognition of generally better than expected loss emergence. For the three and nine months ended September 30, 2016, the professional2018, these reserve classes contributed net favorable prior year reserve development of $12 million and $28$92 million, respectively. Therespectively, reflecting overall better than expected loss emergence related to the 2017 catastrophe events.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
6. | RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED) |
Medium-tail business
Medium-tail business consists primarily of insurance and reinsurance professional lines reserve classes, insurance credit and political risk reserve class and reinsurance credit and surety reserve class.
For the three and nine months ended September 30, 2019, the insurance professional lines reserve class recorded net favorable prior year reserve development on these reserve classes reflectedof $4 million (2018: $10 million) and $14 million (2018: $12 million), respectively, reflecting generally favorable experience as we continued to transition to more experienced based actuarial methods.
For the three months ended September 30, 2019, the reinsurance professional lines reserve class recorded net adverse prior year reserve development of $7 million primarily due to reserve strengthening within the Company's European book of business.
For the three and nine months ended September 30, 2018, the reinsurance professional lines reserve class recorded net favorable prior year reserve development of $10 million and $18 million, respectively, reflecting generally favorable experience on older accident years as the Company continued to transition to more experience based actuarial methods.
Our long-tail business consists primarily of liability and motor reserve classes. For the nine months ended September 30, 2017,2019, the insurance credit and political risk reserve class recorded net favorable prior year reserve development of $10 million, respectively, reflecting the recognition of better than expected loss emergence.
For the three and nine months ended September 30, 2019, the reinsurance credit and surety reserve class recorded net favorable prior year reserve development of $6 million (2018: $6 million) and $33 million (2018: $21 million), respectively, reflecting the recognition of better than expected loss emergence.
Long-tail business
Long-tail business consists primarily of insurance and reinsurance liability reserve classes and reinsurance motor reserve class.
For the three months ended September 30, 2019, the insurance liability reserve class recorded net adverse prior year reserve development of $4 million (2018: $11 million). For the nine months ended September 30, 2018, the insurance liability reserve class recorded net adverse prior year reserve development of $18 million. This net adverse prior year reserve development was primarily due to reserve strengthening in the Company's U.S. excess casualty book of business.
For the nine months ended September 30, 2019, the reinsurance liability reserve class contributed net favorable prior year reserve development of $40 million. For the three and nine months ended and September 30, 2016, the liability reinsurance reserve class contributed net favorable prior year development of $10$26 million and $32 million, respectively. The net favorable prior year reserve development for our liability reinsurance reserve class in both years primarily reflected the progressivelydue to increased weight given by management to experience based indications on older accident years, which has generally been favorable. For the nine months ended September 30, 2017, the liability insurance reserve class recorded net adverse prior year reserve development of $6 million, primarily attributable to reserve strengthening within our run-off Bermuda excess casualty book of business.years.
For the three and nine months ended September 30, 2017,2018, the motor reinsurance liability reserve class recorded net favorable prior year development of $16 million and net adverse prior year reserve development of $4 million, respectively. For the three months ended September 30, 2017, thecontributed net favorable prior year reserve development of $11 million and $19 million, respectively, largely associated with multi-line contracts due to overall better than expected loss emergence related to the 2017 catastrophe events. The net favorable loss emergence trends on several classes of business spanning multiple accident years. Forprior year reserve development for the nine months ended the net adverse prior year developmentSeptember 30, 2018 was drivenalso due to increased weight given by the U.K. Ministry of Justice’s recent announcement of a decrease in the discount rate usedmanagement to calculate lump sum awards in U.K. bodily injury cases, known as the Ogden rate. Effective March 20, 2017, the Ogden rate changed from plus 2.5% to minus 0.75%. experience based indications on older accident years.
For the three and nine months ended September 30, 2016,2019, the reinsurance motor reinsurance reserve class contributed $7 million and $40 million, respectively, of net favorable prior year reserve development relatedof $23 million (2018: $7 million) and $34 million (2018: $15 million), respectively, primarily attributable to favorable loss emergence trends on several classes of business spanning multiple accident years.non proportional treaty business.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
7. | RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED) |
OurAt September 30, 20172019, net reserves for losses and loss expenses includesincluded estimated amounts for numerous catastrophe events. We caution that theThe magnitude and/or complexity of losses arising from certain of these events, in particular Hurricane Dorian, Japanese Typhoons Faxai and Tapah which occurred in 2019 together with the California Wildfires, Hurricanes Michael and Florence, and Typhoons Jebi and Trami which occurred in 2018 as well as Hurricanes Harvey, Irma and Maria and the two earthquakesCalifornia Wildfires which occurred in Mexico, as well as Hurricane Matthew, the Fort McMurray wildfires, Storm Sandy, the 2011 Japanese earthquake and tsunami, the 2010-11 New Zealand earthquakes and the Tianjin port explosion,2017, inherently increasesincrease the level of uncertainty and, therefore, the level of management judgment involved in arriving at ourthe estimated net reserves for losses and loss expenses. As a result, our actual losses for these events may ultimately differ materially from ourthe Company's current estimates.
| |
8. | EARNINGS PER COMMON SHARE |
The following table presents a comparison of basic and diluted earnings per common share:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| Basic earnings (loss) per common share | | | | | | | | |
| Net income (loss) | $ | (457,084 | ) | | $ | 186,613 |
| | $ | (341,541 | ) | | $ | 364,460 |
| |
| Less: preferred share dividends | 10,656 |
| | 9,969 |
| | 36,154 |
| | 29,906 |
| |
| Net income (loss) available to common shareholders | (467,740 | ) | | 176,644 |
| | (377,695 | ) | | 334,554 |
| |
| Weighted average common shares outstanding - basic (1) | 83,305 |
| | 89,621 |
| | 84,479 |
| | 91,852 |
| |
| Basic earnings (loss) per common share | $ | (5.61 | ) | | $ | 1.97 |
| | $ | (4.47 | ) | | $ | 3.64 |
| |
| | | | | | | | | |
| Diluted earnings (loss) per common share | | | | | | | | |
| Net income (loss) available to common shareholders | $ | (467,740 | ) | | $ | 176,644 |
| | $ | (377,695 | ) | | $ | 334,554 |
| |
| | | | | | | | | |
| Weighted average common shares outstanding - basic (1) | 83,305 |
| | 89,621 |
| | 84,479 |
| | 91,852 |
| |
| Share-based compensation plans (2) | — |
| | 730 |
| | — |
| | 727 |
| |
| Weighted average common shares outstanding - diluted (1) | 83,305 |
| | 90,351 |
| | 84,479 |
| | 92,579 |
| |
| | | | | | | | | |
| Diluted earnings (loss) per common share | $ | (5.61 | ) | | $ | 1.96 |
| | $ | (4.47 | ) | | $ | 3.61 |
| |
| | | | | | | | | |
| Anti-dilutive shares excluded from the dilutive computation | 425 |
| | — |
| | 712 |
| | 226 |
| |
| | | | | | | | | |
| |
(1) | On August 17, 2015, the Company entered into an Accelerated Share Repurchase (“ASR”) agreement (see 'Note 10 - Shareholders' Equity' for additional detail). The weighted-average number of shares outstanding used in the computation of basic and diluted earnings per share reflects the Company’s receipt of 4,149,378 common shares delivered to the Company on August 20, 2015, and 1,358,380 common shares delivered to the company on January 15, 2016 under the Company's ASR agreement.
|
(2) Due to the net loss incurred in the three and nine months ended September 30, 2017, all the share equivalents were anti-dilutive.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
9.7. | EARNINGS PER COMMON SHARE |
The following table presents earnings per common share and earnings per diluted common share:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Earnings per common share | | | | | | | | |
| Net income | $ | 38,401 |
| | $ | 54,095 |
| | $ | 324,227 |
| | $ | 230,812 |
| |
| Less: Preferred share dividends | 10,656 |
| | 10,656 |
| | 31,969 |
| | 31,969 |
| |
| Net income available to common shareholders | 27,745 |
| | 43,439 |
| | 292,258 |
| | 198,843 |
| |
| Weighted average common shares outstanding | 83,947 |
| | 83,558 |
| | 83,872 |
| | 83,474 |
| |
| Earnings per common share | $ | 0.33 |
| | $ | 0.52 |
| | $ | 3.48 |
| | $ | 2.38 |
| |
| | | | | | | | | |
| Earnings per diluted common share | | | | | | | | |
| Net income available to common shareholders | $ | 27,745 |
| | $ | 43,439 |
| | $ | 292,258 |
| | $ | 198,843 |
| |
| | | | | | | | | |
| Weighted average common shares outstanding | 83,947 |
| | 83,558 |
| | 83,872 |
| | 83,474 |
| |
| Share-based compensation plans | 635 |
| | 549 |
| | 548 |
| | 465 |
| |
| Weighted average diluted common shares outstanding | 84,582 |
| | 84,107 |
| | 84,420 |
| | 83,939 |
| |
| | | | | | | | | |
| Earnings per diluted common share | $ | 0.33 |
| | $ | 0.52 |
| | $ | 3.46 |
| | $ | 2.37 |
| |
| | | | | | | | | |
| Weighted average anti-dilutive shares excluded from the dilutive computation | 9 |
| | 8 |
| | 204 |
| | 325 |
| |
| | | | | | | | | |
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
8. | SHARE-BASED COMPENSATION |
For the three months ended September 30, 2017,2019, the Company incurred share-based compensation costs of $13$12 million (2016: $14(2018: $15 million) related to restricted stock awards, share-settled restricted stock units and cash-settled restricted stock units and recorded associated tax benefits of $3 million (2016: $3 million).
For the nine months ended September 30, 2017, the Company incurred share-based compensation costs of $57 million (2016: $50 million).units. In addition, the Company recorded associated tax benefits of $20$2 million (2016: $11(2018: $3 million), including.
For the nine months ended September 30, 2019, the Company incurred share-based compensation costs of $41 million (2018: $45 million) and recorded associated tax benefits of $7 million related to excess tax benefits associated with(2018: $6 million).
During the vesting of restricted stock units.
Thenine months ended September 30, 2019, the fair value of share-settled restricted stock units and cash-settled restricted stock units that vested during the nine months ended September 30, 2017 was $125$49 million (2016: $66(2018: $47 million), including $44 million attributable to a grant of 3 year cliff vesting service-based awards made in 2014.. At September 30, 20172019, there were $99was $90 million of unrecognized share-based compensation costs (2016 $104(2018: $106 million), which are expected to be recognized over the weighted average period of 2.5 years.years (2018: 2.6 years).
Share-settledShare-Settled Awards
The following table provides a reconciliationan activity summary of the beginning and ending balance of nonvestedCompany's share-settled restricted stock units for the nine months endedSeptember 30,20172019:
|
| | | | | | | | | | | | | | | |
| | Share-Settled Performance Vesting Restricted Stock Units | | Share-Settled Service Based Restricted Stock Units | |
| | Number of restricted stock units | | Weighted average grant date fair value(1) | | Number of restricted stock units | | Weighted average grant date fair value(1) | |
| | | | | | | | | |
| Nonvested restricted stock units - beginning of period | 232 |
| | $ | 54.54 |
| | 1,411 |
| | $ | 54.12 |
| |
| Granted | 127 |
| | 54.70 |
| | 522 |
| | 54.88 |
| |
| Vested | (61 | ) | | 53.82 |
| | (465 | ) | | 54.20 |
| |
| Forfeited | (40 | ) | | 64.01 |
| | (158 | ) | | 54.54 |
| |
| Nonvested restricted stock units - end of period | 258 |
| | $ | 53.31 |
| | 1,310 |
| | $ | 54.34 |
| |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Performance-based Stock Awards | | Service-based Stock Awards | |
| | Number of Restricted Stock Units | | Weighted Average Grant Date Fair Value(1) | | Number of Restricted Stock Units | | Weighted Average Grant Date Fair Value(1) | |
| | | | | | | | | |
| Nonvested restricted stock - beginning of period | 283 |
| | $ | 51.27 |
| | 1,593 |
| | $ | 48.88 |
| |
| Granted | 87 |
| | 64.58 |
| | 525 |
| | 64.22 |
| |
| Vested(2) | (119 | ) | | 49.14 |
| | (881 | ) | | 47.37 |
| |
| Forfeited | — |
| | — |
| | (69 | ) | | 54.66 |
| |
| Nonvested restricted stock - end of period | 251 |
| | $ | 56.88 |
| | 1,168 |
| | $ | 57.08 |
| |
| | | | | | | | | |
(1) Fair value is based on the closing price of ourthe Company's common shares on the grant approval date.
(2) Share-settled restricted stock units vested during the nine months ended September 30, 2017 included 313,391 restricted stock units attributable to a grant of 3 year cliff vesting service-based awards made in 2014.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
9. SHARE-BASED COMPENSATION (CONTINUED)
Cash-settledCash-Settled awards
The following table provides a reconciliationan activity summary of the beginning and ending balance of nonvestedCompany's cash-settled restricted stock units for the nine months endedSeptember 30,20172019:
|
| | | | | | | |
| | Cash-Settled Performance Vesting Restricted Stock Units | | Cash-Settled Service Based Restricted Stock Units | |
| | Number of restricted stock units | | Number of restricted stock units | |
| | | | | |
| Nonvested restricted stock units - beginning of period | 27 |
| | 932 |
| |
| Granted | — |
| | 363 |
| |
| Vested | (12 | ) | | (328 | ) | |
| Forfeited | (9 | ) | | (94 | ) | |
| Nonvested restricted stock units - end of period | 6 |
| | 873 |
| |
| | | | | |
|
| | | | | | | |
| | Performance-based Cash Settled Awards | | Service-based Cash Settled Awards | |
| | Number of Restricted Stock Units | | Number of Restricted Stock Units | |
| | | | | |
| Nonvested restricted stock units - beginning of period | 68 |
| | 1,392 |
| |
| Granted | 15 |
| | 427 |
| |
| Vested(1) | (38 | ) | | (755 | ) | |
| Forfeited | — |
| | (60 | ) | |
| Nonvested restricted stock units - end of period | 45 |
| | 1,004 |
| |
| | | | | |
(1) Cash settled restricted stock units vested during the nine months ended At September 30, 2017 included 307,556 restricted stock units attributable to a grant of 3 year cliff vesting service-based awards made in 2014.
At September 30, 2017,2019, the liability for cash-settled restricted stock units, included in other liabilities in the Consolidated Balance Sheets,consolidated balance sheets, was $1819 million (2016: $34 (2018: $19 million).
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
10.9. SHAREHOLDERS' EQUITY
The following table presents changes in common shares issued and outstanding:
|
| | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Shares issued, balance at beginning of period | 176,580 |
| | 176,580 |
| | 176,580 |
| | 176,580 |
| |
| Shares issued | — |
| | — |
| | — |
| | — |
| |
| Total shares issued at end of period | 176,580 |
| | 176,580 |
| | 176,580 |
| | 176,580 |
| |
| | | | | | | | | |
| Treasury shares, balance at beginning of period | (92,633 | ) | | (93,024 | ) | | (92,994 | ) | | (93,419 | ) | |
| Shares repurchased | (1 | ) | | — |
| | (165 | ) | | (175 | ) | |
| Shares reissued | 1 |
| | 1 |
| | 526 |
| | 571 |
| |
| Total treasury shares at end of period | (92,633 | ) | | (93,023 | ) | | (92,633 | ) | | (93,023 | ) | |
| | | | | | | | | |
| Total shares outstanding | 83,947 |
| | 83,557 |
| | 83,947 |
| | 83,557 |
| |
| | | | | | | | | |
|
| | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| Shares issued, balance at beginning of period | 176,580 |
| | 176,575 |
| | 176,580 |
| | 176,240 |
| |
| Shares issued | — |
| | — |
| | — |
| | 335 |
| |
| Total shares issued at end of period | 176,580 |
| | 176,575 |
| | 176,580 |
| | 176,575 |
| |
| | | | | | | | | |
| Treasury shares, balance at beginning of period | (93,377 | ) | | (85,921 | ) | | (90,139 | ) | | (80,174 | ) | |
| Shares repurchased | (51 | ) | | (2,252 | ) | | (4,284 | ) | | (8,499 | ) | |
| Shares reissued from treasury | 5 |
| | 37 |
| | 1,000 |
| | 537 |
| |
| Total treasury shares at end of period | (93,423 | ) | | (88,136 | ) | | (93,423 | ) | | (88,136 | ) | |
| | | | | | | | | |
| Total shares outstanding | 83,157 |
| | 88,439 |
| | 83,157 |
| | 88,439 |
| |
| | | | | | | | | |
Dividends
Treasury Shares
In the three months ended September 30, 2019, the total dividends declared per common share were $0.40, paid in October 2019 (2018: $0.39, paid in October 2018). In the nine months ended September 30, 2019, the total cash dividends declared per common share were $1.20 per share, paid in April 2019, July 2019 and October 2019 (2018: $1.17 paid in April 2018, July 2018 and October 2018).
The following table presents
In the three months ended September 30, 2019, the total dividends declared on Series D preferred shares were $0.34375 per share, repurchases:payable in December 2019 (2018: $0.34375, paid in December 2018). In the nine months ended September 30, 2019, the total dividends declared on Series D preferred shares were $1.03125 per share, paid in June 2019, September 2019 and payable in December 2019 (2018: $1.03125, paid in June 2018, September 2018 and December 2018).
In the three months ended September 30, 2019, the total dividends declared on Series E preferred shares were $34.375 per share, paid in October 2019 (2018: $34.375, paid in October 2018). In the nine months ended September 30, 2019, the total dividends declared on Series E preferred shares were $103.125 per share, paid in April 2019, July 2019 and October 2019 (2018: $103.125, paid in April 2018, July 2018 and October 2018).
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| In the open market: | | | | | | | | |
| Total shares(1) | 49 |
| | 2,232 |
| | 3,932 |
| | 8,236 |
| |
| Total cost | $ | 3,237 |
| | $ | 124,948 |
| | $ | 261,180 |
| | $ | 434,948 |
| |
| Average price per share(2) | $ | 65.80 |
| | $ | 56.00 |
| | $ | 66.43 |
| | $ | 52.81 |
| |
| | | | | | | | | |
| From employees:(3) | | | | | | | | |
| Total shares | 2 |
| | 20 |
| | 352 |
| | 263 |
| |
| Total cost | $ | 110 |
| | $ | 1,088 |
| | $ | 24,479 |
| | $ | 14,137 |
| |
| Average price per share(2) | $ | 64.04 |
| | $ | 54.13 |
| | $ | 69.53 |
| | $ | 53.68 |
| |
| | | | | | | | | |
| Total shares repurchased: | | | | | | | | |
| Total shares | 51 |
| | 2,252 |
| | 4,284 |
| | 8,499 |
| |
| Total cost | $ | 3,347 |
| | $ | 126,036 |
| | $ | 285,659 |
| | $ | 449,085 |
| |
| Average price per share(2) | $ | 65.74 |
| | $ | 55.98 |
| | $ | 66.68 |
| | $ | 52.84 |
| |
| | | | | | | | | |
| |
(1) | Total shares repurchased in the open market for the nine months ended September 30, 2016 includes 1,358,380 common shares acquired under the accelerated share repurchase program (see below for more detail). |
| |
(2) | Calculated using whole numbers. |
| |
(3) | To satisfy withholding tax liabilities upon the vesting of restricted stock and restricted stock units. |
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
9. | SHAREHOLDERS' EQUITY (CONTINUED) |
Treasury Shares
The following table presents common share repurchased from shares held in Treasury:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| In the open market: | | | | | | | | |
| Total shares | — |
| | — |
| | — |
| | — |
| |
| Total cost | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| Average price per share(1) | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| | | | | | | | | |
| From employees:(2) | | | | | | | | |
| Total shares | 1 |
| | — |
| | 165 |
| | 175 |
| |
| Total cost | $ | 31 |
| | $ | — |
| | $ | 9,445 |
| | $ | 8,699 |
| |
| Average price per share(1) | $ | 61.23 |
| | $ | — |
| | $ | 57.23 |
| | $ | 49.57 |
| |
| | | | | | | | | |
| Total shares repurchased: | | | | | | | | |
| Total shares | 1 |
| | — |
| | 165 |
| | 175 |
| |
| Total cost | $ | 31 |
| | $ | — |
| | $ | 9,445 |
| | $ | 8,699 |
| |
| Average price per share(1) | $ | 61.23 |
| | $ | — |
| | $ | 57.23 |
| | $ | 49.57 |
| |
| | | | | | | | | |
(1) Calculated using whole numbers.
| |
(2) | Shares are repurchased from employees to satisfy withholding tax liabilities related to the vesting of share-settled restricted stock units. |
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
10. | SHAREHOLDERS' EQUITY (CONTINUED)DEBT AND FINANCING ARRANGEMENTS |
Accelerated Share Repurchase Program
On August 17, 2015, the CompanyApril 1, 2019, AXIS Specialty Finance PLC ("AXIS Finance"), a 100% owned finance subsidiary, repaid $250 million aggregate principal amount of 2.65% Senior Notes at their stated maturity.
On April 3, 2019, AXIS Capital and AXIS Finance entered into an Accelerated Share Repurchase agreement with Goldman, Sachs & Co. (“Goldman Sachs”a first supplemental indenture (the "First Supplemental Indenture") among AXIS Finance, as issuer, AXIS Capital, as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee"), to repurchase anthe senior indenture dated March 13, 2014 (the "Indenture") relating to $250 million aggregate principal amount of $300 million5.15% Senior Notes due 2045 (the "5.15% Senior Notes") issued by AXIS Finance and fully and unconditionally guaranteed by AXIS Capital.
The changes described below were made to permit the 5.15% Senior Notes to qualify as Tier 3 ancillary capital under eligible capital requirements of the Company’s ordinary sharesBermuda Monetary Authority. Because this amendment does not materially adversely affect the interests of the holders of the 5.15% Senior Notes, the First Supplemental Indenture was entered into without consent of any holders of the 5.15% Senior Notes. The First Supplemental Indenture relates to the 5.15% Senior Notes only and does not affect any other series of securities issued under an accelerated share repurchase program.the Indenture.
During August, 2015, underUnder the terms of the senior indenture, the 5.15% Senior Notes are redeemable at any time at the option of AXIS Finance at a redemption price equal to a make-whole premium or, in the event that, as a result of certain tax law changes, AXIS Finance or AXIS Capital becomes obligated to pay additional amounts with respect to the 5.15% Senior Notes, at par, plus in each case, accrued and unpaid interest. The First Supplemental Indenture limits this agreement,optional redemption right to provide that the Company paid5.15% Senior Notes were not redeemable at the option of AXIS Finance on or before March 13, 2017, except in the limited circumstances set forth in the First Supplemental Indenture and prior to maturity unless certain conditions are satisfied.
The First Supplemental Indenture also clarifies, for the avoidance of doubt, that the 5.15% Senior Notes are free of encumbrances and that neither the Indenture nor the 5.15% Senior Notes contain any terms or conditions designed to accelerate or induce AXIS Capital or any of its subsidiary’s insolvency or effect similar proceedings.
The holders of the 5.15% Senior Notes should note that the 5.15% Senior Notes do not in any way give rise to any rights of set-off against any claims and obligations of AXIS Capital, AXIS Finance or any of AXIS Capital’s regulated operating subsidiaries to any holder or creditor.
On June 19, 2019, AXIS Specialty Finance LLC, a 100% owned finance subsidiary, issued $300 million to Goldman Sachs and initially repurchased 4,149,378 ordinary shares.aggregate principal amount of 3.90% senior unsecured notes (the "3.90% Senior Notes") at an issue price of 99.36%. The initial shares acquired represented 80%net proceeds of the $300 million total paid to Goldman Sachs and were calculated using the Company’s stock price at activationissuance, after consideration of the program. The ASR programoffering discount and underwriting expenses and commissions, totaled approximately $296 million. Interest on the 3.90% Senior Notes is accounted for as an equity transaction. Accordingly, at December 31, 2015, $240 million of common shares repurchased were included as treasury sharespayable semi-annually in the Consolidated Balance Sheet with the remaining $60 million included as a reduction to additional paid-in capital.
Onarrears on January 15 2016, Goldman Sachs early terminatedand July 15 of each year, beginning on January 15, 2020. Unless previously redeemed, the ASR agreement3.90% Senior Notes will mature on July 15, 2029. The 3.90% Senior Notes are ranked as unsecured senior obligations of AXIS Specialty Finance LLC. AXIS Capital has fully and delivered 1,358,380 additional common shares to the Company, resulting in the reduction from additional paid-in capitalunconditionally guaranteed all obligations of $60 million being reclassified to treasury shares. In total, the Company repurchased 5,507,758 common sharesAXIS Specialty Finance LLC under the ASR agreement at an average price3.90% Senior Notes. AXIS Capital's obligations under this guarantee are unsecured senior obligations and rank equally with all other senior obligations of $54.47.AXIS Capital.
Preferred Shares
On April 17, 2017, the Company redeemed the remaining 14,042,955 of its 6.875% Series C preferred shares, for an aggregate liquidation preference of $351 million.
11. DEBT AND FINANCING ARRANGEMENTS
On March 27, 2017, the $250 million credit facility entered into by AXIS Capital and certain of its subsidiaries and a syndication of lenders expired.
On March 27, 2017,28, 2019, certain of AXIS Capital’s operating subsidiaries (the "Participating Subsidiaries") amended their existing $250 million secured letter of credit facility with Citibank Europe plc (the "$250 Million Facility") under their aggregate $750 million secured letter of credit facility with Citibank Europe plc (the "$750 Million Facility") to extend the expiration date to March 31, 2020. The terms and conditions of the additional $500 million secured letter of credit facility (the “LOC Facility”) with Citibank Europe plc (“Citibank”) to include an additional
$250under the $750 Million Facility remain unchanged. The $500 million of secured letter of credit capacity (the “$250 Million Facility”) pursuant to a Committed Facility Letter and an amendment to the Master Reimbursement Agreement (the “LOC Facility Documents”). Under the termsfacility expires December 31, 2019.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
10. DEBT AND FINANCING ARRANGEMENTS (CONTINUED)
Letters of credit to a maximum aggregate amount of $250 million are available for issuance on behalf ofissued under the Participating Subsidiaries. These letters of credit$750 Million Facility will principally be used to support the reinsurance obligations of the Participating Subsidiaries. The $250 Million Facility isParticipating Subsidiaries are subject to certain covenants, including the requirement to maintain sufficient collateral as defined in the LOC Facility Documents, to cover all of the obligations outstanding under the LOC$750 Million Facility.
Such obligations include contingent reimbursement obligations for outstanding letters of credit and fees payable to Citibank. In the event of default, Citibank Europe plc may exercise certain remedies, including the exercise of control over pledged collateral and the termination of the availability of the LOC$750 Million Facility to any or all of the Participating Subsidiaries.
| |
11. | COMMITMENTS AND CONTINGENCIES |
Legal Proceedings
From time to time, the Company is subject to routine legal proceedings, including arbitrations, arising in the ordinary course of business. These legal proceedings generally relate to claims asserted by or against the Company in the ordinary course of insurance or reinsurance operations. Estimated amounts payable under such proceedings are included in the reserve for losses and loss expenses in the consolidated balance sheets.
The $250 million Facility expires March 31, 2018.Company is not party to any material legal proceedings arising outside the ordinary course of business.
Investments
Refer to Note 3 - 'Investments' for information on the Company's unfunded investment commitments related to the Company's other investment portfolio.
In the ordinary course of business, the Company renews and enters into new leases for office property and equipment, which expire at various dates.
At the lease inception date, the Company assesses whether a contract is or contains a lease. At the commencement date, the Company determines the classification of each separate lease component as either a finance lease or an operating lease. The termsCompany's leases are all currently classified as operating leases. For operating leases that have a lease term of more than 12 months, the Company recognizes a lease liability and conditionsa right-of-use asset in the Company's consolidated balance sheets at the present value of the $500lease payments at the lease commencement date.
At the commencement date, the Company determines lease terms by assuming the exercise of those renewal options that are deemed to be reasonably certain. The exercise of lease renewal options is at the sole discretion of the Company.
As the lease contracts generally do not provide an implicit discount rate, the Company uses its incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. The incremental borrowing rate is based on a borrowing with a term that is similar to the term of the associated lease. The Company has made an accounting policy election not to include renewal, termination, or purchase options that are not reasonably certain of exercise when determining the term of the borrowing.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the commencement date. For the three and nine months ended September 30, 2019, the total lease expense was $7 million Facility remain unchanged. and $18 million, respectively.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
12. | COMMITMENTS AND CONTINGENCIESLEASES (CONTINUED) |
Reinsurance Agreements
The following table summarizes the amounts related to the Company’s total lease expense and the cash flows arising from lease transactions.
We purchase reinsurance and retrocessional protection for our insurance and reinsurance lines of business. The minimum reinsurance premiums are contractually due in advance |
| | | | | | | | | |
| | Three months ended | | Nine months ended | |
| | September 30, 2019 | | September 30, 2019 | |
| | | | | |
| Lease cost: | | | | |
| Operating lease expense | $ | 7,520 |
| | $ | 18,584 |
| |
| Short-term lease expense(1) | 196 |
| | 961 |
| |
| Sublease income(2) | (343 | ) | | (1,077 | ) | |
| Total lease expense | $ | 7,373 |
| | $ | 18,468 |
| |
| | | | | |
| Other information: | | | | |
| Operating cash outflows from operating leases | $ | 6,397 |
| | $ | 19,317 |
| |
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | — |
| | $ | — |
| |
| Weighted-average remaining lease term - operating leases(3) | 9.0 years |
| | 9.0 years |
| |
| Weighted-average discount rate - operating lease(4) | 4.7 | % | | 4.7 | % | |
(1) Short-term lease expense is recognized on a quarterly basis. At September 30,2017, we have unrecorded outstanding reinsurance purchase commitmentsstraight-line basis over the lease term.
(2) Sublease income largely relates to office property in London, England.
(3) Weighted-average remaining lease term was calculated on the basis of $97 million,the remaining lease term and the lease liability balance for each lease at the reporting date.
(4) Weighted-average discount was calculated on the basis of which $15 million is due in 2017the discount rate for the lease that was used to calculate the lease liability balance for each lease at the reporting date and the remaining $82 millionbalance of the lease payments for each lease at the reporting date.
At September 30, 2019, the scheduled maturity of the Company's operating lease liabilities are expected to be as follows:
|
| | | | | |
| | Expected | |
| | Cash Flows | |
| | | |
| Remainder of 2019 | $ | 5,711 |
| |
| 2020 | 19,102 |
| |
| 2021 | 18,853 |
| |
| 2022 | 19,646 |
| |
| 2023 | 16,198 |
| |
| Later years | 65,573 |
| |
| Discount | (29,196 | ) | |
| Total discounted operating lease liabilities | $ | 115,887 |
| |
| | | |
The Company's lease for its current office property in Alpharetta, Georgia, expires on December 31, 2019. As a result, the Company executed a 15 year lease for a new office property in Alpharetta, Georgia. The Company is duenot involved in 2018the construction or design of this office property and later years. Actual payments underwill not move into this property until January 1, 2020, the reinsurance contracts will depend oncommencement date of the underlying subject premium and may exceedlease. Given that the minimum premium.commencement date is after the balance sheet date, the Company has not reflected this lease in the maturity table above or in the Company's consolidated balance sheets at September 30, 2019. The total contractual lease costs over the 15 year lease is $40 million.
Investments
Refer to Note 4 - 'Investments' for information on commitments related to our other investments.
| |
13. | OTHER COMPREHENSIVE INCOME |
The tax effects allocated to each component of other comprehensive income were as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | |
| | Before Tax Amount | | Tax (Expense) Benefit | | Net of Tax Amount | | Before Tax Amount | | Tax (Expense) Benefit | | Net of Tax Amount | |
| | | | | | | | | | | | | |
| Three months ended September 30, | | | | | | | | | | | | |
| Available for sale investments: | | | | | | | | | | | | |
| Unrealized investment gains arising during the period | $ | 64,431 |
| | $ | (1,926 | ) | | $ | 62,505 |
| | $ | 40,125 |
| | $ | (3,789 | ) | | $ | 36,336 |
| |
| Adjustment for reclassification of net realized investment gains and OTTI losses recognized in net income | (15,925 | ) | | 2,639 |
| | (13,286 | ) | | (5,050 | ) | | 2,408 |
| | (2,642 | ) | |
| Unrealized investment gains arising during the period, net of reclassification adjustment | 48,506 |
| | 713 |
| | 49,219 |
| | 35,075 |
| | (1,381 | ) | | 33,694 |
| |
| Non-credit portion of OTTI losses | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Foreign currency translation adjustment | 8,088 |
| | — |
| | 8,088 |
| | 1,722 |
| | — |
| | 1,722 |
| |
| Total other comprehensive income, net of tax | $ | 56,594 |
| | $ | 713 |
| | $ | 57,307 |
| | $ | 36,797 |
| | $ | (1,381 | ) | | $ | 35,416 |
| |
| | | | | | | | | | | | | |
| Nine months ended September 30, | | | | | | | | | | | | |
| Available for sale investments: | | | | | | | | | | | | |
| Unrealized investment gains arising during the period | $ | 215,360 |
| | $ | (8,899 | ) | | $ | 206,461 |
| | $ | 263,235 |
| | $ | (24,579 | ) | | $ | 238,656 |
| |
| Adjustment for reclassification of net realized investment losses and OTTI losses recognized in net income | 8,269 |
| | 1,900 |
| | 10,169 |
| | 40,338 |
| | 2,282 |
| | 42,620 |
| |
| Unrealized investment gains arising during the period, net of reclassification adjustment | 223,629 |
| | (6,999 | ) | | 216,630 |
| | 303,573 |
| | (22,297 | ) | | 281,276 |
| |
| Non-credit portion of OTTI losses | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Foreign currency translation adjustment | 46,824 |
| | — |
| | 46,824 |
| | 5,694 |
| | — |
| | 5,694 |
| |
| Total other comprehensive income, net of tax | $ | 270,453 |
| | $ | (6,999 | ) | | $ | 263,454 |
| | $ | 309,267 |
| | $ | (22,297 | ) | | $ | 286,970 |
| |
| | | | | | | | | | | | | |
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
At December 31, 2018, the Company's future minimum lease payments were expected to be as follows:
|
| | | | | |
| | | |
| Year ended December 31, | | |
| | | |
| 2019 | $ | 28,240 |
| |
| 2020 | 25,331 |
| |
| 2021 | 27,025 |
| |
| 2022 | 28,012 |
| |
| 2023 | 23,801 |
| |
| Later years | 118,497 |
| |
| Total future minimum lease payments | $ | 250,906 |
| |
| | | |
For the three and nine months ended September 30, 2018, the total lease expense was $7 million and $22 million, respectively.
| |
13. | OTHER COMPREHENSIVE INCOME (CONTINUED)TRANSACTION AND REORGANIZATION EXPENSES |
For the three and nine months ended months ended September 30, 2019, transaction and reorganization expenses were $11 million (2018: $16 million) and $29 million (2018: $48 million), respectively, related to the Company's transformation program which was launched in 2017. This program encompasses the integration of Novae which commenced in the fourth quarter of 2017, the realignment of the Company's accident and health business, together with other initiatives designed to increase efficiency and enhance profitability while delivering a customer-centric operating model.
Reclassifications out
The following table presents the tax effects allocated to each component of AOCI intoother comprehensive income (loss): |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2018 | |
| | Before tax amount | | Tax (expense) benefit | | Net of tax amount | | Before tax amount | | Tax (expense) benefit | | Net of Tax Amount | |
| | | | | | | | | | | | | |
| Three months ended September 30, | | | | | | | | | | | | |
| Available for sale investments: | | | | | | | | | | | | |
| Unrealized investment gains (losses) arising during the period | $ | 45,939 |
| | $ | (6,370 | ) | | $ | 39,569 |
| | $ | (27,968 | ) | | $ | 1,907 |
| | $ | (26,061 | ) | |
| Adjustment for reclassification of net realized investment (gains) losses and OTTI losses recognized in net income | (16,446 | ) | | 1,638 |
| | (14,808 | ) | | 26,896 |
| | (972 | ) | | 25,924 |
| |
| Unrealized investment gains (losses) arising during the period, net of reclassification adjustment | 29,493 |
| | (4,732 | ) | | 24,761 |
| | (1,072 | ) | | 935 |
| | (137 | ) | |
| Non-credit portion of OTTI losses | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Foreign currency translation adjustment | (4,610 | ) | | — |
| | (4,610 | ) | | 994 |
| | — |
| | 994 |
| |
| Total other comprehensive income (loss), net of tax | $ | 24,883 |
| | $ | (4,732 | ) | | $ | 20,151 |
| | $ | (78 | ) | | $ | 935 |
| | $ | 857 |
| |
| | | | | | | | | | | | | |
| Nine months ended September 30, | | | | | | | | | | | | |
| Available for sale investments: | | | | | | | | | | | | |
| Unrealized investment gains (losses) arising during the period | $ | 399,652 |
| | $ | (38,432 | ) | | $ | 361,220 |
| | $ | (266,117 | ) | | $ | 8,596 |
| | $ | (257,521 | ) | |
| Adjustment for reclassification of net realized investment (gains) losses and OTTI losses recognized in net income | (10,713 | ) | | 2,290 |
| | (8,423 | ) | | 79,552 |
| | (2,363 | ) | | 77,189 |
| |
| Unrealized investment gains (losses) arising during the period, net of reclassification adjustment | 388,939 |
| | (36,142 | ) | | 352,797 |
| | (186,565 | ) | | 6,233 |
| | (180,332 | ) | |
| Non-credit portion of OTTI losses | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Foreign currency translation adjustment | 609 |
| | — |
| | 609 |
| | (6,864 | ) | | — |
| | (6,864 | ) | |
| Total other comprehensive income (loss), net of tax | $ | 389,548 |
| | $ | (36,142 | ) | | $ | 353,406 |
| | $ | (193,429 | ) | | $ | 6,233 |
| | $ | (187,196 | ) | |
| | | | | | | | | | | | | |
The following table presents details of amounts reclassified from accumulated other comprehensive income ("AOCI") to net income (loss) available to common shareholders were as follows::
|
| | | | | | | | | | | | | | | | | | |
| | | Amount Reclassified from AOCI(1) | |
| Details About AOCI Components | Consolidated Statement of Operations Line Item That Includes Reclassification | Three months ended September 30, | | Nine months ended September 30, | |
| 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | | |
| Unrealized investment gains (losses) on available for sale investments | | | | | | | | | |
| | Other realized investment gains(losses) | $ | 21,337 |
| | $ | 9,297 |
| | $ | 5,224 |
| | $ | (19,992 | ) | |
| | OTTI losses | (5,412 | ) | | (4,247 | ) | | (13,493 | ) | | (20,346 | ) | |
| | Total before tax | 15,925 |
| | 5,050 |
| | (8,269 | ) | | (40,338 | ) | |
| | Income tax expense | (2,639 | ) | | (2,408 | ) | | (1,900 | ) | | (2,282 | ) | |
| | Net of tax | $ | 13,286 |
| | $ | 2,642 |
| | $ | (10,169 | ) | | $ | (42,620 | ) | |
| | | | | | | | | | |
| Foreign currency translation adjustment | | | | | | | | | |
| | Foreign exchange loss | $ | — |
| | $ | — |
| | $ | (24,149 | ) | | $ | — |
| |
| | Income tax expense | — |
| | — |
| | — |
| | — |
| |
| | Net of tax | $ | — |
| | $ | — |
| | $ | (24,149 | ) | | $ | — |
| |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | | Amount reclassified from AOCI(1) | |
| Details about AOCI Components | Consolidated statement of operations line item that includes reclassification | Three months ended September 30, | | Nine months ended September 30, | |
| 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | | |
| Unrealized investment gains (losses) on available for sale investments | | | | | | | | | |
| | Other realized investment gains (losses) | $ | 17,904 |
| | $ | (21,350 | ) | | $ | 17,041 |
| | $ | (71,918 | ) | |
| | OTTI losses | (1,458 | ) | | (5,546 | ) | | (6,328 | ) | | (7,634 | ) | |
| | Total before tax | 16,446 |
| | (26,896 | ) | | 10,713 |
| | (79,552 | ) | |
| | Income tax (expense) benefit | (1,638 | ) | | 972 |
| | (2,290 | ) | | 2,363 |
| |
| | Net of tax | $ | 14,808 |
| | $ | (25,924 | ) | | $ | 8,423 |
| | $ | (77,189 | ) | |
| | | | | | | | | | |
| |
(1) | Amounts in parentheses are debitscharges to net income (loss) available to common shareholders.. |
On March 27, 2017, as part of the wind down of our Australia operation, the Australia Prudential Regulation Authority revoked the authorization of AXIS Specialty Australia to carry on insurance business in Australia. As this resulted in the substantial liquidation of AXIS Specialty Australia, we have released the cumulative translation adjustment related to AXIS Specialty Australia of $24 million from accumulated other comprehensive income in the Consolidated Balance Sheet to foreign exchange losses in the Consolidated Statement of Operations.
14. SUBSEQUENT EVENTS
Acquisition of Novae Group plc
On July 5, 2017, the Company and the board of directors of Novae Group plc (“Novae”), a public limited company incorporated in England and Wales, announced that it had agreed on the terms of a recommended cash offer of 700 pence per share to be made by AXIS Capital to acquire the entire issued and to be issued share capital of Novae.
On August 24, 2017, the Company and the board of directors of Novae announced that it had agreed on the terms of an increased recommended cash offer of 715 pence per share (the "Offer") to be made by AXIS Capital for the acquisition of the entire issued and to be issued share capital of Novae.
The acquisition was effected by way of a Scheme of Arrangement (the “Scheme”) under the laws of the United Kingdom (“U.K.”) which requires the approval of a U.K. court and approval of a majority of Novae’s shareholders, representing at least 75% of the votes cast. The Scheme is also subject to receipt of certain regulatory approvals and other customary conditions. On August 29, 2017, Novae shareholders approved the Scheme.
On October 2, 2017, AXIS Capital acquired the shares of Novae for £462.9 million (approximately $615.6 million). The results of Novae will be included in the results of the Company's insurance and reinsurance segments from this date (the "Closing date").
On October 6, 2017, AXIS Capital received clearance from all applicable regulators, including the European Commission, and commenced management control and integration of the combined businesses from this date.
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
14.
15. SUBSEQUENT EVENTS (CONTINUED)
Novae is a diversified propertyIn the fourth quarter of 2019, Typhoon Hagibis and casualty (re)insurance business operating through Syndicate 2007 at Lloyd’s of London.the ongoing wildfires in California will impact the Company's financial results. The acquisition of Novae is expected to accelerate the growth strategyassessment of the financial impact from these events on the Company's international insurance business, and significantly scale up its capabilities to enable the Company to even better serve its clients and brokers.fourth quarter results is at a very early stage.
The Company incurred transaction related expenses including due diligence, legal, accounting, and investment banking fees and expenses, as well as integration expenses of $6 million in the three months ended September 30, 2017 relatedDue to the acquisitionrelatively high proportion of Novae. In addition,flood related losses attributable to Typhoon Hagibis, the Company was contractually obligated to pay investment banking fees on the Closing dateongoingnature of the transaction. The Company expects substantially all of the integration costs related to the acquisition to be incurred in 2018. In addition, the Company expects to begin realizing cost savings in 2018.
The Company is currently in the process of determining the fair values of the underlying assets and liabilities at the acquisition date. Given the timing of the acquisition, a preliminary allocation of purchase price is not yet complete. The Company will include amounts recognized for net assets and liabilities acquired, together with goodwill, as of the acquisition date in the Company's Annual Report on Form 10-K.
California Wildfires
In October 2017, Northern California was impacted by a series of devastating wildfires ("California Wildfires") which caused widespread residential and commercial property damage. Current estimated industry insured losses for this event range between $4 billion and $8 billion.
Our preliminary pre-tax net loss estimate for this event is in the range of $35 million to $45 million. The Company's loss estimate is primarily based on a ground-up assessment of losses from individual contracts and treaties exposed to the affected regions, including preliminary information from clients, brokers and loss adjusters. Industry insured loss estimates, market share analyses and catastrophe modeling analyses were also taken into account where appropriate.
Due to the preliminary nature of the information available for both of these events, it is not possible at this time to prepareprovide an accurate estimate of the impact these estimates,events will have on the actual net ultimate amount of losses for this event may be materially different from the current estimate.Company's fourth quarter results.
| |
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following is a discussion and analysis of our results of operations for the three and nine months ended September 30, 2019 and 2018 and our financial condition at September 30, 2019 and results of operations.December 31, 2018. This should be read in conjunction with the consolidated financial statements and related notes included in Item 1 'Consolidated Financial Statements and the accompanying notes' of this report and also our Management’s Discussion and Analysis of Financial Condition and Results of Operations containedincluded in our Annual Report on Form 10-K for the year ended December 31,2016. 2018. Tabular dollars are in thousands, except per share amounts. Amounts in tables may not reconcile due to rounding differences.
|
| |
| Page |
| |
Third Quarter 20172019 Financial Highlights | |
Executive Summary | |
Underwriting Results – GroupConsolidated | |
Results by Segment: For the three and nine months ended September 30, 20172019 and 20162018 | |
i) Insurance Segment | |
ii) Reinsurance Segment | |
Other Expenses (Revenues), Net | |
Net Investment Income and Net Realized Investment Gains (Losses) | |
Cash and Investments | |
Liquidity and Capital Resources | |
Critical Accounting Estimates | |
Recent Accounting Pronouncements | |
Off-Balance Sheet and Special Purpose Entity Arrangements | |
THIRD QUARTER 20172019 FINANCIAL HIGHLIGHTS
Third Quarter 20172019 Consolidated Results of Operations
Net loss attributable to common shareholders of $468 million, or $(5.61) per common share and diluted common share
| |
• | Non-GAAP operating loss(1)Net income available to common shareholders of $44628 million, or $(5.35)0.33 per common share and $0.33 per diluted common share(1)
|
Gross premiums written of $1.2 billion
Net premiums written of $833 million
Net premiums earned of $1 billion
Net favorable prior year reserve development of $48 million
Estimated catastrophe and weather-related pre-tax net losses, net of reinstatement premiums, of $617 million or 61.4 points on current accident year loss ratio compared to $22 million, or 2.3 points for the third quarter of 2016:
| |
◦ | Third quarter estimated catastrophe pre-tax losses, net of reinstatement premiums, of $617 million (Insurance: $315 million and Reinsurance: $302 million) included Hurricanes Harvey, Irma and Maria and the two earthquakes in Mexico; |
| |
◦ | Third quarter estimated weather-related pre-tax net losses of $6 million (Insurance: $4 million and Reinsurance: $2 million); |
| |
◦ | Favorable development on prior quarters' estimated catastrophe and weather related pre-tax net losses of $6 million (Insurance: $2 million and Reinsurance: $4 million) largely related to U.S. weather-related events |
| |
• | Operating loss(1) of $33 million, or $(0.39) per diluted common share(1) |
| |
• | Gross premiums written of $1.4 billion |
| |
• | Net premiums written of $0.9 billion |
| |
• | Net premiums earned of $1.2 billion |
Estimated pre-tax catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, of $160 million (insurance: $41 million and reinsurance: $119 million), or 14.1 points, primarily related to Hurricane Dorian, the Japanese typhoons and other weather-related events.
Net favorable prior year reserve development of $27 million
| |
• | Underwriting loss(2) of $513$79 million and combined ratio of 152.9%109.4% |
Net investment income of $95$116 million and net realized investment gains of $15 million
| |
• | Net investment gains of $15 million |
Foreign exchange losses of $33 million
| |
• | Amortization of value of business acquired ("VOBA") of $4 million |
| |
• | Transaction and reorganization expenses of $11 million |
| |
• | Foreign exchange gains of $60 million |
Third Quarter 20172019 Consolidated Financial Condition
Total cash and investments of $14.7$15.6 billion; fixed maturities, cash and short-term securities comprise 87%89% of total cash and investments and have an average credit rating of AA-
| |
• | Total assets of $25.5 billion |
| |
• | Reserve for losses and loss expenses of $12.5 billion and reinsurance recoverable on unpaid and paid losses and loss expenses of $4.0 billion |
| |
• | Total debt of $1.4 billion and debt to total capital ratio(3) of 19.9% |
| |
• | Common shareholders’ equity of $4.8 billion; book value per diluted common share of $56.26 |
Total assets of $21.8 billion
Reserve for losses and loss expenses of $10.8 billion and reinsurance recoverable of $2.4 billion
Total debt of $1.0 billion and the debt to total capital ratio of 15.4%
Total common shares repurchased for $3 million.
At November 8, 2017 the remaining authorization under the repurchase program approved by our Board of Directors was $739 million. Following the offer to acquire Novae Group plc ("Novae") on July 5, 2017, the Company suspended its open mark share repurchase program.
Common shareholders’ equity of $4.7 billion and diluted book value per common share of $55.33
| |
(1) | Non-GAAP operatingOperating income (loss) and non-GAAP operating income (loss) per diluted common share are non-GAAP financial measures as defined in Item 10(e) of SEC Regulation G.S-K. The reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures, (netnet income (loss) available (attributable) to common shareholders and diluted earnings (loss) per diluted common share, respectively)respectively, are provided in the 'Results of Operations', which is included in the 'Executive Summary' section of this Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")– Executive Summary – Results of Operations' and a discussion of the rationale for the presentation of these items is provided in'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Non GAAP Financial Measures'.
|
| |
(2) | Consolidated underwriting income (loss) is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation G.S-K. The reconciliation to net income (loss) before income taxes and interest in income (loss) of equity method investments, the most comparable GAAP financial measure, is presented in the 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations', which is included in the 'Executive Summary' section of this MD&A.. |
| |
(3) | The debt to total capital ratio is calculated by dividing senior notes by total capital. Total capital represents the sum of total shareholders’ equity and senior notes. |
EXECUTIVE SUMMARY
Business Overview
We areAXIS Capital Holdings Limited ("AXIS Capital"), through its operating subsidiaries, is a Bermuda-based global provider of specialty lines insurance and treaty reinsurance products with operations in Bermuda, the United States ("U.S."), Europe, Singapore, Canada Latin America and the Middle East. Our underwriting operations are organized around our two global underwriting platforms, AXIS Insurance and AXIS Re.
Our mission is toWe provide our clients and distribution partners with a broad range of risk transfer products and services and meaningful capacity, backed by significant financial strength. We manage our portfolio holistically, aiming to construct the optimum consolidated portfolio of funded and unfunded risks, consistent with our risk appetite and development of our franchise. We nurture an ethical, entrepreneurial and disciplined culture that promotes outstanding client service, intelligent risk taking and the achievement of superior risk-adjusted returns for our shareholders. We believe that the achievement of our objectives will position us as a global leader in specialty risks. OurThe execution on thisof our strategy for the first nine months of 2017 included: 2019 included the following:
continuedincreasing our relevance in a select number of attractive specialty lines insurance and treaty reinsurance markets and continuing the implementation of a more focused distribution strategy;
continuing to grow a leadership position in business lines with strong growth ofpotential including U.S. excess and surplus lines, and North America professional lines;
increasing our accident and health lines, which is focused on specialty accident and health products;
growth of our syndicatepresence at Lloyd's of London ("Lloyd's") achieved through our acquisition of Novae Group plc ("Novae") in 2017 which provides us with access to Lloyd's worldwide licenses and an extensive distribution network. During the first quarter of 2016 we commenced writing business through our underwriting division at Lloyd's in China. On July 14, 2017, we announced that we had received final authorization from Lloyd’s, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) for our own Lloyd’s managing agent, AXIS Managing Agency Limited (“AXIS Managing Agency”). Effective August 4, 2017, AXIS Managing Agency assumed management of AXIS Syndicate 1686 at Lloyd’s, replacing the Company’s third-party managing agency agreement with Asta Managing Agency Limited, which had been in place since 2014;network;
continued implementation of a more focused distribution strategy and increased our scale and relevance in key markets;
continued rebalancing ofcontinuing to re-balance our portfolio towards less volatile lines of business that carry attractive rates;
continued improvementlaunching a new phase of our transformation efforts, an enterprise-wide program to enhance all of our functions and position us to lead in a transforming industry;
continuing to improve in the effectiveness and efficiency of our operating platforms and processes;
increasedincreasing investment in data and analytics; and
broadenedbroadening risk-funding sources and developedthe development of vehicles that utilize third-party capital including:capital.
Our investment in Harrington Reinsurance Holdings Limited ("Harrington"), the parent company of Harrington Re Ltd. ("Harrington Re"), an independent reinsurance company jointly sponsored by AXIS Capital and The Blackstone Group L.P. ("Blackstone"). Harrington Re’s strategy is to combine a multi-line reinsurance portfolio with a diversified allocation to alternative investment strategies to earn attractive risk-adjusted returns. Harrington has developed a portfolio that optimizes the risk-reward characteristics of both assets and liabilities, leveraging the respective strengths of AXIS Capital and Blackstone while deploying a disciplined and fully integrated approach to both underwriting and investing; and
AXIS Ventures Reinsurance Limited, which manages capital for investors interested in deploying funds directly into the property-catastrophe and other short-tail business.
On April 1, 2017, the Company acquired general aviation insurer and reinsurer Aviabel, increasing the Company's scale and relevance in the global aviation market. The Company will continue to maintain Aviabel's physical presence in Brussels and Amsterdam.
On April 17, 2017, the Company redeemed the remaining $351 million of its 6.875% Series C preferred shares. The execution of this transaction reduced the weighted average annual dividend rate on our preferred equity capital base by 88 basis points to 5.50%.
Effective July 1, 2017, our reinsurance segment no longer writes derivative-based risk management products which address weather risks.
On July 5, 2017 the Company announced that it had agreed on the terms of a recommended offer to acquire Novae Group plc (“Novae”), a diversified specialty (re)insurer that operates through Lloyd’s of London. On October 2, 2017, the Company acquired the shares of Novae. The results of Novae will be included in the results of the Company's insurance and reinsurance segments from this date (the "Closing date"). On October 6, 2017, AXIS Capital received clearance from all applicable regulators, including the European Commission, and commenced management control and integration of the combined businesses from this date.
On July 6, 2017, S&P Global Ratings affirmed its 'A-' long-term counterparty credit and senior debt ratings of AXIS Capital, and its 'A+' long-term counterparty credit and financial strength ratings of the Company's core operating subsidiaries. At the same time, S&P Global Ratings revised its outlook on AXIS Capital to negative from stable based on the planned acquisition of Novae.
Outlook
We are committed to being a leaderleadership in specialty insurance risk an area in whichand global reinsurance, areas where we already have depth of talent and experience,expertise. As a mid-sized player that is both sophisticated and have earned an outstanding reputation. Committedagile, we believe we are well-positioned to itssucceed in the rapidly evolving insurance and reinsurance marketplace. Through our hybrid strategy, AXIS Capital haswe have developed substantial platforms in both insurance and reinsurance, providing itus with both balance and diversification. Management believes itsWe believe our market positioning, franchise, expert underwritersunderwriting expertise, best-in-class claims management capabilities, and strong relationships with our distributors and clients will provide opportunities in 2018,for increased profitability, with variances amongstamong our lines driven by our tactical response to market conditions. At the same time, we are broadening our risk-funding sources and developing vehicles that utilize the industry’s abundant third party capital. Therefore, we expect that our net premiums written will not grow as much as our gross premiums written, as we intend to share more of our risk with strategic capital partners.
CompetitiveRates, and terms and conditions continueacross most insurance lines generally continued to impact worldwide insurance marketssee accelerating improvement in 2019, with greatest pressures impactingU.S. excess and primary casualty, marine and catastrophe exposed property insurance lines experiencing the most upward rate momentum. While the insurance market remains competitive with capacity and certain global specialty lines of business. We have observed greater competitiveness for large accounts comparedcapital willing to smaller risks. These competitive pressures have led to price reductions across most lines ofsupport business with decreasesa broad range of return hurdles in international markets generallycertain pockets, there has been more severe than those observed in the U.S. During the monthconsistent signs of September, our industry experienced substantial natural catastrophe loss activity, comparable to full year levels incurred in 2005 and 2011, which were the highest catastrophe loss years on record.firming rates. We believe markets conditionsexpect many specialty segments will remain uncertain through the end of the year and possibly beyondexperience further pricing improvements as carriers assess pricing, portfolio construction and account preferences.preferences through the courseof the year. In this challengingcompetitive market environment with mixed market conditions, we are focusing on lines of business and marketsmarket segments that remainare adequately priced, and we will continue to assess pricing adequacy as market conditions and trends evolve. Where necessary we also continue to shift our business mix toward smaller, less volatile risk accounts which we believe will enable us to achieve better, more stable attritional loss experience. In addition, our recent acquisition of Novae increases our scale and relevanceare trading off growth for profitability in the London marketplace, and we expect to be well-positioned to capitalize on new opportunities and benefit from improved market conditions emerging through the international specialty insurance market, including Lloyd’s of London.other areas.
The reinsurance markets' trading environment remains challengingmarket is also experiencing increased momentum in rates, and improved terms and conditions, due to adjustments to both supply and demand given the significant losses across many of lines of business over the last couple of years. We continue to emphasize underwriting discipline to actively manage our portfolio profitability. In parallel, we are capitalizing on opportunities to support clients in a world of changing exposures, regulation and geographical regions. The market continuesreinsurance panels. We believe that there is a real opportunity to be influenced by excess capacity, strong balance sheetsachieve more relevance and to produce new streams of established market participants and a consolidation of reinsurance purchasing. As noted above, our industry experienced substantial natural catastrophe loss activity duringincome in the month of September, which we believe will favorably impact pricingfuture while still driving improvements in our upcoming renewal cycle. The improvements will differ between lines of businessexisting portfolio. We are also focused on managing the volatility and by geographical regions. These factors, combined with AXIS' customer-centric approach and opportunities in specific lines of business and geographies allow us to execute on our targeted growth strategy. We will continue to protect the quality and profitabilitycapital efficiency of our existing book, targeting larger shares of the more attractive treaties, managing the overall volatility of our reinsurance book, andportfolio by further expanding our already strong group of strategic capital partners with whom to share our risks.partners.
Non-GAAP Financial MeasureMeasures
We present our results of operations in the way we believe will be most meaningful and useful to investors, analysts, rating agencies and others who use our financial information to evaluate our performance. Some of the measurements we use are "non-GAAPconsidered non-GAAP financial measures"measures under Securities and Exchange CommissionSEC rules and regulations. In this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), we present underwriting-related general and administrative expenses, consolidated underwriting income non-GAAP(loss), operating income (in(loss) (in total and on a per share basis)basis), annualized operating return on average common equity ("operating ROACE"), amounts presented on a constant currency basis, and pre-tax total return on cash and investments excluding foreign exchange movements, ex-PGAAP operating income (loss) (in total and on a per share basis) and annualized ex-PGAAP operating ROACE which are “non-GAAPnon-GAAP financial measures”measures as defined in Item 10(e) of SEC Regulation G.S-K. We believe that these non-GAAP financial measures, which may be defined and calculated differently by other companies, better explain and enhance the understanding of our results of operations. However, these measures should not be viewed as a substitute for those determined in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP.GAAP").
Underwriting-Related General and Administrative Expenses
Underwriting-related general and administrative expenses include those general and administrative expenses that are incremental and/or directly attributable to our individual underwriting operations. While this measure is presented in Item 1, Note 32 to the Consolidated Financial Statements 'Segment Information', it is considered a non-GAAP financial measure when presented elsewhere on a consolidated basis.
Corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As these costs are not incremental and/or directly attributable to our individual underwriting operations, we exclude themthese costs are excluded from underwriting-related general and administrative expenses and, therefore, consolidated underwriting income. Our total generalincome (loss). General and administrative expenses, the most comparable GAAP financial measure to underwriting-related general and administrative expenses, also includes corporate expenses.
The reconciliation of underwriting-related general and administrative expenses to general and administrative expenses, the most comparable GAAP financial measure, is presented in the 'ResultsManagement’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations'.
Consolidated Underwriting Income (Loss)
Consolidated underwriting income (loss) is a pre-tax measure of underwriting profitability that takes into account net premiums earned and other insurance related income (losses) as revenues and net losses and loss expenses, acquisition costs and underwriting-related general and administrative costsexpenses as expenses. While this measure is presented in Item 1, Note 32 to the Consolidated Financial Statements 'Segment Information', it is considered a non-GAAP financial measure when presented elsewhere on a consolidated basis.
We evaluate our underwriting results separately from the performance of our investment portfolio. As such,a result, we believe it is appropriate to exclude net investment income and net realized investment gains (losses) from our underwriting profitability measure. Interest expense and financing costs primarily relate to interest payable on our senior notes and are excluded from consolidated underwriting income for the same reason.
Foreign exchange losses (gains) in our Consolidated Statementsconsolidated statements of Operationsoperations primarily relate to the impact of foreign exchange rate movements on our net insurance-related liabilities. However, we manage our investment portfolio in such a way that unrealized and realized foreign exchange losses (gains) on our investment portfolio generally offset a large portion of the foreign exchange losses (gains) arising from our underwriting portfolio. As a result, we believe that foreign exchange losses (gains) are not a meaningful contributor to our underwriting performance, and, therefore, exclude them from consolidated underwriting income.
Bargain purchase gain reflects the excess of the fair value of the net identifiable assets acquired over the fair value of consideration transferred. The bargain purchase gain is unrelated to underwriting operations and for this reason it isforeign exchange losses (gains) are excluded from consolidated underwriting income.income (loss).
Interest expense and financing costs primarily relate to interest payable on our senior notes. As these expenses are not incremental and/or directly attributable to our individual underwriting operations, these expenses are excluded from underwriting-related general and administrative expenses, and therefore, consolidated underwriting income (loss).
Transaction relatedand reorganization expenses are primarily driven by business decisions, the nature and timing of which are unrelatednot related to the underwriting process, and for this reason theytherefore, these expenses are excluded from consolidated underwriting income.income (loss).
Amortization of intangible assets including value of business acquired ("VOBA") arose from business decisions, the nature and timing of which are not related to the underwriting process, therefore, these expenses are excluded from consolidated underwriting income (loss).
We believe that the presentation of underwriting-related general and administrative expenses and consolidated underwriting income (loss) provides investors with an enhanced understanding of our results of operations, by highlighting the underlying pre-tax profitability of
our underwriting activities. The reconciliation of consolidated underwriting income (loss) to income (loss) before income taxes and interest in income (loss) of equity method investments, the most comparable GAAP financial measure, is presented in the 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations'.
Non-GAAP Operating Income (Loss)
Non-GAAP operatingOperating income (loss) represents after-tax operational results without considerationexclusive of after-tax net realized investment gains (losses), foreign exchange losses (gains), bargain purchase gain,transaction and transaction related expenses.reorganization expenses, and interest in income (loss) of equity method investments.
Although the investment of premiums to generate income and realized investment gains (losses) is an integral part of our operations, the determination to realize investment gains (losses) is independent of the underwriting process and is heavily influenced by the availability of market opportunities. Furthermore, many users believe that the timing of the realization of investment gains (losses) is somewhat opportunistic for many companies.
Foreign exchange losses (gains) in our Consolidated Statementsconsolidated statements of Operations areoperations primarily driven byrelate to the impact of foreign exchange rate movements on net insurance related-liabilities. In addition, we recognize unrealized foreign exchange losses (gains) on our equity securities and foreign exchange losses (gains) realized upon the sale of our available for sale investments and equity securities in net investment gains (losses). However, this movement isthese movements are only one element of the overall impact of foreign exchange rate fluctuations on our financial position. In addition, weWe also recognize unrealized foreign exchange losses (gains) on our available-for-saleavailable for sale investments in other comprehensive income and foreign exchange losses (gains) realized upon the sale of these investments in net realized investments gains (losses)(loss). These unrealized and realized foreign exchange losses (gains) generally offset a large portion of the foreign exchange losses (gains) reported separately in net income (loss), available (attributable) to common shareholders, thereby minimizing the impact of foreign exchange rate movements on total shareholders' equity. As such, the Statement of Operations foreign exchange losses (gains) in our consolidated statements of operations in isolation isare not a fair representation of the performance of our business.
Bargain purchase gain reflects the excess
Transaction relatedand reorganization expenses are primarily driven by business decisions, the nature and timing of which are unrelatednot related to the underwriting process, therefore, these expenses are excluded from operating income (loss).
Interest in income (loss) of equity method investments is primarily driven by business decisions, the nature and timing of which are not representative of underlying business performance.related to the underwriting process, therefore, this income (loss) is excluded from operating income (loss).
Certain users of our financial statements evaluate earnings excludingperformance exclusive of after-tax net realized investment gains (losses), foreign exchange losses (gains), bargain purchase gain,transaction and transaction relatedreorganization expenses, and interest in income (loss) of equity method investments to understand the profitability of recurring sources of income.
We believe that showing net income (loss) available (attributable) to common shareholders exclusive of after-tax net realizedinvestment gains (losses), foreign exchange losses (gains), bargain purchase gain,transaction and transaction relatedreorganization expenses, and interest in income (loss) of equity method investments reflects the underlying fundamentals of our business. In addition, we believe that this presentation enables investors and other users of our financial information to analyze performance in a manner similar to how our management analyzes the underlying business performance. We also believe this measure follows industry practice and, therefore, facilitates comparison of our performance with our peer group. We believe that equity analysts and certain rating agencies that follow us, and the insurance industry as a whole, generally exclude these items from their analyses for the same reasons. The reconciliation of non-GAAP operating income (loss) to net income (loss) available (attributable) to common shareholders, the most comparable GAAP financial measure, is presented in the 'Results'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations'.
We also present operating income (loss) per diluted common share and annualized operating ROACE, which are derived from the operating income (loss) measure and are reconciled to the most comparable GAAP financial measures, earnings (loss) per diluted common share and annualized return on average common equity ("ROACE"), respectively, in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations'.
Constant Currency Basis
We present gross premiums written, net premiums written and net premiums earned on a constant currency basis in this MD&A. The amounts presented on a constant currency basis are calculated by applying the average foreign exchange rate from the current year to the prior year amounts. We believe this presentation enables investors and other users of our financial information to analyze performancegrowth in gross premiums written, net premiums written and net premiums earned on a manner similar to how our management analyzes the underlying business performance.constant basis. The reconciliation to gross premiums written, net premiums written and net premiums earned on a GAAP basis is presented in the 'GroupManagement’s Discussion and Analysis of Financial Condition and Results of Operations – Underwriting Results' section of this MD&A.Results – Consolidated'.
Pre-Tax Total Return on Cash and Investments excluding Foreign Exchange Movement
Pre-tax total return on cash and investments excluding foreign exchange movements measures net investment income (loss), net realized investments gains (losses), interest in income (loss) of equity method investments, and pre-tax change in unrealized gains (losses) generated by our average cash and investment balances. The reconciliation of pre-tax total return on cash and investments excluding foreign exchange movements to pre-tax total return on cash and investments, the most comparable GAAP financial measure, is presented in the 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Net Investment Income and Net Realized Investment Gains (Losses)'
section of this release.. We believe this presentation enables investors and other users of our financial information to better analyze the performance of our investments.investment portfolio.
Ex-PGAAP Operating Income (Loss)
Ex-PGAAP operating income (loss) represents operating income (loss) exclusive of amortization of VOBA and intangible assets, net of tax and amortization of acquisition costs, net of tax associated with Novae's balance sheet at October 2, 2017 (the "closing date" or "acquisition date"). The reconciliation of ex-PGAAP operating income (loss) to net income (loss) available (attributable) to common shareholders, the most comparable GAAP financial measure, is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations'.
We also present ex-PGAAP operating income (loss) per diluted common share and annualized ex-PGAAP operating ROACE, which are derived from the ex-PGAAP operating income (loss) measure and are reconciled to the most comparable GAAP financial
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | % Change | | 2016 | | 2017 | | % Change | | 2016 | |
| | | | | | | | | | | | | |
| Underwriting revenues: | | | | | | | | | | | | |
| Net premiums earned | $ | 1,017,131 |
| | 9% | | $ | 934,415 |
| | $ | 2,937,265 |
| | 6% | | $ | 2,783,746 |
| |
| Other insurance related income (losses) | (3,197 | ) | | nm | | 5,944 |
| | (4,420 | ) | | nm | | 4,850 |
| |
| Underwriting expenses: | | | | | | | | | | | | |
| Net losses and loss expenses | (1,235,367 | ) | | 132% | | (532,328 | ) | | (2,447,640 | ) | | 47% | | (1,663,584 | ) | |
| Acquisition costs | (194,724 | ) | | 3% | | (189,810 | ) | | (588,879 | ) | | 5% | | (559,570 | ) | |
| Underwriting general and administrative expenses(1) | (96,696 | ) | | (15%) | | (114,223 | ) | | (335,782 | ) | | (5%) | | (352,632 | ) | |
| Underwriting Income (Loss) | $ | (512,853 | ) | | | | $ | 103,998 |
| | $ | (439,456 | ) | | | | $ | 212,810 |
| |
| | | | | | | | | | | | | |
| Corporate expenses(1) | (27,933 | ) | | (3%) | | (28,683 | ) | | (97,922 | ) | | 13% | | (86,922 | ) | |
| Net investment income | 95,169 |
| | (19%) | | 116,923 |
| | 299,899 |
| | 16% | | 257,818 |
| |
| Net realized investment gains (losses) | 14,632 |
| | nm | | 5,205 |
| | (14,811 | ) | | (63%) | | (40,295 | ) | |
| Other (expenses) revenues, net | (45,345 | ) | | nm | | 956 |
| | (128,470 | ) | | nm | | 31,195 |
| |
| Bargain purchase gain | — |
| | nm | | — |
| | 15,044 |
| | nm | | — |
| |
| Transaction related expenses | (5,970 | ) | | nm | | — |
| | (5,970 | ) | | nm | | — |
| |
| Income (loss) before income taxes and interest in income (loss) of equity method investments | (482,300 | ) | | | | 198,399 |
| | (371,686 | ) | | | | 374,606 |
| |
| Income tax (expense) benefit | 25,877 |
| | | | (9,352 | ) | | 38,547 |
| | | | (7,712 | ) | |
| Interest in loss of equity method investments | (661 | ) | | nm | | (2,434 | ) | | (8,402 | ) | | nm | | (2,434 | ) | |
| Net income (loss) | $ | (457,084 | ) | | | | $ | 186,613 |
| | $ | (341,541 | ) | | | | $ | 364,460 |
| |
| Preferred share dividends | (10,656 | ) | | 7% | | (9,969 | ) | | (36,154 | ) | | 21% | | (29,906 | ) | |
| Net income (loss) available to common shareholders | $ | (467,740 | ) | | nm | | $ | 176,644 |
| | $ | (377,695 | ) | | nm | | $ | 334,554 |
| |
| | | | | | | | | | | | | |
| Net realized investment gains (losses), net of tax(2) | $ | (11,975 | ) | | | | $ | (2,726 | ) | | $ | 16,703 |
| | | | $ | 42,667 |
| |
| Foreign exchange gains (losses), net of tax(3) | 28,071 |
| | | | (13,229 | ) | | 85,851 |
| | | | (67,771 | ) | |
| Bargain purchase gain(4) | — |
| | | | — |
| | (15,044 | ) | | | | — |
| |
| Transaction related expenses, net of tax | 5,749 |
| | | | — |
| | 5,749 |
| | | | — |
| |
| Non-GAAP operating income (loss) | $ | (445,895 | ) | | nm | | $ | 160,689 |
| | $ | (284,436 | ) | | nm | | $ | 309,450 |
| |
| | | | | | | | | | | | | |
measures, earnings (loss) per diluted common share and annualized ROACE, respectively, are also presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations'.
We believe the presentation of ex-PGAAP operating income (loss), ex-PGAAP operating income (loss) per diluted common share and annualized ex-PGAAP operating ROACE enables investors and other users of our financial information to better analyze the performance of our business.
Acquisition of Novae
On October 2, 2017, we acquired Novae. At the acquisition date, we identified VOBA which represents the present value of the expected underwriting profit within policies that were in-force at the closing date of the transaction. In addition, the allocation of the acquisition price to the assets acquired and liabilities assumed based on estimated fair values at the acquisition date, resulted in the write-off of the deferred acquisition cost asset on Novae's balance sheet at the acquisition date as the value of policies in-force on that date are considered within VOBA. Consequently, underwriting income (loss) in the three and nine months ended September 30, 2019 and 2018 included the recognition of premiums attributable to Novae's balance sheet at the acquisition date without the recognition of the associated acquisition costs.
Results of Operations |
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Underwriting revenues: | | | | | | | | | | | | |
| Net premiums earned | $ | 1,157,307 |
| | (5%) | | $ | 1,224,075 |
| | $ | 3,415,126 |
| | (5%) | | $ | 3,577,026 |
| |
| Other insurance related income | 1,533 |
| | nm | | 8,475 |
| | 11,385 |
| | (39%) | | 18,811 |
| |
| Underwriting expenses: | | | | | | | | | | | | |
| Net losses and loss expenses | (850,913 | ) | | 7% | | (794,959 | ) | | (2,187,403 | ) | | 1% | | (2,162,945 | ) | |
| Acquisition costs | (260,026 | ) | | 5% | | (248,314 | ) | | (762,807 | ) | | 8% | | (709,527 | ) | |
| Underwriting-related general and administrative expenses(1) | (126,619 | ) | | (3%) | | (130,251 | ) | | (398,540 | ) | | (2%) | | (404,875 | ) | |
| Underwriting income (loss) | $ | (78,718 | ) | | | | $ | 59,026 |
| | $ | 77,761 |
| | | | $ | 318,490 |
| |
| | | | | | | | | | | | | |
| Net investment income | 115,763 |
| | 1% | | 114,421 |
| | 361,014 |
| | 11% | | 325,380 |
| |
| Net investment gains (losses) | 14,527 |
| | nm | | (17,628 | ) | | 48,522 |
| | nm | | (77,551 | ) | |
| Corporate expenses(1) | (28,903 | ) | | 17% | | (24,643 | ) | | (97,468 | ) | | 15% | | (85,069 | ) | |
| Other (expenses) revenues, net | 41,501 |
| | nm | | (25,202 | ) | | 15,323 |
| | nm | | (52,824 | ) | |
| Transaction and reorganization expenses | (11,215 | ) | | (31%) | | (16,300 | ) | | (29,310 | ) | | (39%) | | (48,125 | ) | |
| Amortization of value of business acquired | (4,368 | ) | | nm | | (39,018 | ) | | (24,666 | ) | | nm | | (149,535 | ) | |
| Amortization of intangible assets | (2,831 | ) | — |
| 61% | | (1,753 | ) | | (8,744 | ) | | 2% | | (8,564 | ) | |
| Income before income taxes and interest in income of equity method investments | 45,756 |
| | | | 48,903 |
| | 342,432 |
| |
| | 222,202 |
| |
| Income tax (expense) benefit | (8,147 | ) | | nm | | 3,525 |
| | (23,850 | ) | | nm | | 3,565 |
| |
| Interest in income of equity method investments | 792 |
| | (52%) | | 1,667 |
| | 5,645 |
| | 12% | | 5,045 |
| |
| Net income | $ | 38,401 |
| | | | $ | 54,095 |
| | $ | 324,227 |
| | | | $ | 230,812 |
| |
| Preferred share dividends | (10,656 | ) | | —% | | (10,656 | ) | | (31,969 | ) | | —% | | (31,969 | ) | |
| Net income available to common shareholders | $ | 27,745 |
| | (36%) | | $ | 43,439 |
| | $ | 292,258 |
| | 47% | | $ | 198,843 |
| |
| | | | | | | | | | | | | |
| Net investment (gains) losses(2) | $ | (14,527 | ) | | nm | | $ | 17,628 |
| | $ | (48,522 | ) | | nm | | $ | 77,551 |
| |
| Foreign exchange losses (gains) (3) | (59,543 | ) | | nm | | 8,305 |
| | (64,868 | ) | | nm | | 2,066 |
| |
| Transaction and reorganization expenses(4) | 11,215 |
| | (31%) | | 16,300 |
| | 29,310 |
| | (39%) | | 48,125 |
| |
| Interest in (income) of equity method investments(5) | (792 | ) | | (52%) | | (1,667 | ) | | (5,645 | ) | | 12% | | (5,045 | ) | |
| Income tax expense (benefit) | 3,361 |
| | nm | | (4,882 | ) | | 6,524 |
| | nm | | (16,539 | ) | |
| Operating income (loss) (6) | $ | (32,541 | ) | | nm | | $ | 79,123 |
| | $ | 209,057 |
| | (31%) | | $ | 305,001 |
| |
| | | | | | | | | | | | | |
nm – not meaningful | |
(1) | Underwriting-related general and administrative expenses is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation G.S-K. The reconciliation to total general and administrative expenses, the most comparable GAAP financial measure, also included corporate expenses of ($27,933)$28,903 and ($28,683)$24,643 for the three months ended September 30, 20172019 and 2016,2018, respectively, and ($97,922)$97,468 and ($86,922)$85,069 for the nine months ended September 30, 20172019 and 2016,2018, respectively. Refer to ''Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other (expenses) revenues, net'Expenses (Revenues), Net' for additional information related to theon corporate expenses. Also, referRefer also to ''Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures' for additional information. |
| |
(2) | Tax cost (benefit) of $2,657$897 and $2,479($623) for the three months ended September 30, 20172019 and 2016,2018, respectively, and $1,892$6,667 and $2,372$(4,011) for the nine months ended September 30, 20172019 and 2016,2018, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the ability to utilize capital losses. |
| |
(3) | Tax cost (benefit) of ($4,439)$4,784 and $566($1,870) for the three months ended September 30, 20172019 and 2016,2018, respectively, and $(4,242)$5,372 and $2,010$(5,424) for the nine months ended September 30, 20172019 and 2016,2018, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the tax status of specific foreign exchange transactions. |
| |
(4) | Tax cost (benefit) of ($2,320) and ($2,389) for the three months ended September 30, 2019 and 2018, respectively, and ($5,515) and ($7,416) for the nine months ended September 30, 2019 and 2018, respectively. Tax impact is nil.estimated by applying the statutory rates of applicable jurisdictions. |
| |
(5) | Tax cost (benefit) of $nil for the three months ended September 30, 2019 and 2018, and $nil and $312 for the nine months ended September 30, 2019 and 2018, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions. |
| |
(6) | Operating income (loss) is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliations to the most comparable GAAP financial measure, net income (loss) available (attributable) to common shareholders, is presented in the table above, and a discussion of the rationale for its presentation is included in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures'. |
Non-GAAP Financial Measures
We also present non-GAAP operating income (loss) per diluted common share and annualized non-GAAP operating return on average common equity (“annualized non-GAAP operating ROACE”),ROACE, which are derived from the non-GAAP operating income (loss) measure and can be reconciled to the most comparable GAAP financial measures as follows:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| Net income (loss) available to common shareholders | $ | (467,740 | ) | | $ | 176,644 |
| | $ | (377,695 | ) | | $ | 334,554 |
| |
| Non-GAAP operating income (loss) | (445,895 | ) | | 160,689 |
| | (284,436 | ) | | 309,450 |
| |
| Weighted average common shares and common share equivalents - diluted(1) | 83,305 |
| | 90,351 |
| | 84,479 |
| | 92,579 |
| |
| | | | | | | | | |
| Earnings (loss) per common share - diluted | $ | (5.61 | ) | | $ | 1.96 |
| | $ | (4.47 | ) | | $ | 3.61 |
| |
| Non-GAAP operating income (loss) per common share - diluted | $ | (5.35 | ) | | $ | 1.78 |
| | $ | (3.37 | ) | | $ | 3.34 |
| |
| | | | | | | | | |
| Average common shareholders’ equity | $ | 4,898,698 |
| | $ | 5,369,921 |
| | $ | 4,912,998 |
| | $ | 5,319,849 |
| |
| | | | | | | | | |
| Annualized return on average common equity(2) | nm |
| | 13.2 | % | | (10.3 | %) | | 8.4 | % | |
| Annualized Non-GAAP operating return on average common equity(3) | nm |
| | 12.0 | % | | (7.7 | %) | | 7.8 | % | |
| | | | | | | | | |
nm – not meaningful |
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Net income available to common shareholders | $ | 27,745 |
| | $ | 43,439 |
| | $ | 292,258 |
| | $ | 198,843 |
| |
| Operating income (loss) | (32,541 | ) | | 79,123 |
| | 209,057 |
| | 305,001 |
| |
| Weighted average diluted common shares outstanding(1) | 83,947 |
| | 84,107 |
| | 84,420 |
| | 83,939 |
| |
| | | | | | | | | |
| Earnings per diluted common share | $ | 0.33 |
| | $ | 0.52 |
| | $ | 3.46 |
| | $ | 2.37 |
| |
| Operating income (loss) per diluted common share(2) | $ | (0.39 | ) | | $ | 0.94 |
| | $ | 2.48 |
| | $ | 3.62 |
| |
| | | | | | | | | |
| Average common shareholders’ equity | $ | 4,801,174 |
| | $ | 4,487,639 |
| | $ | 4,532,971 |
| | $ | 4,531,768 |
| |
| | | | | | | | | |
| Annualized return on average common equity(3) | 2.3 | % | | 3.9 | % | | 8.6 | % | | 5.9 | % | |
| Annualized operating return on average common equity(4) | (2.7 | %) | | 7.1 | % | | 6.1 | % | | 9.0 | % | |
| | | | | | | | | |
| |
(1) | Refer to Item 1, Note 87 to our Consolidated Financial Statements 'Earnings 'Earnings per Common Share' for further detailsadditional information on the dilution calculation. |
| |
(2) | Return on averageOperating income (loss) per diluted common equity ("ROACE")share is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to the most comparable GAAP financial measure, earnings (loss) per diluted common share, is presented in the table above, and a discussion of the rationale for its presentation is included in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures'. |
| |
(3) | Annualized ROACE is calculated by dividing annualized net income (loss) available (attributable) to common shareholders for the period by the average common shareholders' equity determined by using the common shareholders' equity balances at the beginning and end of the period. |
| |
(3)(4) | Non-GAAPAnnualized operating ROACE, a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation G,S-K, is calculated by dividing annualized operating income (loss) for the period by the average common shareholders' equity.equity balances determined using the common shareholders' equity balances at the beginning and end of the period. Annualized operating ROACE for the three months ended September 30, 2019, was calculated using weighted average common shares outstanding due to the operating loss recognized in the period. The reconciliation to the most comparable GAAP financial measure, ROACE, is presented in the table above and a discussion of the rationale for its presentation is included in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures'. |
Ex-PGAAP Operating Income
We also present ex-PGAAP operating income (loss), ex-PGAAP operating income (loss) per diluted common share and ex-PGAAP operating ROACE which are derived from the operating income (loss) measure and can be reconciled to the most comparable GAAP financial measures as follows:
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
| | | | | | | |
Net income available to common shareholders | $ | 27,745 |
| | $ | 43,439 |
| | $ | 292,258 |
| | $ | 198,843 |
|
Net investment (gains) losses | (14,527 | ) | | 17,628 |
| | (48,522 | ) | | 77,551 |
|
Foreign exchange losses (gains) | (59,543 | ) | | 8,305 |
| | (64,868 | ) | | 2,066 |
|
Transaction and reorganization expenses | 11,215 |
| | 16,300 |
| | 29,310 |
| | 48,125 |
|
Interest in (income) of equity method investments | (792 | ) | | (1,667 | ) | | (5,645 | ) | | (5,045 | ) |
Income tax expense (benefit) | 3,361 |
| | (4,882 | ) | | 6,524 |
| | (16,539 | ) |
Operating income (loss) | $ | (32,541 | ) | | $ | 79,123 |
| | $ | 209,057 |
| | $ | 305,001 |
|
Amortization of VOBA and intangible assets(2) | 6,891 |
| | 40,664 |
| | 32,985 |
| | 156,882 |
|
Amortization of acquisition costs(3) | (1,568 | ) | | (29,344 | ) | | (10,689 | ) | | (109,434 | ) |
Income tax expense (benefit) | (1,011 | ) | | (2,151 | ) | | (4,236 | ) | | (9,015 | ) |
Ex-PGAAP operating income (loss)(1) | $ | (28,229 | ) | | $ | 88,292 |
| | $ | 227,117 |
| | $ | 343,434 |
|
| | | | | | | |
Earnings per diluted common share | $ | 0.33 |
| | $ | 0.52 |
| | $ | 3.46 |
| | $ | 2.37 |
|
Net investment (gains) losses | (0.17 | ) | | 0.21 |
| | (0.57 | ) | | 0.92 |
|
Foreign exchange losses (gains) | (0.71 | ) | | 0.10 |
| | (0.77 | ) | | 0.02 |
|
Transaction and reorganization expenses | 0.13 |
| | 0.19 |
| | 0.35 |
| | 0.57 |
|
Interest in (income) of equity method investments | (0.01 | ) | | (0.02 | ) | | (0.07 | ) | | (0.06 | ) |
Income tax expense (benefit) | 0.04 |
| | (0.06 | ) | | 0.08 |
| | (0.20 | ) |
Operating income (loss) per diluted common share | $ | (0.39 | ) | | $ | 0.94 |
| | $ | 2.48 |
| | $ | 3.62 |
|
Amortization of VOBA and intangible assets(2) | 0.08 |
| | 0.48 |
| | 0.39 |
| | 1.87 |
|
Amortization of acquisition cost(3) | (0.02 | ) | | (0.35 | ) | | (0.13 | ) | | (1.30 | ) |
Income tax expense (benefit) | (0.01 | ) | | (0.03 | ) | | (0.05 | ) | | (0.11 | ) |
Ex-PGAAP operating income (loss) per diluted common share(1) | $ | (0.34 | ) | | $ | 1.04 |
| | $ | 2.69 |
| | $ | 4.08 |
|
| | | | | | | |
Weighted average diluted common shares outstanding | 83,947 |
| | 84,107 |
| | 84,420 |
| | 83,939 |
|
| | | | | | | |
Average common shareholders' equity | $ | 4,801,174 |
| | $ | 4,487,639 |
| | $ | 4,532,971 |
| | $ | 4,531,768 |
|
| | | | | | | |
Annualized return on average common equity | 2.3 | % | | 3.9 | % | | 8.6 | % | | 5.9 | % |
Annualized operating return on average common equity | (2.7 | %) | | 7.1 | % | | 6.1 | % | | 9.0 | % |
Annualized ex-PGAAP operating return on average common equity(1) | (2.4 | %) | | 7.9 | % | | 6.7 | % | | 10.1 | % |
| | | | | | | |
| |
(1) | Ex-PGAAP operating income (loss), ex-PGAAP operating income (loss) per diluted common share and annualized ex-PGAAP operating ROACE are non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to the most comparable GAAP financial measures, net income (loss) available (attributable) to common shareholders, earnings (loss) per diluted common share, and annualized ROACE, respectively, are provided in the table above, and a discussion of the rationale for the presentation of these items is included in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures'. Annualized ex-PGAAP operating ROACE for the three months ended September 30, 2019, was calculated using weighted average common shares outstanding due to the ex-PGAAP operating loss recognized in the period. |
| |
(2) | Tax cost (benefit) of $(1,309) and $(7,726) for the three months ended September 30, 2019 and 2018, respectively, and $(6,267) and $(29,808) for the nine months ended September 30, 2019 and 2018, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions. |
| |
(3) | Tax cost (benefit) of $298 and $5,575 for the three months ended September 30, 2019 and 2018, respectively, and $2,031 and $20,792 for the nine months ended September 30, 2019 and 2018, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions. |
Underwriting Results
Total underwriting loss for the three months ended September 30, 20172019 was $513 million, a decrease of $617$79 million, compared to the underwriting income of $104$59 million for the three months ended September 30, 2016.2018. The underwriting loss in the quarter was primarily driven by a decrease in net premiums earned and an increase in catastrophe and weather-related losses, together with a decrease in net favorable prior year reserve development.
The reinsurance segment underwriting loss was $61 million for the three months ended September 30, 2019, compared to underwriting income of $71 million for the three months ended September 30, 2018. The underwriting loss in the quarter was primarily driven by an increase in catastrophe and weather-related losses, together with a decrease in net favorable prior year reserve development, an increase in the current accident year loss ratio excluding catastrophe and weather-related losses, partially offset by a decreasean increase in general and administrative expenses.net premiums earned.
The reinsuranceinsurance segment underwriting loss increased by $310$6 million for the three months ended September 30, 2017,2019, compared to the underwriting loss of $12 million for the three months ended September 30, 2016.2018. The decreaseincrease in the underwriting incomeloss was primarily driven by an increasea decrease in net premiums earned, partially offset by a decrease in catastrophe and weather-related losses, an increaseand a decrease in the current accident year loss ratio excluding catastrophe and weather-related losses andlosses.
Total underwriting income for the nine months ended September 30, 2019 was $78 million, compared to underwriting income of $318 million for the nine months ended September 30, 2018. The decrease in underwriting income was primarily driven by a decrease in net premiums earned, a decrease in net favorable prior year reserve development, partially offset by a decreasean increase in catastrophe and weather-related losses, and an increase in acquisition costs.
The insurancereinsurance segment underwriting loss increasedincome decreased by $307$141 million for the threenine months ended September 30, 2017,2019, compared to the threenine months ended September 30, 2016.2018. The decrease in underwriting income was primarily driven by an increase in catastrophe and weather-related losses and a decrease in net favorable prior year reserve development.
Total underwriting loss in the nine months ended September 30, 2017 was $439 million,development, partially offset by a decrease to underwriting income of $652 million compared to $213 million in the nine months ended September 30, 2016. The decrease in underwriting income was primarily driven by an increase in catastrophe and weather-related losses, an increase in the current accident year loss ratio excluding catastrophe and weather-related losses,losses.
The insurance segment underwriting income decreased by $100 million for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018. The decrease in underwriting income was primarily driven by decrease in net premiums earned and an increase in acquisition costs, together with a decrease in net favorable prior year reserve development, partially offset by a decrease in generalcatastrophe and administrative expenses.weather-related losses.
The reinsurance segment underwriting
Net Investment Income
Net investment income decreased by $352of $116 million infor the three months ended September 30, 2019 was comparable to net investment income of $114 million for the three months ended September 30, 2018.
Net investment income was $361 million for the nine months ended September 30, 2017,2019, compared to $325 million for the nine months ended September 30, 2016. The decrease in underwriting income was primarily driven by2018, an increase of $36 million, mainly attributable to an increase in catastrophe and weather-related losses, decrease in net favorable prior year reserve development, anincome from fixed maturities due to the increase in yields and a larger allocation of the current accident year loss ratio excluding catastrophe and weather-related losses,portfolio to fixed maturities, together with a realized gain associated with the sale of a privately held investment, partially offset by a decrease in general and administrative expenses.
The insurance segment underwriting loss increased by $300 million in the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016. The increase in underwriting income was primarily driven by an increase in catastrophe and weather-related losses, and an increase in acquisition costs.lower returns from CLO-equities.
Net Investment Income
Net investment income for the three and nine months ended September 30, 2017 was $95 million and $300 million, respectively, a decrease of $22 million and an increase of $42 million, respectively, compared to the three and nine months ended September 30, 2016 primarily attributable to our alternative investments portfolio.
Net Realized Investment Gains (Losses)
Net realized investment gains were $15 million for the three months ended September 30, 20172019, compared to net realized investment gainslosses of $5$18 million for for the same period of 2016. The net realized2018.
Net investment gains for the three months ended September 30, 20172019 were mainly attributableprimarily due to net realized gains on sales of ETFs,U.S. government bonds and agency RMBS, partially offset by an other than temporary impairment ("OTTI") charge of $5 million. The net realizedunrealized losses on equity securities.
Net investment gainslosses for the three months ended September 30, 20162018 were attributableprimarily due to net realized losses on sales of fixed incomeU.S. government, agency RMBS and equities which benefited from improved pricing in 2016.corporate debt securities, together with an Other Than Temporary Impairment ("OTTI") charge, partially offset by net unrealized gains on equity securities.
Net realized investment lossesgains were $15$49 million infor the nine months ended September 30, 2017,2019, compared to net realized investment losses of $40$78 million for the same period of 2016. The2018.
Net investment gains for nine months ended September 30, 2019 were primarily due to net unrealized gains on equity securities and net realized gains on sales of U.S. government bonds and agency RMBS, partially offset by an OTTI charge.
Net investment losses for the nine months ended September 30, 2017 and 20162018 were primarily attributabledue to foreign currencynet realized losses (neton sales of forward contracts) on the sale of non-U.S.U.S. government, agency RMBS and corporate debt securities, as a result of the strengthening of the U.S. dollartogether with an OTTI charge and OTTI.net unrealized losses on equity securities.
CorporateOther Expenses (Revenues), Net
Corporate expenses were $28$29 million and $97 million for the three and nine months ended September 30, 2017,2019, respectively, compared to $29$25 million and $85 million for the three and nine months ended September 30, 2016.2018, respectively. The decreaseincrease was primarily attributable to ongoing investments in information technology and digital capabilities, professional fees, and adjustments associated with performance-related compensation costs, partially offset by a decrease in performance related compensationoffice costs and an
corporate costs to the reinsurance segment. In addition, the increase in corporate expenses for the nine months ended September 30, 2019, was partially offset by an increase in the allocation of corporate costs to the insurance and reinsurance segments, largely offset by an increase in personnel expenses.segment.
Corporate expensesForeign exchange gains were $98 million for the nine months ended September 30, 2017 compared to $87 million in the same period in 2016. The increase was primarily attributable to an increase in personnel expenses.
Other Expenses (Revenues), Net
The foreign exchange losses of $33$60 million and $90$65 million for the three and nine months ended September 30, 2017,2019, respectively, were primarily attributable to the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities mainly denominated in pound sterling and euro. For the nine months ended September 30, 2017 compared to the same period in 2016, foreign exchange losses also included the reclass of the cumulative translation adjustment of $24 million related to the wind-down of AXIS Specialty Australia from accumulated other comprehensive income to foreign exchange losses.
The foreign exchange gains of $14$8 million and $70$2 million for the three and nine months ended September 30, 2016, respectively,2018, respectively.
Foreign exchange gains for the three and nine months ended September 30, 2019, were primarily driven byattributable to the impact of the strengthening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in pound sterling and euro.
Foreign exchange losses for the three and nine months ended September 30, 2018, were primarily attributable to the impact of the strengthening of the U.S. dollar on the remeasurement of other investments, specifically, overseas deposits mainly denominated against thein australian dollar and pound sterling.
Interest expenses and financing costs of $18 million and $50 million for the three and nine months ended September 30, 2019, respectively, were comparable to interest expenses and financing costs of $17 million and $51 million for the three and nine months ended September 30, 2018, respectively.
The financial results for the three and nine months ended September 30, 20172019 resulted in a tax benefitexpenses of $26$8 million and $39$24 million, respectively. The tax benefit of $26 million recognized in the three months ended September 30, 2017 was primarily driven by an underwriting loss recognized in our U.S. operations. The tax benefit of $39 million recognized in the nine months ended September 30, 2017 was primarily driven by an underwriting loss recognized in our U.S. operations, share based compensation excessrespectively, compared to tax benefits which were recognized in the income statement, and a tax adjustment related to the bargain purchase gain recognized in connection with the acquisition of Aviabel.
The financial results for the three and nine months ended and 2016 resulted in a tax expense of $9 million and $8 million, respectively, was primarily driven by the generation of consolidated pre-tax net income in our European operations.
Bargain Purchase Gain
On April 1, 2017, the Company acquired general aviation insurer and reinsurer, Aviabel. The purchase price was allocated to the acquired assets and liabilities of Aviabel based on estimated fair values on the closing date and a bargain purchase gain of $15 million was recognized in the nine months ended September 30, 2017.
Transaction Related Expenses
The Company incurred transaction related expenses including due diligence, legal, accounting, and investment banking fees and expenses, as well as integration expenses of $6 million in the three months ended September 30, 2017 related to the acquisition of Novae. In addition, the Company was contractually obligated to pay investment banking fees on the closing date of the transaction. The Company expects substantially all of the integration costs related to the acquisition to be incurred in 2018. In addition, the Company expects to begin realizing cost savings in 2018.
Interest in Loss of Equity Method Investments
Interest in loss of equity method investments was $1 million and $8$4 million for the three and nine months ended September 30, 2017, respectively. 2018.
The tax expenses of $8 million and $24 million for the three and nine months ended September 30, 2017 included impairment losses2019, respectively, was attributable to the generation of $9 million related to an investmentpre-tax income in aour U.S. based insurance company,and European operations, partially offset by pre-tax losses in our U.K. operations.
The tax benefits of $4 million for the three and nine months ended September 30, 2018 were primarily driven by the generation of pre-tax losses in our U.K. and European operations, largely offset by the generation of pre-tax income of $1in our U.S. operations.
Transaction and Reorganization Expenses
Transaction and reorganization expenses were $11 million and $29 million for the three and nine months ended September 30, 2019, respectively, compared to $16 million and $48 million for the three and nine months ended September 30, 2018, respectively, related to the Company’s aggregatetransformation program launched in 2017. This program encompasses the integration of Novae which commenced in the fourth quarter of 2017, the realignment of our accident and health business, together with other initiatives designed to increase our efficiency and enhance our profitability while delivering a customer-centric operating model. These expenses are not included in operating income.
At September 30, 2019, we remained on track to deliver $100 million of expense savings by the end of 2020. These expense savings will be achieved through the elimination of redundant roles, efficiencies introduced through organizational redesign, operating efficiency improvements, integration of systems, and the rationalization of third party contracts and professional fees.
Amortization of Value of Business Acquired
On October 2, 2017, we acquired Novae. The acquisition of Novae was undertaken to accelerate the growth strategy of our international insurance business, and to significantly scale up its capabilities to enable us to even better serve our clients and brokers. At the acquisition date, we identified VOBA, which represents the present value of the expected underwriting profit within policies that were in-force at the closing date of the transaction, of $257 million.
VOBA is amortized over its economic useful life and this expense is included in amortization of value of business acquired in the consolidated statement of operations.
Interest in Income of Equity Method Investments
Interest income (loss) of equity method investments represents our share of profits in a company in which it hasincome (loss) related to investments where we have significant influence over the operating and financial policies.policies of the investee.
Interest in income of equity method investments was $1 million and $6 million for the three and nine months ended September 30, 2019, respectively.
Interest in income of equity method investments was $2 million and $5 million for the three and nine months ended September 30, 2018, respectively.
58
Financial Measures
We believe the following financial indicators are important in evaluating our performance and measuring the overall growth in value generated for our common shareholders: |
| | | | | | | | | | | | | | | | | |
| | Three months ended and at September 30, | | Nine months ended and at September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| ROACE (annualized)(1) | nm |
| | 13.2 | % | | (10.3 | %) | | 8.4 | % | |
| Non-GAAP operating ROACE (annualized)(2) | nm |
| | 12.0 | % | | (7.7 | %) | | 7.8 | % | |
| Diluted book value per common share(3) | $ | 55.33 |
| | $ | 59.77 |
| | $ | 55.33 |
| | $ | 59.77 |
| |
| Cash dividends declared per common share | 0.38 |
| | 0.35 |
| | 1.14 |
| | 1.05 |
| |
| Increase (decrease) in diluted book value per common share adjusted for dividends | $ | (4.74 | ) | | $ | 2.50 |
| | $ | (1.80 | ) | | $ | 6.74 |
| |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Annualized return on average common equity | 2.3 | % | | 3.9 | % | | 8.6 | % | | 5.9 | % | |
| Annualized operating return on average common equity | (2.7 | %) | | 7.1 | % | | 6.1 | % | | 9.0 | % | |
| Annualized ex-PGAAP operating return on average common equity | (2.4 | %) | | 7.9 | % | | 6.7 | % | | 10.1 | % | |
| Book value per diluted common share(1) | $ | 56.26 |
| | $ | 52.70 |
| | $ | 56.26 |
| | $ | 52.70 |
| |
| Cash dividends declared per common share | $ | 0.40 |
| | $ | 0.39 |
| | $ | 1.20 |
| | $ | 1.17 |
| |
| Increase (decrease) in book value per diluted common share adjusted for dividends | $ | 0.67 |
| | $ | 0.62 |
| | $ | 5.16 |
| | $ | (1.07 | ) | |
| | | | | | | | | |
| |
(1) | Book value per diluted common share represents total common shareholders’ equity divided by the number of diluted common shares outstanding, determined using the treasury stock method. Cash-settled restricted stock units are excluded. |
nm – not meaningful
(1) Return on average common equity (“ROACE”)Average Common Equity
Our objective is calculated by dividing annualized net income available to generate superior returns on capital that appropriately reward our common shareholders for the period byrisks we assume and to grow revenue only when we expect the average shareholders’ equity determined by usingreturns will meet or exceed our requirements. We recognize that the common shareholders’ equity balances atnature of underwriting cycles and the beginning and endfrequency or severity of large loss events in any one year may challenge the period.
(2) Non-GAAP operating ROACE is calculated by dividing annualized operating income for the period by the average common shareholders’ equity determined by using the common shareholders’ equity balances at the beginning and end of the period. Annualized non-GAAP operating ROACE isability to achieve a non-GAAP financial measure as definedprofitability target in SEC Regulation G. The reconciliation to ROACE, the most comparable GAAP measure, is presented in the 'Results of Operations'.
(3) Diluted book value per common share represents total common shareholders’ equity divided by the number of common shares and diluted common share equivalents outstanding, determined using the treasury stock method. Cash settled awards are excluded from the denominator.
Return on Equityany specific period.
ROACE reflects the impact of net income attributable(loss) available (attributable) to common shareholders including net realized investment gains (losses), foreign exchange losses (gains), a bargain purchase gain related to the acquisitiontransaction and reorganization expenses, and interest in income (loss) of Aviabel, and transaction related expenses associated with the acquisition of Novae.equity method investments.
The decrease in ROACE for the three months ended September 30, 2017,2019, compared to the three months ended September 30, 2016,2018, was primarily driven by the underwriting loss in the quarter, partially offset by the foreign exchange gains and net investment gains in the quarter, together with a decrease in amortization of VOBA associated with the acquisition of Novae. In addition, ROACE was impacted by an increase in average common shareholders' equity.
The increase in ROACE for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, was primarily driven by the investment gains and foreign exchange gains in the period, and a decrease in amortization of VOBA associated with the acquisition of Novae, together with an increase in net investment income and a decrease in transaction and reorganization expenses, partially offset by a decrease in underwriting income and an increase in corporate expenses.
Operating ROACE excludes the impact of net investment gains (losses), foreign exchange losses (gains), transaction and reorganization expenses, and interest in income (loss) of equity method investments.
The decrease in operating ROACE for the three months ended September 30, 2019, compared to the three months ended September 30, 2018, was primarily driven by the underwriting loss in the quarter, partially offset by a decrease in amortization of VOBA associated with the acquisition of Novae.
The decrease in operating ROACE for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, was primarily driven by a decrease in underwriting income and net investment incomein the period, together with foreign exchange losses,an increase in corporate expenses, partially offset by a tax benefit compared to a tax expense in 2016 and an increase in net realized investment gains .
The decrease in ROACE inamortization of VOBA associated with the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, was primarily driven by a decrease in underwriting income and foreign exchange losses, partially offset by a tax benefit compared to a tax expense in 2016,acquisition of Novae, together with an increase in net investment income, a decrease in net realized investment losses, and the bargain purchase gain.income.
Non-GAAPEx-PGAAP operating ROACE excludes the impact of amortization of VOBA and intangible assets, net realized investment gains (losses), foreign exchange losses (gains), the bargain purchase gainof tax, and transaction related expenses.
The decrease in non-GAAPamortization of acquisition costs, net of tax, associated with Novae's balance sheet at October 2, 2017. Ex-PGAAP operating ROACE for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, was primarily driven by a decrease in underwriting income and net investment income partially offset by a tax benefit compared to a tax expense in 2016.
The decrease in non-GAAP operating ROACE in the nine months ended September 30, 2017,2019 was (2.4%) and 6.7%, respectively, compared to 7.9% and 10.1% for the three and nine months ended September 30, 2016, was primarily driven by2018, respectively.
Book Value per Diluted Common Share
We consider book value per diluted common share to be an appropriate measure of our returns to common shareholders, as we believe growth in our book value on a decreasediluted basis will ultimately translate into appreciation of our stock price.
Book value per diluted common share increased to $56.26 at September 30, 2019, from $55.99 at June 30, 2019, an increase of $0.27, due to net income generated during the period and net unrealized investment gains reported in underwritingother comprehensive income, partially offset by a tax benefit compared to a tax expense in 2016 and an increase in net investment income.
Diluted Book Value per Common Share
Diluted book value per common share decreased by 7% to $55.33 at September 30, 2017, from $59.77 at September 30, 2016, which primarily reflected net losses attributable to common shareholders generated over the past twelve months of $247 million and common share dividends declared.
7%, due to net income generated during the period and net unrealized investment gains reported in other comprehensive income, partially offset by common share dividends declared.
Cash Dividends Declared per Common Share
We believe in returning excess capital to our shareholders by way of dividends (as well asand share repurchases) accordingly,repurchases. Accordingly, our dividend policy is an integral part of the value we create for our shareholders. Our cumulativelycumulative strong earnings have permitted our Board of Directors to approve thirteenfifteen successive annual increases in quarterly common share dividends.
Diluted Book Value per Diluted Common Share Adjusted for Dividends
Diluted bookBook value per diluted common share adjusted for dividends decreasedincreased by $4.74$0.67, or 8%1% per common share for the three months ended September 30, 2017, by $1.802019, and increased $5.16 or 3% per common share for the nine months ended September 30, 2017, and $2.92, or 5%, per common share10% over the past twelve months.months.
Taken together, we believe that growth in diluted book value per diluted common share and common share dividends declared represent the total value created for our common shareholders. As companies in the insurance industry have differing dividend payout policies, we believe investors use the diluted book value per diluted common share adjusted for dividends metric to measure comparable performance across the industry.
During the three and nine months ended September 30, 2017, respectively,2019, total value created was driven by the decrease in diluted book value per common share adjusted for dividends was primarily attributable to net lossincome generated in both periodsthe quarter and common share dividends declared, partially offset by an increase in unrealized investment gains on investments reported in accumulated other comprehensive income.
During the three and nine months ended September 30, 2016, respectively,2019, total value created consisted primarily ofwas driven by the net income generated in the period and an increaseunrealized investment gains reported in accumulated other comprehensive income.
During the three months ended September 30, 2018, total value created was primarily driven by the net income generated in the quarter.
During the nine months ended September 30, 2018, the reduction in total value was primarily driven by the unrealized gains on investmentsinvestment losses reported in accumulated other comprehensive income, partially offset by common share dividends declared.net income generated in the period.
UNDERWRITING RESULTS – GROUPCONSOLIDATED
The following table provides our group underwriting results for the periods indicated. Underwriting income is a pre-tax measure of underwriting profitability that takes into account net premiums earned and other insurance related income (loss) as revenues and net losses and loss expenses, acquisition costs and underwriting-related general and administrative costs as expenses.
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | % Change | | 2016 | | 2017 | | % Change | | 2016 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 1,185,574 |
| | 24% | | $ | 959,962 |
| | $ | 4,459,772 |
| | 5% | | $ | 4,239,558 |
| |
| Net premiums written | 832,743 |
| | 40% | | 595,431 |
| | 3,297,718 |
| | —% | | 3,288,587 |
| |
| Net premiums earned | 1,017,131 |
| | 9% | | 934,415 |
| | 2,937,265 |
| | 6% | | 2,783,746 |
| |
| Other insurance related income (losses) | (3,197 | ) | | nm | | 5,944 |
| | (4,420 | ) | | nm | | 4,850 |
| |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current year net losses and loss expenses | (1,283,135 | ) | |
| | (608,347 | ) | | (2,591,135 | ) | |
| | (1,887,715 | ) | |
| Prior year reserve development | 47,768 |
| |
| | 76,019 |
| | 143,495 |
| |
| | 224,131 |
| |
| Acquisition costs | (194,724 | ) | |
| | (189,810 | ) | | (588,879 | ) | |
| | (559,570 | ) | |
| Underwriting-related general and administrative | | | | | | | | | | | | |
| expenses(1) | (96,696 | ) | |
| | (114,223 | ) | | (335,782 | ) | |
| | (352,632 | ) | |
| | | | | | | | | | | | | |
| Underwriting income (loss)(2) | $ | (512,853 | ) | | nm | | $ | 103,998 |
| | $ | (439,456 | ) | | nm | | $ | 212,810 |
| |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| General and administrative expenses(1) | $ | 124,629 |
| |
| | $ | 142,906 |
| | $ | 433,704 |
| |
| | $ | 439,554 |
| |
| Income (loss) before income taxes and interest in income (loss) of equity method investments(2) | $ | (482,300 | ) | |
| | $ | 198,399 |
| | $ | (371,686 | ) | |
| | $ | 374,606 |
| |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 1,406,506 |
| | (1%) | | $ | 1,423,707 |
| | $ | 5,637,491 |
| | (2%) | | $ | 5,737,327 |
| |
| Net premiums written | 856,081 |
| | (7%) | | 919,938 |
| | 3,703,460 |
| | (5%) | | 3,906,264 |
| |
| Net premiums earned | 1,157,307 |
| | (5%) | | 1,224,075 |
| | 3,415,126 |
| | (5%) | | 3,577,026 |
| |
| Other insurance related income | 1,533 |
| | nm | | 8,475 |
| | 11,385 |
| | (39%) | | 18,811 |
| |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current year net losses and loss expenses | (877,640 | ) | |
| | (840,619 | ) | | (2,252,424 | ) | |
| | (2,323,028 | ) | |
| Prior year reserve development | 26,727 |
| |
| | 45,660 |
| | 65,021 |
| |
| | 160,083 |
| |
| Acquisition costs | (260,026 | ) | |
| | (248,314 | ) | | (762,807 | ) | |
| | (709,527 | ) | |
| Underwriting-related general and administrative expenses(1) | (126,619 | ) | |
| | (130,251 | ) | | (398,540 | ) | | | | (404,875 | ) | |
| Underwriting income (loss)(2) | $ | (78,718 | ) | | nm | | $ | 59,026 |
| | $ | 77,761 |
| | nm | | $ | 318,490 |
| |
| | | | | | | | | | | | | |
| General and administrative expenses(1) | $ | 155,522 |
| |
| | $ | 154,894 |
| | $ | 496,008 |
| |
| | $ | 489,944 |
| |
| Income before income taxes and interest in income of equity method investments(2) | $ | 45,756 |
| |
| | $ | 48,903 |
| | $ | 342,432 |
| |
| | $ | 222,202 |
| |
| | | | | | | | | | | | | |
nm – not meaningful
| |
(1) | Underwriting-related general and administrative expenses is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation G.S-K. The reconciliation to total general and administrative expenses, the most comparable GAAP financial measure, is presented in the 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations', which is included in the 'Executive Summary' section of this MD&A.. |
| |
(2) | Group (or consolidated)Consolidated underwriting income (loss) is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation G.S-K. The reconciliation to net income (loss(loss) before taxincome taxes and interest in income (loss) of equity investments),investments, the most comparable GAAP financial measure, is presented in the "'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations', which is included in the 'Executive Summary' section of this MD&A..
|
UNDERWRITING REVENUESUnderwriting Revenues
Gross and net premiums written by segment were as follows: |
| | | | | | | | | | | | | | | | | | | | | |
| | Gross Premiums Written | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | % Change | | 2016 | | 2017 | | % Change | | 2016 | |
| | | | | | | | | | | | | |
| Insurance | $ | 744,366 |
| | 10% | | $ | 675,430 |
| | $ | 2,234,395 |
| | 6% | | $ | 2,112,796 |
| |
| Reinsurance | 441,208 |
| | 55% | | 284,532 |
| | 2,225,377 |
| | 5% | | 2,126,762 |
| |
| Total | $ | 1,185,574 |
| | 24% | | $ | 959,962 |
| | $ | 4,459,772 |
| | 5% | | $ | 4,239,558 |
| |
| | | | | | | | | | | | | |
| Constant currency(3) | $ | 1,188,100 |
| | 24% | | $ | 959,962 |
| | $ | 4,522,500 |
| | 7% | | $ | 4,239,558 |
| |
| | | | | | | | | | | | | |
| % ceded | | | | | | | | | | | | |
| Insurance | 33% | | (3) pts | | 36% | | 31% | | (1) pts | | 32% | |
| Reinsurance | 25% | | (18) pts | | 43% | | 21% | | 8 pts | | 13% | |
| Total | 30% | | (8) pts | | 38% | | 26% | | 4 pts | | 22% | |
| | | | | | | | | | | | | |
| | Net Premiums Written | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | % Change | | 2016 | | 2017 | | % Change | | 2016 | |
| | | | | | | | | | | | | |
| Insurance | $ | 500,022 |
| | 15% | | $ | 433,131 |
| | $ | 1,533,029 |
| | 7% | | $ | 1,433,058 |
| |
| Reinsurance | 332,721 |
| | 105% | | 162,300 |
| | 1,764,689 |
| | (5%) | | 1,855,529 |
| |
| Total | $ | 832,743 |
| | 40% | | $ | 595,431 |
| | $ | 3,297,718 |
| | —% | | $ | 3,288,587 |
| |
| | | | | | | | | | | | | |
| Constant currency(3) | $ | 835,600 |
| | 40% | | $ | 595,431 |
| | $ | 3,360,300 |
| | 2% | | $ | 3,288,587 |
| |
| | | | | | | | | | | | | |
| |
(3) | Amounts presented on a constant currency basis are non-GAAP financial measures as defined in SEC Regulation G. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance. |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Gross premiums written | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Insurance | $ | 894,902 |
| | (8%) | | $ | 969,364 |
| | $ | 2,714,322 |
| | (6%) | | $ | 2,876,856 |
| |
| Reinsurance | 511,604 |
| | 13% | | 454,343 |
| | 2,923,169 |
| | 2% | | 2,860,471 |
| |
| Total | $ | 1,406,506 |
| | (1%) | | $ | 1,423,707 |
| | $ | 5,637,491 |
| | (2%) | | $ | 5,737,327 |
| |
| | | | | | | | | | | | | |
| % ceded | | | | | | | | | | | | |
| Insurance | 42% | | 4 pts | | 38% | | 40% | | 1 pts | | 39% | |
| Reinsurance | 34% | | 4 pts | | 30% | | 29% | | 4 pts | | 25% | |
| Total | 39% | | 4 pts | | 35% | | 34% | | 2 pts | | 32% | |
| | | | | | | | | | | | | |
| | Net premiums written | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Insurance | $ | 517,050 |
| | (14%) | | $ | 602,070 |
| | $ | 1,638,197 |
| | (6%) | | $ | 1,748,142 |
| |
| Reinsurance | 339,031 |
| | 7% | | 317,868 |
| | 2,065,263 |
| | (4%) | | 2,158,122 |
| |
| Total | $ | 856,081 |
| | (7%) | | $ | 919,938 |
| | $ | 3,703,460 |
| | (5%) | | $ | 3,906,264 |
| |
| | | | | | | | | | | | | |
Gross Premiums Written:Written:
Gross premiums written for the three and nine months ended September 30, 2017 increased2019 decreased by $226$17 million or 24%1% ($2288 million or 24%1% on a constant currency basis)basis1) and $220$100 million or 5%2% ($28315 million or 7%0% on a constant currency basis), respectively, compared to the three and nine months ended September 30, 2016, respectively. 2018.
The increasedecrease for the three and nine months ended September 30, 20172019, compared to the same periodsperiod in 2016,2018, was due to a decrease in the insurance segment, partially offset by an increase in both the insurance and reinsurance segments.segment.
The reinsuranceinsurance segment's gross premiums written increaseddecreased by $157$74 million or 55%8% ($16063 million or 56%7% on a constant currency basis) and $99$163 million or 5%6% ($150125 million or 7%4% on a constant currency basis) for the three and nine months ended September 30, 2017,2019, respectively, compared to the same periodsperiod in 2016.2018.
The increase in the reinsurance segment gross premiums writtendecrease for the three months ended September 30, 2017 compared2019 was attributable to the same period of 2016, was primarily drivenproperty, credit and political risk, professional lines, and accident and health lines, partially offset by ouran increase in liability catastrophe, property and motor lines. The increase in our liability lines was due to timing differences. The increase in our catastrophe lines was largely due to reinstatement premiums associated withdecrease for the third quarter catastrophe losses. The increase in our property and motor lines was primarily driven by new business. Timing differences also contributed to the increase in premiums written in our motor lines.
The increase for the nine months ended September 30, 2017 compared2019 was attributable to the same period in 2016, was primarily driven by our catastrophe, agriculture, property, and motoraccident and health lines, partially offset by a decreaseincreases in our creditliability, professional lines and suretymarine lines. The increase in our catastrophe and property lines was driven by new business. Favorable premium adjustments and reinstatement premiums contributed to the increase in premiums written in our catastrophe and agriculture lines. The increase in our motor lines was driven by new business and favorable premium adjustments, partially offset by a lower level of premiums written on a multi-year basis during 2017
compared to 2016, together with the impact of foreign exchange movements. The decrease in our credit and surety lines was primarily due to a lower level of premiums written on a multi-year basis.
The insurancereinsurance segment's gross premiums written increased by $69$57 million or 10% and $12213% ($55 million or 6%12% on a constant currency basis) and $63 million or 2% ($133110 million or 4% on a constant currency basis) for the three and nine months ended September 30, 2017,2019, respectively, compared to the same periodsperiod in 2016.2018.
The increase in the insurance segment gross premiums written for the three months ended September 30, 20172019 was primarily attributable to ourcatastrophe, accident and health, liability, lines,marine and our creditother, and political riskengineering lines, driven by new business opportunities, together with an increase in our aviation lines associated with our recent acquisition of Aviabel. These increases were partially offset by a reductiondecreases in premiums written in our property lines following our exit from some U.S. retail insurance operations last year.
and agriculture lines. The increase infor the nine months ended September 30, 20172019 was attributable to our liability,catastrophe, accident and health lines, marine and our professionalother, and liability lines, primarily driven by new business opportunities, together with an increase in our aviation lines associated with our recent acquisition of Aviabel. These increases were partially offset by decreases in motor, property, credit and surety, professional lines, and agriculture lines.
(1) Amounts presented on a decreaseconstant currency basis are non-GAAP financial measures as defined in premiums written in our property lines following our exitItem10 (e) of SEC Regulation S-K. The constant currency basis is calculated by applying the average foreign exchange rate from some U.S. retail insurance operations last year.the current year to the prior year balance.
Ceded Premiums Written:Written:
Ceded premiums written for the three and nine months ended September 30, 20172019 were $353$550 million or 30%39% of gross premiums written and $1.2$1.9 billion or 26%34% of gross premiums written, respectively, compared to $365ceded premiums of $504 million or 38%35% of gross premiums written and $951 million$1.8 billion or 22%32% of gross premiums written for the three and nine months ended September 30, 2016,2018, respectively.
The decreaseincrease in the ratio of ceded premiums written to gross premiums written for the three months ended September 30, 2017 and increase for the nine months ended September 30, 2017,2019, compared to the same period in 2016,2018, was primarily attributable to the reinsurance segment.
The decrease in the reinsurance segment ratio of ceded premiums written to gross premiums written for the three months ended September 30, 2017 compared to the same period in 2016, was primarily due to an increaseincreases in gross premiums written in the quarter together with a decrease in premiums ceded to our strategic capital partners. The decrease in premiums ceded was attributable to our professional and liability lines, partially offset by an increase in premiums ceded in our catastrophe lines.
both segments. The increase in the reinsurance segment ratio of ceded premiums written to gross premiums written for the nine months ended September 30, 20172019, compared to the same period in 2016, primarily due2018, was attributable to anthe reinsurance segment, partially offset by a decrease in the insurance segment.
The increase in the reinsurance segment ceded premiums written of $36 million or 26% for the three months ended September 30, 2019, compared to the same period in 2018, was attributable to catastrophe lines, partially offset by a decrease in property lines.
The increase in the reinsurance segment ceded premiums written of $156 million or 22% for the nine months ended September 30, 2019, compared to the same period in our2018, was attributable to catastrophe, agriculture,liability, and credit and surety lines, as well as ourpartially offset by decreases in agriculture and property lines.
The increase in the insurance segment ceded premiums written of $11 million or 3% for the three months ended September 30, 2019, compared to the same period in 2018, was primarily driven by liability and marine lines, partially offset by a decrease in property lines.
The decrease in the insurance segment ceded premiums written of $53 million or 5% for the nine months ended September 30, 2019, compared to the same period in 2018, was primarily driven by property and professional lines, partially offset by an increase in gross premiums written.liability lines.
Reinsurance Agreement with Northshore Re II Limited ("Northshore")
In June 2017, the Company2019, we obtained catastrophe protection for itsour insurance and reinsurance segments through a reinsurance agreement with Northshore Re II Limited ("Northshore").Northshore. In connection with the reinsurance agreement, Northshore issued notes to unrelated investors in an amount equal to the full $350$165 million of coverage provided under the reinsurance agreement covering a threefour year period. At the time of the agreement, the Companywe performed an evaluation of Northshore to determine if it meets the definition of a variable interest entity ("VIE"). The CompanyWe concluded that Northshore is a VIE butVIE. In addition, we concluded that the Company doeswe do not have a variable interest in the entity, as the variability in results is expected to be absorbed entirely by the investors in Northshore. Accordingly, the results of Northshore isare not consolidatedincluded in the Company'sour consolidated financial statements. The premium ceded
Reinsurance Agreement with Alturas Re Ltd ("Alturas")
In July 2019, we obtained protection for our reinsurance segment through a reinsurance agreement with Alturas. In connection with the reinsurance agreement, Alturas issued notes on June 28, 2019 to Northshore duringunrelated investors in an amount equal to the nine months ended September 30, 2017 was $27 million.full $39 million of coverage provided under the reinsurance agreement covering a one year period. At the time of the agreement, we concluded that we do not have a variable interest in Alturas as the variability in results is expected to be absorbed entirely by the investors in Alturas. Accordingly, the results of Alturas are not included in our consolidated financial statements.
Net Premiums Earned:Earned:
Net premiums earned by segment were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2017 | | | | 2016 | | | | % Change | | 2017 | | | | 2016 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Insurance | $ | 496,004 |
| | 49 | % | | $ | 444,691 |
| | 48 | % | | 12% | | $ | 1,448,270 |
| | 49 | % | | $ | 1,322,649 |
| | 48 | % | | 9% | |
| Reinsurance | 521,127 |
| | 51 | % | | 489,724 |
| | 52 | % | | 6% | | 1,488,995 |
| | 51 | % | | 1,461,097 |
| | 52 | % | | 2% | |
| Total | $ | 1,017,131 |
| | 100 | % | | $ | 934,415 |
| | 100 | % | | 9% | | $ | 2,937,265 |
| | 100 | % | | $ | 2,783,746 |
| | 100 | % | | 6% | |
| | | | | | | | | | | | | | | | | | | | | |
| Constant currency(3) | $ | 1,027,050 |
| | | | $ | 934,415 |
| |
|
| | 10% | | $ | 2,999,050 |
| | | | $ | 2,783,746 |
| | | | 8% | |
| | | | | | | | | | | | | | | | | | | | | |
| |
(3) | Amounts presented on a constant currency basis are non-GAAP financial measures as defined in SEC Regulation G. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2019 | | | | 2018 | | | | % Change | | 2019 | | | | 2018 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Insurance | $ | 536,451 |
| | 46 | % | | $ | 614,795 |
| | 50 | % | | (13%) | | $ | 1,630,473 |
| | 48 | % | | $ | 1,772,126 |
| | 50 | % | | (8%) | |
| Reinsurance | 620,856 |
| | 54 | % | | 609,280 |
| | 50 | % | | 2% | | 1,784,653 |
| | 52 | % | | 1,804,900 |
| | 50 | % | | (1%) | |
| Total | $ | 1,157,307 |
| | 100 | % | | $ | 1,224,075 |
| | 100 | % | | (5%) | | $ | 3,415,126 |
| | 100 | % | | $ | 3,577,026 |
| | 100 | % | | (5%) | |
| | | | | | | | | | | | | | | | | | | | | |
Changes in net premiums earned reflect period to period changes in net premiums written and business mix, together with normal variability in premium earning patterns.
Net premiums earned for the three and nine months ended September 30, 2017 increased2019 decreased by $83$67 million or 9%5% ($9353 million or 10%4% on a constant currency basis) and $154$162 million or 6%5% ($215128 million or 8%4% on a constant currency basis), respectively, compared to the three and nine months ended September 30, 2016, respectively.2018. The increasesdecrease for both periodsthe three months ended September 30, 2019, compared to the same periodsperiod in 2016, were2018, was driven by increasesthe insurance segment, partially offset by an increase in the reinsurance segment. The decrease for the nine months ended September 30, 2019, compared to the same period in 2018, was driven by decreases in both the insurance and reinsurance segments.
The increase in netNet premiums earned decreased by $78 million or 13% ($68 million or 11% on a constant currency basis) in the insurance segment for the three and nine months ended September 30, 20172019, compared to the same periodsperiod in 2016, were2018. The decrease was driven by strong premium growth in ourproperty, marine, and accident and health lines, as well as our aviationpartially offset by increases in professional lines in recent periods, together with a decrease in cededand liability lines.
Net premiums earned decreased by $142 million or 8% ($117 million or 7% on a constant currency basis) in our property lines. Net premiums earnedinsurance segment for the nine months ended September 30, 20172019, compared to the same period in 2018. The decrease was also impacteddriven by strong premium growthproperty, accident and health, and marine lines, partially offset by increases in our propertyprofessional lines in recent periods.and liability lines.
The increase in netNet premiums earned increased by $12 million or 2% ($16 million or 3% on a constant currency basis) in the reinsurance segment for the three months ended September 30, 20172019, compared to the same periodsperiod in 2016,2018. The increase was primarily driven by strong premium growth in our motor lines, as well as favorable reinstatement premiums impacting our catastrophe lines,accident and favorable premium estimate adjustments impacting our agriculturehealth, and marine and other lines, partially offset by an increase in ceded premiums earned in our catastrophe, agriculture and professional lines, as well as a decrease in gross premium earned in our professionalcredit and surety lines.
The increase in netNet premiums earned decreased by $20 million or 1% ($11 million or 1% on a constant currency basis) in theour reinsurance segment for the nine months ended September 30, 2017,2019, compared to the same periodsperiod in 2016,2018. The decrease was driven by an increase in gross premium earned in ourcredit and surety, and motor and agriculture lines, partially offset by an increaseincreases in ceded premiums earned in our agricultureaccident and professional lines, together with a decrease in gross premiums earned in our professionalhealth, and marine and other lines.
Other Insurance Related Income (Losses)(Loss):
Other insurance related lossesincome was $3$2 million for the three months ended September 30, 2017,2019, compared to other insurance related income of $6$8 million for the same period in 2016. The decrease in other insurance related income of $9 million was driven by the reinsurance segment and reflected a decrease in profit commissions associated withretrocessional agreements with strategic capital partner related to the third quarter catastrophe losses.2018.
Other insurance related lossesincome was $11 million for the nine months ended September 30, 2017 was $4 million,2019, compared to other insurance related income of $5$19 million for the same period in 2016. The decrease in other insurance related income of $9 million was driven by the reinsurance segment and reflected net realized losses on our weather and commodities derivative portfolio partially offset by fees from our strategic capital partners.2018.
UNDERWRITING EXPENSESUnderwriting Expenses
The following table provides a breakdown of our combined ratio:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | % Point Change | | 2016 | | 2017 | | % Point Change | | 2016 | |
| | | | | | | | | | | | | |
| Current accident year loss ratio | 126.2 | % | | 61.1 | | 65.1 | % | | 88.2 | % | | 20.4 | | 67.8 | % | |
| Prior year reserve development | (4.7 | %) | | 3.4 | | (8.1 | %) | | (4.9 | %) | | 3.1 | | (8.0 | %) | |
| Acquisition cost ratio | 19.1 | % | | (1.2) | | 20.3 | % | | 20.0 | % | | (0.1) | | 20.1 | % | |
| General and administrative expense ratio(1) | 12.3 | % | | (3.0) | | 15.3 | % | | 14.8 | % | | (1.0) | | 15.8 | % | |
| Combined ratio | 152.9 | % | | 60.3 | | 92.6 | % | | 118.1 | % | | 22.4 | | 95.7 | % | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Point Change | | 2018 | | 2019 | | % Point Change | | 2018 | |
| | | | | | | | | | | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 61.7 | % | | 0.5 | | 61.2 | % | | 60.1 | % | | (0.3) | | 60.4 | % | |
| Catastrophe and weather-related losses ratio | 14.1 | % | | 6.6 | | 7.5 | % | | 5.9 | % | | 1.4 | | 4.5 | % | |
| Current accident year loss ratio | 75.8 | % | | 7.1 | | 68.7 | % | | 66.0 | % | | 1.1 | | 64.9 | % | |
| Prior year reserve development ratio | (2.3 | %) | | 1.5 | | (3.8 | %) | | (1.9 | %) | | 2.5 | | (4.4 | %) | |
| Net losses and loss expenses ratio | 73.5 | % | | 8.6 | | 64.9 | % | | 64.1 | % | | 3.6 | | 60.5 | % | |
| Acquisition cost ratio | 22.5 | % | | 2.2 | | 20.3 | % | | 22.3 | % | | 2.5 | | 19.8 | % | |
| General and administrative expense ratio(1) | 13.4 | % | | 0.7 | | 12.7 | % | | 14.5 | % | | 0.8 | | 13.7 | % | |
| Combined ratio | 109.4 | % | | 11.5 | | 97.9 | % | | 100.9 | % | | 6.9 | | 94.0 | % | |
| | | | | | | | | | | | | |
| |
(1) | The general and administrative expense ratio includes corporate expenses not allocated to reportable segments of 2.7%2.5% and 3.1%2.0% for the three months ended September 30, 20172019 and 2016,2018, respectively and 3.3%2.9% and 3.1%2.4% for the sixnine months ended September 30, 20172019 and 2016,2018, respectively. These costs are further discussed in the ‘'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Expenses (Revenues), Net’ section.Net'. |
Current Accident Year Loss Ratio:Ratio:
The current accident year loss ratio increased to 126.2%75.8% and 88.2%66.0% for the three and nine months ended September 30, 2017,2019, respectively, from 65.1%68.7% and 67.8%64.9% for the three and nine months ended September 30, 2016,2018, respectively.
The increase in the current accident year loss ratio for the three and nine months ended September 30, 20172019, compared to the same periodperiods in 2016,2018, was impacted by a higher level of catastrophe and weather-related losses. During the three and nine months ended September 30, 20172019, we incurred pre-tax catastrophe and weather-related losses, net of reinstatement premiums, of $617$160 million or 61.414.1 points and $702$196 million or 24.15.9 points, respectively, primarily attributable to Hurricanes Harvey, IrmaHurricane Dorian, the Japanese typhoons, and Maria, the two earthquakes in Mexico and U.S.other weather-related events. Comparatively, during the three and nine months ended September 30, 20162018, we incurred pre-tax catastrophe and weather-related losses, net of reinstatement premiums of $22$92 million or 2.37.5 points and $145$162 million or 5.34.5 points, respectively.
After adjusting for the impact of the catastrophe and weather-related losses, our current accident year loss ratio for the three and nine months ended September 30, 20172019 was 64.8%61.7% and 64.1%60.1%, respectively, compared to 62.8%61.2% and 62.5% in60.4% for the three and nine months ended September 30, 2016,2018, respectively.
The increase in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses for the three months ended September 30, 20172019, compared to the same periodperiods in 2016,2018, was mainlyprincipally due to higher attritional losseschanges in our insurance property lines, higher mid-size loss experience in our reinsurance credit and surety lines,business mix, partially offset by the ongoing impact of the Ogden rate change on our reinsurance motor lines together with the adverse impact on rate and trend.improved pricing over loss trends.
The increasedecrease in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses for the nine months ended September 30, 20172019, compared to the same periodperiods in 2016,2018, was mainlyprincipally due to higher loss experience in our insurance and reinsurance property lines, the adverse impact on rate and trend and the ongoing impact of the Ogden rate change on our reinsurance motor lines.improved pricing over loss trends.
For further discussion on current accident year loss ratios, refer to the insurance and reinsurance segment discussions below.
Estimates of Significant Catastrophe EventsEvents:
Our September 30, 20172019, net reserves for losses and loss expenses includesincluded estimated amounts for numerous catastrophe events. We caution that the magnitude and/or complexity of losses arising from certain of these events, in particular Hurricane Dorian, Japanese Typhoons Faxai and Tapah which occurred in 2019 together with the California Wildfires, Hurricanes Michael and Florence, and Typhoons Jebi and Trami which occurred in 2018 as well as Hurricanes Harvey, Irma and Maria and the two earthquakesCalifornia Wildfires which occurred in Mexico as well as Hurricane Matthew, the Fort McMurray wildfires, Storm Sandy, the 2011 Japanese earthquake and tsunami, the 2010-11 New Zealand earthquakes and the Tianjin port explosion,2017, inherently increasesincrease the level of uncertainty and, therefore, the level of management judgment involved in arriving at our estimated net reserves for losses and loss expenses. As a result, our actual losses for these events may ultimately differ materially from our current estimates.
Our estimated net reserves for losses and loss expenses in relation to the catastrophe events described above were derived from ground-up assessments of our in-force contracts and treaties providing coverage in the affected regions. These assessments take into account the latest information available from clients, brokers and loss adjusters. In addition, we consider industry insured loss estimates, market share analyses and catastrophe modeling analyses, when appropriate. Our estimates remain subject to change, as additional loss data becomes available.
We continue to monitor paid and incurred loss development for catastrophe events of prior years and update our estimates of ultimate losses accordingly.
Prior Year Reserve Development:Development:
OurNet favorable prior year reserve development was the net resultarises from changes to estimates of several underlying reserve developments on prior accident years, identified during our quarterly reserve review process.losses and loss expenses related to loss events that occurred in previous calendar years. The following table provides a breakdown ofpresents net prior year reserve development by segment:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| Insurance | $ | 2,603 |
| | $ | 20,688 |
| | $ | 30,740 |
| | $ | 43,181 |
| |
| Reinsurance | 45,165 |
| | 55,331 |
| | 112,755 |
| | 180,950 |
| |
| Total | $ | 47,768 |
| | $ | 76,019 |
| | $ | 143,495 |
| | $ | 224,131 |
| |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Insurance | $ | 14,609 |
| | $ | 13,478 |
| | $ | 42,849 |
| | $ | 60,547 |
| |
| Reinsurance | 12,118 |
| | 32,182 |
| | 22,172 |
| | 99,536 |
| |
| Total | $ | 26,727 |
| | $ | 45,660 |
| | $ | 65,021 |
| | $ | 160,083 |
| |
| | | | | | | | | |
Overview
Our short tailShort-tail business
Short-tail business includes the underlying exposures in ourthe property and other, marine and aviation reserve classes within ourin the insurance segment, and the property and other reserve class within ourin the reinsurance segment. Development from these classes contributed $5 million and $41 million of net favorable prior year reserve development for the three and nine months ended September 30, 2017, respectively. These short-tail lines contributed $41 million and $116 million of net favorable prior year reserve development for the three and nine months ended September 30, 2016, respectively. The net favorable development for these classes primarily reflected the recognition of better than expected loss emergence.
Our medium-tail business consists primarily of professional insurance and reinsurance reserve classes, credit and political risk insurance reserve class, and credit and surety reinsurance reserve class. For the three months ended September 30, 2017, the professional reinsurance reserve class contributed net favorable prior year reserve development of $9 million. For the nine months ended September 30, 2017, the professional insurance and reinsuranceThese reserve classes contributed net favorable prior year reserve development of $54 million. For$2 million for the three and nine months ended September 30, 2017 the credit and surety reinsurance reserve class recorded2019, including net favorable prior year reserve development of $17$11 million contributed by the insurance property and $18 million, respectively. Thisother reserve class and net favorable prior year reserve development reflectedof $3 million contributed by the recognitioninsurance marine and aviation reserve classes, partially offset by net adverse prior year reserve development of generally better than expected loss emergence.$12 million recognized by the reinsurance property and other reserve class.
ForThese reserve classes recognized net adverse prior year reserve development of $50 million for the three and nine months ended September 30, 2016,2019, including net adverse prior year reserve development of $71 million recognized by the professionalreinsurance property and other reserve class and net adverse prior year reserve development of $4 million recognized by the insurance property and other reserve class, partially offset by net favorable prior year reserve development of $24 million contributed by the insurance marine reserve class. The net adverse prior year reserve development of $71 million recognized by the reinsurance property and other reserve class reflected overall better than expected loss emergence related to the 2018 catastrophe events and reserve strengthening within our European proportional book of business.
These reserve classes contributed net favorable prior year reserve development of $12 million and $28$92 million respectively. Thefor the three and nine months ended September 30, 2018, respectively, reflecting overall better than expected loss emergence related to the 2017 catastrophe events.
Medium-tail business
Medium-tail business consists primarily of insurance and reinsurance professional lines reserve classes, insurance credit and political risk reserve class and reinsurance credit and surety reserve class.
Insurance professional lines reserve class recorded net favorable prior year reserve development on these reserve classes reflectedof $4 million and $14 million for the three and nine months ended September 30, 2019, respectively, and $10 million and $12 million for the three and nine months ended
September 30, 2018, respectively, reflecting generally favorable experience as we continued to transition to more experienceexperienced based actuarial methods.
Our long-tail business consistsReinsurance professional lines reserve class recorded net adverse prior year reserve development of $7 million for the three months ended September 30, 2019, primarily due to reserve strengthening within our European book of liabilitybusiness.
Reinsurance professional lines reserve class recorded net favorable prior year reserve development of $10 million and motor$18 million for the three and nine months ended September 30, 2018, respectively, reflecting generally favorable experience on older accident years as we continued to transition to more experienced based actuarial methods.
Insurance credit and political risk reserve classes. Forclass recorded net favorable prior year reserve development of $10 million for the nine months ended September 30, 2017,2019, reflecting the recognition of better than expected loss emergence.
Reinsurance credit and surety reserve class recorded net favorable prior year reserve development of $6 million and $33 million for the three and nine months ended September 30, 2019, respectively, and $6 million and $21 million for the three and nine months ended September 30, 2018, respectively, reflecting the recognition of better than expected loss emergence.
Long-tail business
Long-tail business consists primarily of insurance and reinsurance liability reserve classes and reinsurance motor reserve class.
Insurance liability reserve class recorded net adverse prior year reserve development of $4 million for the three months ended September 30, 2019, and $11 million and $18 million for the three and nine months ended September 30, 2018, respectively, primarily due to reserve strengthening within our U.S. excess casualty book of business.
Reinsurance liability reserve class contributed net favorable prior year reserve development of $40 million. For$26 million for the three and nine months ended and September 30, 2016, the liability reinsurance reserve class contributed net favorable prior year development of $10 million and $32 million, respectively. The net favorable prior year reserve development for our liability reinsurance reserve class in both years primarily reflected the progressively2019, due to increased weight given by management to experience based indications on older accident years, which has generally been favorable. For the nine months ended September 30, 2017, theyears.
Reinsurance liability insurance reserve class recordedcontributed net adversefavorable prior year reserve development of $6$11 million primarily attributable to reserve strengthening within our run-off Bermuda excess casualty book of business.
Forand $19 million for the three and nine months ended September 30, 2018, respectively, largely associated with multi-line contracts due to overall better than expected loss emergence related to the 2017 catastrophe events. The net favorable prior year reserve development for the nine months ended September 30, 2018 was also due to increased weight given by management to experience based indications on older accident years.
Reinsurance motor reinsurance reserve class recordedcontributed net favorable prior year reserve development of $16$23 million and net adverse prior year reserve development of $4$34 million respectively. For the three months ended September 30, 2017, the net favorable prior year reserve development related to favorable loss emergence trends on several classes of
business spanning multiple accident years. For the nine months ended, the net adverse prior year development was driven by the U.K. Ministry of Justice’s recent announcement of a decrease in the discount rate used to calculate lump sum awards in U.K. bodily injury cases, known as the Ogden rate. Effective March 20, 2017, the Ogden rate changed from plus 2.5% to minus 0.75%. Forfor the three and nine months ended September 30, 2016, the motor reinsurance reserve class contributed2019, respectively, and $7 million and $40$15 million for the three and nine months ended September 30, 2018, respectively, of net favorable prior year reserve development relatedprimarily attributable to favorable loss emergence trends on several classes of business spanning multiple accident years.non proportional treaty business.
We caution that conditions and trends that impacted the development of our liabilities in the past may not necessarily occur in the future.
The following tables map our lines of business to reserve classes and the expected claim tails:
|
| | | | | | |
Insurance segment | | | | | |
| Reserve class and tail |
| | | | | | |
| Property and other | Marine | Aviation | Credit and political risk | Professional lines | Liability |
| | | | | | |
| Short | Short | Short/Medium | Medium | Medium | Long |
| | | | | | |
Reported lines of business | | | | | | |
Property | X | | | | | |
Marine | | X | | | | |
Terrorism | X | | | | | |
Aviation | | | X | | | |
Credit and political risk | | | | X | | |
Professional lines | | | | | X | |
Liability | | | | | | X |
Accident and health | X | | | | | |
Discontinued lines - Novae | X | | | | X | X |
|
| | | | | |
Reinsurance segment | | | | |
| Reserve class and tail |
| | | | | |
| Property and other | Credit and surety | Professional lines | Motor | Liability |
| | | | | |
| Short | Medium | Medium | Long | Long |
| | | | | |
Reported lines of business | | | | | |
Catastrophe | X | | | | |
Property | X | | | | |
Credit and surety | | X | | | |
Professional lines | | | X | | |
Motor | | | | X | |
Liability | | | | | X |
Engineering | X | | | | |
Agriculture | X | | | | |
Marine and other | X | | | | |
Accident and health | X | | | | |
Discontinued lines - Novae | X | | | X | X |
The following sections provide further details on prior year reserve development by segment, reservingreserve class and accident year.
Insurance Segment:Segment:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| Property and other | $ | 432 |
| | $ | 10,061 |
| | $ | 4,434 |
| | $ | 24,048 |
| |
| Marine | 2,461 |
| | 4,682 |
| | 17,957 |
| | 8,382 |
| |
| Aviation | (831 | ) | | 517 |
| | (4,344 | ) | | 437 |
| |
| Credit and political risk | (18 | ) | | (25 | ) | | (53 | ) | | (232 | ) | |
| Professional lines | (261 | ) | | 3,378 |
| | 18,489 |
| | 8,956 |
| |
| Liability | 820 |
| | 2,075 |
| | (5,743 | ) | | 1,590 |
| |
| Total | $ | 2,603 |
| | $ | 20,688 |
| | $ | 30,740 |
| | $ | 43,181 |
| |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Property and other | $ | 11,427 |
| | $ | 16,365 |
| | $ | (4,426 | ) | | $ | 55,872 |
| |
| Marine | 2,119 |
| | (220 | ) | | 23,753 |
| | 14,415 |
| |
| Aviation | 471 |
| | (2,299 | ) | | 1,671 |
| | (4,752 | ) | |
| Credit and political risk | 1,217 |
| | 1,164 |
| | 10,278 |
| | 1,241 |
| |
| Professional lines | 3,656 |
| | 9,964 |
| | 13,899 |
| | 12,199 |
| |
| Liability | (4,281 | ) | | (11,496 | ) | | (2,326 | ) | | (18,428 | ) | |
| Total | $ | 14,609 |
| | $ | 13,478 |
| | $ | 42,849 |
| | $ | 60,547 |
| |
| | | | | | | | | |
For the three months endedSeptember 30, 2017 we recognized $3 million
$2 million of net favorable prior year reserve development on marine business, primarily related to accident year 2015 and primarily driven by better than expected development.
For the three months ended September 30, 20162019, we recognized $21 million of net favorable prior year reserve development, the principal components of which were:
$10 million of net favorable prior year reserve development on property and other business, driven by better than expected loss emergence, primarily driven by reductions in mid-size loss estimates impacting accident year 2015 and favorable loss experience in our accident and health lines impacting accident year 2014.
$5 million of net favorable prior year reserve development on marine business, driven by better than expected loss emergence, primarily driven by reductions in mid-size loss estimates impacting accident year 2015.
For the nine months ended September 30, 2017 we recognized $31$15 million of net favorable prior year reserve development, the principal components of which were:
$1811 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.
$4 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence related to accident yearsthe 2013 and 2014 accident years.
$4 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within our U.S. excess casualty book of business related to older accident years.
For the recognitionthree months ended September 30, 2018, we recognized $13 million of better than expected development.net favorable prior year reserve development, the principal components of which were:
$1816 million of net favorable prior year reserve development on marineproperty and other business primarily relateddue to accident years 2013, 2015 and 2016 driven byoverall better than expected loss emergence.emergence related to the 2017 catastrophe events.
$610 million of net favorable prior year reserve development on professional lines business primarily due to better than expected development related to the 2015 accident year.
$11 million of net adverse prior year reserve development on liability lines,business primarily attributabledue to reserve strengthening on two large claims within our run-off BermudaU.S. excess casualty book of business impacting 2014mainly driven by a higher frequency of large auto and priorgeneral liability claims related to the 2015 accident years.year.
For the nine months ended September 30, 20162019, we recognized $43 million of net favorable prior year reserve development, the principal components of which were:
$24 million of net favorable prior year reserve development on marine business primarily due to better than expected loss emergence related to the 2015 to 2017 accident years.
$14 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence related to the 2013 to 2015 accident years.
$10 million of net favorable prior year reserve development on credit and political risk business primarily due to better than expected loss emergence related to the 2018 accident year.
$4 million of net adverse prior year reserve development on property and other business primarily due to reserve strengthening within our international book of business mainly related to the 2018 accident year, partially offset by the recognition of better than expected loss emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.
For the nine months ended September 30, 2018, we recognized $61 million of net favorable prior year reserve development, the principal components of which were:
$56 million of net favorable prior year reserve development on property and other business driven byprimarily due to overall better than expected loss emergence primarily related to accident year 2014.the 2017 catastrophe events.
$9 million of net favorable prior year reserve development on professional lines business, driven by better than expected
development related to various accident years, partially offset by reserve strengthening relating to updated information on one specific claim impacting accident year 2010.
$814 million of net favorable prior year reserve development on marine business driven by better than expected loss emergence, primarily driven by reductions in mid-size loss estimates impacting accident year 2015.
Reinsurance Segment:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| Property and other | $ | 3,041 |
| | $ | 25,831 |
| | $ | 22,482 |
| | $ | 83,522 |
| |
| Credit and surety | 16,838 |
| | 3,900 |
| | 18,361 |
| | 6,761 |
| |
| Professional lines | 8,918 |
| | 8,761 |
| | 35,764 |
| | 18,918 |
| |
| Motor | 15,653 |
| | 6,653 |
| | (3,963 | ) | | 39,794 |
| |
| Liability | 715 |
| | 10,186 |
| | 40,111 |
| | 31,955 |
| |
| Total | $ | 45,165 |
| | $ | 55,331 |
| | $ | 112,755 |
| | $ | 180,950 |
| |
| | | | | | | | | |
For the three months endedSeptember 30, 2017 we recognized $45 million of net favorable prior year reserve development, the principal components of which were:
$17 million of net favorable prior year reserve development on credit and surety, primarily related to accident years 2012 through 2015 driven by better than expected loss emergence.
$16 million of net favorable prior year reserve development on motor business, due to better than expected loss emergence emanating from allon recent accident years, partially offset by the adverse impact of the recent change in Ogden rate.years.
$912 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence related to earlierthe 2015 accident year, 2009 for reasons discussed inpartially offset by net adverse reserve development related to the overview.2017 accident year.
$18 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within our U.S. excess casualty book of business mainly driven by a higher frequency of large auto and general liability claims related to the 2015 and 2017 accident years.
Reinsurance Segment:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Property and other | $ | (12,283 | ) | | $ | (1,691 | ) | | $ | (71,227 | ) | | $ | 26,461 |
| |
| Credit and surety | 5,652 |
| | 6,334 |
| | 32,659 |
| | 21,001 |
| |
| Professional lines | (7,303 | ) | | 10,279 |
| | 641 |
| | 18,385 |
| |
| Motor | 22,902 |
| | 6,512 |
| | 33,964 |
| | 15,037 |
| |
| Liability | 3,150 |
| | 10,748 |
| | 26,135 |
| | 18,652 |
| |
| Total | $ | 12,118 |
| | $ | 32,182 |
| | $ | 22,172 |
| | $ | 99,536 |
| |
| | | | | | | | | |
For the three months ended September 30, 20162019, we recognized $55$12 million of net favorable prior year reserve development, the principal components of which were:
$23 million of net favorable prior year reserve development on motor business primarily attributable to non proportional treaty business related to recent accident years.
$6 million of net favorable prior year reserve development on credit and surety business primarily due to generally better than expected loss emergence related to several accident years.
$12 million of net adverse prior year reserve development on property and other business primarily due to reserve strengthening due to late reporting of claims bordereaux associated with our European proportional book of business related to the 2018 accident year.
| |
• | $7 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within our European book of business related to the 2015 and 2016 accident years. |
For the three months ended September 30, 2018, we recognized $32 million of net favorable prior year reserve development, the principal components of which were:
$11 million of net favorable prior year reserve development on liability business largely associated with multi-line contracts due to overall better than expected loss emergence related to the 2017 catastrophe events.
$10 million of net favorable prior year reserve development on professional lines business reflecting the generally favorable experience on older accident years as we continued to transition to more experience based actuarial methods.
$7 million of net favorable prior year reserve development on motor business primarily due to favorable experience on non proportional treaty business related to older accident years.
$6 million of net favorable prior year reserve development on credit and surety business primarily due to generally better than expected loss emergence.
For the nine months ended September 30, 2019, we recognized $22 million of net favorable prior year reserve development, the principal components of which were:
$34 million of net favorable prior year reserve development on motor business primarily attributable to non proportional treaty business related to several accident years.
$33 million of net favorable prior year reserve development on credit and surety business primarily due to generally better than expected loss emergence primarily related to the 2015 and 2016 accident years.
$26 million of net favorable prior year reserve development on liability business primarily due to increased weight given by management to experience based indications on older accident years.
$71 million of net adverse prior year reserve development on property and other business primarily due to an increase in loss estimates attributable to Typhoons Jebi and Trami consistent with updated industry insured loss estimates, an increase in loss estimates attributable to Hurricane Michael, and reserve strengthening due to late reporting of claims bordereaux associated with our European proportional book of business related to the 2018 accident year.
For the nine months ended September 30, 2018, we recognized $100 million of net favorable prior year reserve development, the principal components of which were:
$26 million of net favorable prior year reserve development on property and other business relatedprimarily due to 2011 through 2015 accident years driven byoverall better than expected loss emergence including a reserve reduction of $7 million related to Storm Sandy.
$10 million of net favorable prior year reserve development on liability business, primarily related to the 2007 through 2010 accident years, for reasons discussed in the overview.
$9 million of net favorable prior year reserve development on professional lines business, primarily related to the 2005 through 2010 accident years, for reasons discussed in the overview.
$7 million of net favorable prior year reserve development on motor business, related to non-proportional business spanning multiple accident years, driven by2017 catastrophe events and better than expected loss emergence.
For the nine months ended September 30, 2017 we recognized $113 million of net favorable prior year reserve development, the principal components of which were:
$40 million of net favorable prior year reserve development on liability business, primarilyemergence related to accident years 2008 through 2010, for reasons discussed in the overview.agriculture business.
$36 million of net favorable prior year reserve development on professional lines business, primarily related to accident years 2008 through 2012, for reasons discussed in the overview.
$22 million of net favorable prior year reserve development on property and other business, primarily related to 2013, 2014 and 2016 accident years driven by overall better than expected loss emergence.
$1821 million of net favorable prior year reserve development on credit and surety business primarily relateddue to accident year 2012 driven by better than expected loss emergence.
$4 million of net adverse prior year reserve development on motor business related to the impact of the recent change in Ogden rate, largely offset by continuedgenerally better than expected loss emergence spanning multipleprimarily related to older accident years.
For the nine months ended September 30, 2016 we recognized $181 million of net favorable prior year reserve development, the principal components of which were:
$8419 million of net favorable prior year reserve development on property and otherliability business primarily relatedlargely associated with multi-line contracts due to the 2010 through 2015 accident years driven byoverall better than expected loss emergence.emergence related to the 2017 catastrophe events and due to increased weight given by management to experience based indications on older accident years.
$4018 million of net favorable prior year reserve development on professional lines business reflecting the generally favorable experience on older accident years as we continued to transition to more experience based actuarial methods.
$15 million of net favorable prior year reserve development on motor business primarily due to favorable experience on non proportional treaty business related to non-proportional business spanning multipleolder accident years, driven by better than expected loss emergence.years.
$32 million of net favorable prior year reserve development on liability business, primarily related to the 2006 through 2011 accident years, for reasons discussed in the overview.
$19 million of net favorable prior year reserve development on professional lines business, primarily related to the 2005 through 2010 accident years, for reasons discussed in the overview.
Acquisition Cost Ratio:Ratio:
The acquisition cost ratio decreasedincreased to 19.1%22.5% and 20.0%22.3% for the three and nine months ended September 30, 2017,2019, respectively, from 20.3% and 20.1% in the three and nine months ended September 30, 2016, respectively, driven by our reinsurance segment and primarily attributable to changes in business mix.
General and Administrative Expense Ratio:
The general and administrative expense ratio decreased to 12.3% and 14.8%19.8% for the three and nine months ended September 30, 2017, from 15.3%2018. The increase was primarily attributable to the insurance segment, largely associated with the acquisition of Novae.
General and 15.8% inAdministrative Expense Ratio:
The general and administrative expense ratio increased to 13.4% and 14.5% for the three and nine months ended September 30, 20162019, respectively, from 12.7% and 13.7% for the three and nine months ended September 30, 2018 The increase was primarily reflectingattributable to the insurance segment primarily driven by a decrease in performance related compensation costs and an increase in fees from strategic capital partners.net premiums earned.
RESULTS BY SEGMENT
INSURANCE SEGMENTInsurance Segment
Results from ourthe insurance segment were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | % Change | | 2016 | | 2017 | | % Change | | 2016 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 744,366 |
| | 10% | | $ | 675,430 |
| | $ | 2,234,395 |
| | 6% | | $ | 2,112,796 |
| |
| Net premiums written | 500,022 |
| | 15% | | 433,131 |
| | 1,533,029 |
| | 7% | | 1,433,058 |
| |
| Net premiums earned | 496,004 |
| | 12% | | 444,691 |
| | 1,448,270 |
| | 9% | | 1,322,649 |
| |
| Other insurance related income (losses) | 526 |
| | nm | | 39 |
| | 1,077 |
| | nm | | (57 | ) | |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current year net losses and loss expenses | (631,468 | ) | | | | (293,914 | ) | | (1,272,235 | ) | | | | (896,952 | ) | |
| Prior year reserve development | 2,603 |
| | | | 20,688 |
| | 30,740 |
| | | | 43,181 |
| |
| Acquisition costs | (74,231 | ) | | | | (61,755 | ) | | (223,665 | ) | | | | (184,982 | ) | |
| General and administrative expenses | (75,038 | ) | | | | (84,588 | ) | | (253,308 | ) | | | | (252,652 | ) | |
| | | | | | | | | | | | | |
| Underwriting income (loss) | $ | (281,604 | ) | | nm | | $ | 25,161 |
| | $ | (269,121 | ) | | nm | | $ | 31,187 |
| |
| | | | | | | | | | | | | |
| Ratios: | | | % Point Change | | | | | | % Point Change | | | |
| Current accident year loss ratio | 127.3 | % | | 61.2 | | 66.1 | % | | 87.8 | % | | 20.0 | | 67.8 | % | |
| Prior year reserve development | (0.5 | %) | | 4.2 | | (4.7 | %) | | (2.1 | %) | | 1.1 | | (3.2 | %) | |
| Acquisition cost ratio | 15.0 | % | | 1.1 | | 13.9 | % | | 15.4 | % | | 1.4 | | 14.0 | % | |
| General and administrative expense ratio | 15.1 | % | | (4.0) | | 19.1 | % | | 17.6 | % | | (1.4) | | 19.0 | % | |
| Combined ratio | 156.9 | % | | 62.5 | | 94.4 | % | | 118.7 | % | | 21.1 | | 97.6 | % | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 894,902 |
| | (8%) | | $ | 969,364 |
| | $ | 2,714,322 |
| | (6%) | | $ | 2,876,856 |
| |
| Net premiums written | 517,050 |
| | (14%) | | 602,070 |
| | 1,638,197 |
| | (6%) | | 1,748,142 |
| |
| Net premiums earned | 536,451 |
| | (13%) | | 614,795 |
| | 1,630,473 |
| | (8%) | | 1,772,126 |
| |
| Other insurance related income | 733 |
| | (52%) | | 1,526 |
| | 1,779 |
| | (47%) | | 3,359 |
| |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current year net losses and loss expenses | (353,575 | ) | | | | (428,966 | ) | | (1,004,293 | ) | | | | (1,126,346 | ) | |
| Prior year reserve development | 14,609 |
| | | | 13,478 |
| | 42,849 |
| | | | 60,547 |
| |
| Acquisition costs | (115,551 | ) | | | | (111,888 | ) | | (344,981 | ) | | | | (290,082 | ) | |
| General and administrative expenses | (100,559 | ) | | | | (100,656 | ) | | (311,491 | ) | | | | (305,394 | ) | |
| | | | | | | | | | | | | |
| Underwriting income (loss) | $ | (17,892 | ) | | 53% | | $ | (11,711 | ) | | $ | 14,336 |
| | (87%) | | $ | 114,210 |
| |
| | | | | | | | | | | | | |
| Ratios: | | | % Point Change | | | | | | % Point Change | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 58.2 | % | | (1.5) | | 59.7 | % | | 57.7 | % | | 0.4 | | 57.3 | % | |
| Catastrophe and weather-related losses ratio | 7.7 | % | | (2.4) | | 10.1 | % | | 3.9 | % | | (2.4) | | 6.3 | % | |
| Current accident year loss ratio | 65.9 | % | | (3.9) | | 69.8 | % | | 61.6 | % | | (2.0) | | 63.6 | % | |
| Prior year reserve development ratio | (2.7 | %) | | (0.5) | | (2.2 | %) | | (2.6 | %) | | 0.9 | | (3.5 | %) | |
| Net losses and loss expenses ratio | 63.2 | % | | (4.4) | | 67.6 | % | | 59.0 | % | | (1.1) | | 60.1 | % | |
| Acquisition cost ratio | 21.5 | % | | 3.3 | | 18.2 | % | | 21.2 | % | | 4.8 | | 16.4 | % | |
| General and administrative expense ratio | 18.8 | % | | 2.4 | | 16.4 | % | | 19.0 | % | | 1.8 | | 17.2 | % | |
| Combined ratio | 103.5 | % | | 1.3 | | 102.2 | % | | 99.2 | % | | 5.5 | | 93.7 | % | |
| | | | | | | | | | | | | |
nm – not meaningful
Gross Premiums Written:Written:
The following table provides gross premiums written by line of business:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2017 | | | | 2016 | | | | % Change | | 2017 | | | | 2016 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Property | $ | 154,882 |
| | 19 | % | | $ | 164,605 |
| | 25 | % | | (6%) | | $ | 498,127 |
| | 22 | % | | $ | 522,380 |
| | 24 | % | | (5%) | |
| Marine | 42,483 |
| | 6 | % | | 33,677 |
| | 5 | % | | 26% | | 182,005 |
| | 8 | % | | 191,298 |
| | 9 | % | | (5%) | |
| Terrorism | 12,147 |
| | 2 | % | | 9,394 |
| | 1 | % | | 29% | | 34,470 |
| | 2 | % | | 28,090 |
| | 1 | % | | 23% | |
| Aviation | 23,814 |
| | 3 | % | | 9,684 |
| | 1 | % | | nm | | 59,434 |
| | 3 | % | | 37,111 |
| | 2 | % | | 60% | |
| Credit and Political Risk | 19,793 |
| | 3 | % | | 5,423 |
| | 1 | % | | nm | | 51,105 |
| | 2 | % | | 34,299 |
| | 2 | % | | 49% | |
| Professional Lines | 213,009 |
| | 29 | % | | 204,926 |
| | 30 | % | | 4% | | 612,597 |
| | 27 | % | | 590,417 |
| | 28 | % | | 4% | |
| Liability | 131,975 |
| | 18 | % | | 108,447 |
| | 16 | % | | 22% | | 359,304 |
| | 16 | % | | 310,797 |
| | 15 | % | | 16% | |
| Accident and Health | 146,263 |
| | 20 | % | | 139,274 |
| | 21 | % | | 5% | | 437,353 |
| | 20 | % | | 398,404 |
| | 19 | % | | 10% | |
| Total | $ | 744,366 |
| | 100 | % | | $ | 675,430 |
| | 100 | % | | 10% | | $ | 2,234,395 |
| | 100 | % | | $ | 2,112,796 |
| | 100 | % | | 6% | |
| | | | | | | | | | | | | | | | | | | | | |
| Constant currency(1) | $ | 743,500 |
| | | | $ | 675,430 |
| | | | 10% | | $ | 2,245,400 |
| | | | $ | 2,112,796 |
| | | | 6% | |
| | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2019 | | | | 2018 | | | | % Change | | 2019 | | | | 2018 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Property | $ | 241,517 |
| | 27 | % | | $ | 307,014 |
| | 33 | % | | (21%) | | $ | 701,314 |
| | 27 | % | | $ | 946,956 |
| | 34 | % | | (26%) | |
| Marine | 91,161 |
| | 10 | % | | 88,412 |
| | 9 | % | | 3% | | 337,529 |
| | 12 | % | | 310,844 |
| | 11 | % | | 9% | |
| Terrorism | 17,284 |
| | 2 | % | | 16,032 |
| | 2 | % | | 8% | | 46,803 |
| | 2 | % | | 48,743 |
| | 2 | % | | (4%) | |
| Aviation | 17,623 |
| | 2 | % | | 24,116 |
| | 2 | % | | (27%) | | 53,832 |
| | 2 | % | | 66,178 |
| | 2 | % | | (19%) | |
| Credit and political risk | 32,528 |
| | 4 | % | | 44,761 |
| | 5 | % | | (27%) | | 114,511 |
| | 4 | % | | 120,227 |
| | 4 | % | | (5%) | |
| Professional lines | 272,362 |
| | 30 | % | | 281,928 |
| | 29 | % | | (3%) | | 820,953 |
| | 30 | % | | 787,136 |
| | 27 | % | | 4% | |
| Liability | 186,253 |
| | 21 | % | | 153,356 |
| | 16 | % | | 21% | | 518,925 |
| | 19 | % | | 409,184 |
| | 14 | % | | 27% | |
| Accident and health | 34,054 |
| | 4 | % | | 42,883 |
| | 4 | % | | (21%) | | 113,228 |
| | 4 | % | | 173,421 |
| | 6 | % | | (35%) | |
| Discontinued lines - Novae | 2,120 |
| | — | % | | 10,862 |
| | 1 | % | | (80%) | | 7,227 |
| | — | % | | 14,167 |
| | — | % | | (49%) | |
| Total | $ | 894,902 |
| | 100 | % | | $ | 969,364 |
| | 100 | % | | (8%) | | $ | 2,714,322 |
| | 100 | % | | $ | 2,876,856 |
| | 100 | % | | (6%) | |
| | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
| |
(1) | Amounts presented on a constant currency basis are non-GAAP financial measures as defined in SEC Regulation G. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance. |
Gross premiums written for the three months ended September 30, 2017 increased2019 decreased by $69$74 million or 10%8% ($63 million or 7% on a constant currency basis), compared to the three months ended September 30, 2016.2018. The decrease was attributable to property, credit and political risk, professional lines, and accident and health lines, partially offset by increases in liability lines.
The decrease in property lines was due to non-renewals associated with underwriting actions taken in recent years to reposition the portfolio, partially offset by new business. The decrease in credit and political risk was due to reduced business opportunities. The decreases in professional lines, and accident and health lines were due to non-renewals and the cancellation of certain program business associated with underwriting actions taken in recent years to reposition the portfolio. The increase in gross premiums written was attributable to ourin liability lines and our credit and political risk lineswas driven by new business opportunities, together with an increase in our aviation lines associated with our recent acquisition of Aviabel. These increases were partially offset by a reduction in premiums written in our property lines following our exit from some retail insurance operations in the U.S. last year.and favorable rate changes.
Gross premiums written for the nine months ended September 30, 2017 increased2019 decreased by $122$163 million or 6% ($125 million or 4% on a constant currency basis), compared to the nine months ended September 30, 2016.2018. The increasedecrease was attributable to property, and accident and health lines, partially offset by increases in liability, professional lines, and marine lines.
The decrease in property lines was due to the non-renewals associated with underwriting actions taken in recent years to reposition the portfolio and timing differences, partially offset by new business. The decrease in accident and health lines was due to the cancellation of certain program business associated with underwriting actions taken in recent years to reposition the portfolio. The increases in gross premiums written was attributable to ourin liability our accident and healthmarine lines and our professional lines primarilywere driven by new business opportunities, together with anand favorable rate changes. The increase in our aviationprofessional lines associated with our recent acquisition of Aviabel. These increases were partially offset by a reduction in premiums written in our property lines following our exit from some U.S. retail insurance operations last year.was due to new business.
Ceded Premiums Written:Written:
Ceded premiums written for the three and nine months ended September 30, 20172019 were $244$378 million or 33%42% of gross premiums written and $701 million$1.08 billion or 31%40%, of gross premiums written, respectively, compared to $242$367 million or 36%38% of gross premiums written and $680 million$1.13 billion or 32%39% of gross premiums written, respectively, for the three and nine months ended September 30, 2016, respectively.2018.
The decreaseincrease in the ratio of ceded premiums written to gross premiums writtenof $11 million or 3% for the three months ended September 30, 2019 compared to the same period in 2018 was driven by increases in liability, marine and credit and political risk lines, partially offset by a decrease in property lines. The decrease of $53 million or 5% for the nine months ended September 30, 20172019 compared to the same periodsperiod in 2016,2018, was primarily due to an increasedriven by decreases in gross premiums written together with a decrease in premiums ceded in our property and professional lines, partially offset by an increaseincreases in premiums ceded in our liability and credit and political risk lines.
Net Premiums Earned:Earned:
The following table provides net premiums earned by line of business:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2017 | | | | 2016 | | | | % Change | | 2017 | | | | 2016 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Property | $ | 116,771 |
| | 22 | % | | $ | 106,578 |
| | 25 | % | | 10% | | $ | 355,392 |
| | 24 | % | | $ | 312,804 |
| | 23 | % | | 14% | |
| Marine | 34,217 |
| | 7 | % | | 36,218 |
| | 8 | % | | (6%) | | 108,822 |
| | 8 | % | | 113,693 |
| | 9 | % | | (4%) | |
| Terrorism | 8,790 |
| | 2 | % | | 8,276 |
| | 2 | % | | 6% | | 25,577 |
| | 2 | % | | 26,011 |
| | 2 | % | | (2%) | |
| Aviation | 22,500 |
| | 5 | % | | 9,015 |
| | 2 | % | | nm | | 53,265 |
| | 4 | % | | 33,528 |
| | 3 | % | | 59% | |
| Credit and Political Risk | 9,073 |
| | 2 | % | | 12,274 |
| | 3 | % | | (26%) | | 29,957 |
| | 2 | % | | 42,661 |
| | 3 | % | | (30%) | |
| Professional Lines | 126,946 |
| | 26 | % | | 126,574 |
| | 28 | % | | —% | | 379,426 |
| | 26 | % | | 386,241 |
| | 29 | % | | (2%) | |
| Liability | 48,135 |
| | 10 | % | | 42,205 |
| | 9 | % | | 14% | | 134,467 |
| | 9 | % | | 126,429 |
| | 10 | % | | 6% | |
| Accident and Health | 129,572 |
| | 26 | % | | 103,551 |
| | 23 | % | | 25% | | 361,364 |
| | 25 | % | | 281,282 |
| | 21 | % | | 28% | |
| Total | $ | 496,004 |
| | 100 | % | | $ | 444,691 |
| | 100 | % | | 12% | | $ | 1,448,270 |
| | 100 | % | | $ | 1,322,649 |
| | 100 | % | | 9% | |
| | | | | | | | | | | | | | | | | | | | | |
| Constant currency(1) | $ | 497,350 |
| | | | $ | 444,691 |
| | | | 12% | | $ | 1,458,850 |
| | | | $ | 1,322,649 |
| | | | 10% | |
| | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2019 | | | | 2018 | | | | % Change | | 2019 | | | | 2018 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Property | $ | 154,751 |
| | 29 | % | | $ | 212,883 |
| | 34 | % | | (27%) | | $ | 481,450 |
| | 30 | % | | $ | 598,896 |
| | 33 | % | | (20%) | |
| Marine | 65,437 |
| | 12 | % | | 90,661 |
| | 15 | % | | (28%) | | 209,629 |
| | 13 | % | | 240,230 |
| | 14 | % | | (13%) | |
| Terrorism | 11,605 |
| | 2 | % | | 12,606 |
| | 2 | % | | (8%) | | 35,635 |
| | 2 | % | | 38,992 |
| | 2 | % | | (9%) | |
| Aviation | 10,993 |
| | 2 | % | | 17,467 |
| | 3 | % | | (37%) | | 38,603 |
| | 2 | % | | 53,656 |
| | 3 | % | | (28%) | |
| Credit and political risk | 19,432 |
| | 4 | % | | 15,670 |
| | 3 | % | | 24% | | 66,412 |
| | 4 | % | | 69,670 |
| | 4 | % | | (5%) | |
| Professional lines | 172,280 |
| | 32 | % | | 147,336 |
| | 24 | % | | 17% | | 490,928 |
| | 30 | % | | 419,254 |
| | 24 | % | | 17% | |
| Liability | 68,002 |
| | 13 | % | | 57,185 |
| | 9 | % | | 19% | | 192,352 |
| | 12 | % | | 166,745 |
| | 9 | % | | 15% | |
| Accident and health | 32,368 |
| | 6 | % | | 51,063 |
| | 8 | % | | (37%) | | 108,402 |
| | 7 | % | | 155,753 |
| | 9 | % | | (30%) | |
| Discontinued lines - Novae | 1,583 |
| | — | % | | 9,924 |
| | 2 | % | | (84%) | | 7,062 |
| | — | % | | 28,930 |
| | 2 | % | | (76%) | |
| Total | $ | 536,451 |
| | 100 | % | | $ | 614,795 |
| | 100 | % | | (13%) | | $ | 1,630,473 |
| | 100 | % | | $ | 1,772,126 |
| | 100 | % | | (8%) | |
| | | | | | | | | | | | | | | | | | | | | |
nm - not meaningful
| |
(1) | Amounts presented on a constant currency basis are non-GAAP financial measures as defined in SEC Regulation G. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance. |
Net premiums earned for the three and nine months ended September 30, 2017 increased2019 decreased by $51$78 million or 12%, and $12613% ($68 million or 9% ($136 million or 10%11% on a constant currency basis), compared to the three and nine months ended September 30, 2016, respectively.
2018. The increase for the three and nine months ended September 30, 2017 compared to the same periods in 2016,decrease was primarily by driven by strong premium growthdecreases in ourgross premiums earned in property, marine, and accident and health lines, together with an increase in ceded premiums earned in
liability lines, partially offset by increases in gross premiums earned in liability and professional lines as well as our aviation lines in recent periods, together with a decrease in ceded premiums earned in our property lines.
Net premiums earned for the nine months ended September 30, 2017,2019 decreased by $142 million or 8% ($117 million or 7% on a constant currency basis), compared to the nine months ended September 30, 2018. The decrease was also impactedprimarily by strong premium growthdriven by decreases in ourgross premiums earned in property, accident and health, and marine lines, as well as an increase in recent periods.ceded premiums earned in liability lines, partially offset by increases in gross premiums earned in liability and professional lines.
Loss Ratio:Ratio:
The table below shows the components of our loss ratio:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | % Point Change | | 2016 | | 2017 | | % Point Change | | 2016 | |
| | | | | | | | | | | | | |
| Current accident year | 127.3 | % | | 61.2 | | 66.1 | % | | 87.8 | % | | 20.0 | | 67.8 | % | |
| Prior year reserve development | (0.5 | %) | | 4.2 | | (4.7 | %) | | (2.1 | %) | | 1.1 | | (3.2 | %) | |
| Loss ratio | 126.8 | % | | 65.4 | | 61.4 | % | | 85.7 | % | | 21.1 | | 64.6 | % | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Point Change | | 2018 | | 2019 | | % Point Change | | 2018 | |
| | | | | | | | | | | | | |
| Current accident year | 65.9 | % | | (3.9) | | 69.8 | % | | 61.6 | % | | (2.0) | | 63.6 | % | |
| Prior year reserve development | (2.7 | %) | | (0.5) | | (2.2 | %) | | (2.6 | %) | | 0.9 | | (3.5 | %) | |
| Loss ratio | 63.2 | % | | (4.4) | | 67.6 | % | | 59.0 | % | | (1.1) | | 60.1 | % | |
| | | | | | | | | | | | | |
CurrentCurrent Accident Year Loss Ratio:
The current accident year loss ratios increasedratio decreased to 127.3% and 87.8%65.9% for the three months ended September 30, 2019, from 69.8% for the three months ended September 30, 2018. For the nine months ended September 30, 2019, the current accident year loss ratio decreased to 61.6% from 63.6% for the same period in 2018.
The current accident year loss ratio for the three and nine months ended September 30, 2017, respectively, from 66.1% and 67.8% for the three and nine months ended September 30, 2016, respectively.
The increase in the current accident year loss ratios for the three and nine months ended September 30, 20172019, compared to the same periodperiods in 2016,2018, was impacted by a higherlower level of catastrophe and weather-related losses. During the three and nine months ended September 30, 20172019, we incurred $317 million, or 64.0 points, and $379 million, or 26.1 points, respectively, in pre-tax catastrophe and weather-related losses of $41 million, or 7.7 points and $64 million, or 3.9 points, respectively, primarily attributable to Hurricanes Harvey, Irma and Maria and the two earthquakes in MexicoHurricane Dorian and U.S. weather-related events. Comparatively, during the three and nine months ended September 30, 2016,2018, we incurred $15pre-tax catastrophe and weather-related losses of $62 million or 3.310.1 points and $73$112 million or 5.56.3 points, respectively.
After adjusting for the impact of the catastrophe and weather-related losses, our current accident year loss ratio for the three and nine months ended September 30, 20172019 was 63.3%58.2% and 61.7%57.7%, respectively, compared to 62.8%59.7% and 62.3%57.3% for the three and nine months ended September 30, 2016,2018, respectively.
The increasedecrease in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses for the three months ended September 30, 20172019, compared to the same periods in 2018, was principally due to the impact of improved pricing over loss trends, and a decrease in attritional loss experience in property and marine lines, partially offset by changes in business mix, , and elevated mid-size loss experience in credit and political risk lines, and marine lines.
The increase in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses for the nine months ended September 30, 2019, compared to the same period in 2016,2018, was principally due to an increase in mid-size loss experience in marine, credit and political risk lines, and aviation lines, together with changes in business mix, partially offset by a decrease in attritional loss experience in our property lines, together withand the adverse impact of rateimproved pricing over loss trends.
Refer to the ‘Prior Year Reserve Development’ section for further details.
Acquisition Cost Ratio:
The acquisition cost ratio increased to 21.5% for the three months ended September 30, 2019 from 18.2% for the three months ended September 30, 2018 primarily attributable to the acquisition of Novae. At the acquisition date, the allocation of the acquisition price to the assets acquired and trend, partially offsetliabilities assumed based on estimated fair values at that date, resulted in the write-off of the deferred acquisition cost asset on Novae's balance sheet as the value of policies in-force on that date are considered within VOBA. Consequently, the absence of $2 million and $29 million of acquisition expense related to premiums earned in the three months ended September 30, 2019 and 2018, respectively, benefited the acquisition cost ratio by 0.3 points and 4.7 points, respectively. Adjusting the acquisition cost ratio for these amounts, the acquisition cost ratio decreased by 1.1 point compared to the same period in 2018 due to changes in business mix.
The acquisition cost ratio increased to 21.2% for the nine months ended September 30, 2019 from 16.4% for the nine months ended September 30, 2018 primarily attributable to the acquisition of Novae. The absence of $11 million and $105 million of acquisition expense related to premiums earned in the nine months ended September 30, 2019 and 2018, respectively, benefited the acquisition cost ratio by 0.6 points and 5.9 points, respectively. Adjusting the acquisition cost ratio for these amounts, the acquisition cost ratio decreased 0.5 points compared to the same period in 2018.
General and Administrative Expense Ratio:
The general and administrative expense ratio increased to 18.8% for the three months ended September 30, 2019 from 16.4% for the three months ended September 30, 2018 driven by a decrease in net premiums earned.
The general and administrative expense ratio increased to 19.0% for the nine months ended September 30, 2019 from 17.2% for the nine months ended September 30, 2018 driven by decrease in a net premiums earned, and an increase in the allocation of corporate costs to the segment, partially offset by a decrease in personnel costs.
Reinsurance Segment
Results from the reinsurance segment were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 511,604 |
| | 13% | | $ | 454,343 |
| | $ | 2,923,169 |
| | 2% | | $ | 2,860,471 |
| |
| Net premiums written | 339,031 |
| | 7% | | 317,868 |
| | 2,065,263 |
| | (4%) | | 2,158,122 |
| |
| Net premiums earned | 620,856 |
| | 2% | | 609,280 |
| | 1,784,653 |
| | (1%) | | 1,804,900 |
| |
| Other insurance related income | 800 |
| | nm | | 6,949 |
| | 9,606 |
| | (38%) | | 15,452 |
| |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current year net losses and loss expenses | (524,065 | ) | | | | (411,653 | ) | | (1,248,131 | ) | | | | (1,196,682 | ) | |
| Prior year reserve development | 12,118 |
| | | | 32,182 |
| | 22,172 |
| | | | 99,536 |
| |
| Acquisition costs | (144,475 | ) | | | | (136,426 | ) | | (417,826 | ) | | | | (419,445 | ) | |
| General and administrative expenses | (26,060 | ) | | | | (29,595 | ) | | (87,049 | ) | | | | (99,481 | ) | |
| | | | | | | | | | | | | |
| Underwriting (loss) income | $ | (60,826 | ) | | nm | | $ | 70,737 |
| | $ | 63,425 |
| | (69%) | | $ | 204,280 |
| |
| Ratios: | | | % Point Change | | | | | | % Point Change | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 64.8 | % | | 2.2 | | 62.6 | % | | 62.3 | % | | (1.2) | | 63.5 | % | |
| Catastrophe and weather-related losses ratio | 19.6 | % | | 14.6 | | 5.0 | % | | 7.6 | % | | 4.8 | | 2.8 | % | |
| Current accident year loss ratio | 84.4 | % | | 16.8 | | 67.6 | % | | 69.9 | % | | 3.6 | | 66.3 | % | |
| Prior year reserve development ratio | (1.9 | %) | | 3.4 | | (5.3 | %) | | (1.2 | %) | | 4.3 | | (5.5 | %) | |
| Net losses and loss expenses ratio | 82.5 | % | | 20.2 | | 62.3 | % | | 68.7 | % | | 7.9 | | 60.8 | % | |
| Acquisition cost ratio | 23.3 | % | | 0.9 | | 22.4 | % | | 23.4 | % | | 0.2 | | 23.2 | % | |
| General and administrative expense ratio | 4.1 | % | | (0.7) | | 4.8 | % | | 4.9 | % | | (0.6) | | 5.5 | % | |
| Combined ratio | 109.9 | % | | 20.4 | | 89.5 | % | | 97.0 | % | | 7.5 | | 89.5 | % | |
| | | | | | | | | | | | | |
nm – not meaningful
Gross Premiums Written:
The following table provides gross premiums written by line of business:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2019 | | | | 2018 | | | | % Change | | 2019 | | | | 2018 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Catastrophe | $ | 94,833 |
| | 18 | % | | $ | 64,919 |
| | 14 | % | | 46% | | $ | 698,169 |
| | 24 | % | | $ | 495,106 |
| | 17 | % | | 41% | |
| Property | 67,972 |
| | 13 | % | | 85,135 |
| | 19 | % | | (20%) | | 283,849 |
| | 10 | % | | 346,135 |
| | 12 | % | | (18%) | |
| Professional lines | 23,540 |
| | 5 | % | | 26,418 |
| | 6 | % | | (11%) | | 226,283 |
| | 8 | % | | 248,870 |
| | 9 | % | | (9%) | |
| Credit and surety | 50,989 |
| | 10 | % | | 51,683 |
| | 11 | % | | (1%) | | 241,358 |
| | 8 | % | | 300,683 |
| | 11 | % | | (20%) | |
| Motor | 25,367 |
| | 5 | % | | 22,450 |
| | 5 | % | | 13% | | 313,614 |
| | 11 | % | | 477,805 |
| | 17 | % | | (34%) | |
| Liability | 146,690 |
| | 29 | % | | 137,625 |
| | 30 | % | | 7% | | 458,000 |
| | 16 | % | | 387,977 |
| | 14 | % | | 18% | |
| Agriculture | 5,074 |
| | 1 | % | | 12,765 |
| | 3 | % | | (60%) | | 201,592 |
| | 7 | % | | 212,114 |
| | 7 | % | | (5%) | |
| Engineering | 8,841 |
| | 2 | % | | 3,149 |
| | 1 | % | | nm | | 39,207 |
| | 1 | % | | 36,259 |
| | 1 | % | | 8% | |
| Marine and other | 9,727 |
| | 2 | % | | 1,107 |
| | — | % | | nm | | 68,104 |
| | 2 | % | | 41,388 |
| | 1 | % | | 65% | |
| Accident and health | 78,474 |
| | 15 | % | | 49,114 |
| | 11 | % | | 60% | | 393,789 |
| | 13 | % | | 314,610 |
| | 11 | % | | 25% | |
| Discontinued lines - Novae | 97 |
| | — | % | | (22 | ) | | — | % | | nm | | (796 | ) | | — | % | | (476 | ) | | — | % | | 67% | |
| Total | $ | 511,604 |
| | 100 | % | | $ | 454,343 |
| | 100 | % | | 13% | | $ | 2,923,169 |
| | 100 | % | | $ | 2,860,471 |
| | 100 | % | | 2% | |
| | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
Gross premiums written for the three months ended September 30, 2019, increased by $57 million or 13% ($55 million or 12% on a constant currency basis), compared to the three months ended September 30, 2018. The increase was primarily attributable to catastrophe, accident and health, liability, marine and other, and engineering lines, partially offset by decreases in property and agriculture lines.
The increases in catastrophe, accident and health, and liability lines were driven by timing differences.In addition, the increase in catastrophe lines was due to new business. The increase in marine and other lines was due to premium adjustments. The increase in engineering lines was driven by new business.
The decrease in property lines was driven by the non-renewal of a large treaty and decreased line sizes on a number of treaties, partially offset by premium adjustments. The decrease in agriculture lines was due to timing differences, partially offset by premium adjustments.
Gross premiums written for the nine months ended September 30, 2019, increased by $63 million or 2% ($110 million or 4% on a constant currency basis), compared to the nine months ended September 30, 2018. The increase was primarily attributable to catastrophe, accident and health, marine and other, and liability lines, partially offset by decreases in motor, property, credit and surety, professional lines and agriculture lines.
The increases in catastrophe, liability, accident and health, and marine and other lines were driven by new business. Increased line sizes on a number of treaties and the restructuring of several treaties which impacted the timing of premium recognition also contributed to the increase in catastrophe lines. In addition, the increase in catastrophe lines was due to a higher level of premiums written on a multi-year basis. The increases in liability and accident and health were also due to timing differences.
The decreases in motor, and credit and surety lines were driven by non-renewals and premium adjustments. Decreased line sizes on a number of treaties and the impact of foreign exchange movements as the strengthening of the U.S. dollar drove comparative premium decreases in treaties denominated in foreign currencies, also contributed to the decrease in motor lines. The decrease in property lines was primarily due to non-renewals and decreased line sizes on a number of treaties, partially offset by favorable rate changes, the restructuring of several treaties, and premium adjustments. The decrease in professional lines was primarily due to non-renewals and decreased line sizes on a number of treaties, partially offset by new business.
Ceded Premiums Written:
Ceded premiums written for the three and nine months ended September 30, 2019 were $173 million or 34% and $858 million or 29%, respectively, of gross premiums written compared to $136 million or 30% and $702 million or 25% of gross premiums written for the three and nine months ended September 30, 2018, respectively.
The increase in ceded premiums written of $36 million or 26% for the three months ended September 30, 2019, compared to the three months ended September 30, 2018, was attributable to catastrophe lines, partially offset by a decrease in property lines.
The increase in catastrophe lines was attributable to a timing difference associated with the purchase of catastrophe bond protection and an increase in premiums ceded to quota share retrocessional treaties with Alturas, effective January 1, 2019 and July 1, 2019. The decrease in property lines was attributable to a decrease in premiums ceded to quota share and facultative retrocessional covers with Harrington Re Ltd ("Harrington Re").
The increase in ceded premiums written of $156 million or 22% for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, was attributable to catastrophe, liability, credit and surety, and accident and health lines, partially offset by decreases in agriculture and property lines.
The increase in catastrophe lines was attributable to an increase in premiums ceded to a new aggregate excess of loss treaty and premiums ceded to the quota share retrocessional treaties with Alturas, together with increases in premium ceded to our strategic capital partners and costs associated with the purchase of catastrophe bond protection. The increases in liability, and accident and health lines were attributable to the increase in premiums ceded to the retrocessional cover with Harrington Re.The increase in credit and surety lines was attributable to an increase in premiums ceded to a new quota share retrocessional treaty. The decrease in agriculture lines was attributable to a non-renewal of a large fronting arrangement and the restructuring of a quota share retrocessional treaty. The decrease in property lines was attributable to the non-renewals of two significant fronting arrangements, together with decreases in premiums ceded to the retrocessional and facultative covers with Harrington Re.
Net Premiums Earned:
The following table provides net premiums earned by line of business:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2019 | | | | 2018 | | | | % Change | | 2019 | | | | 2018 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Catastrophe | $ | 68,910 |
| | 11 | % | | $ | 70,601 |
| | 11 | % | | (2%) | | $ | 205,468 |
| | 11 | % | | $ | 191,952 |
| | 12 | % | | 7% | |
| Property | 78,271 |
| | 13 | % | | 84,766 |
| | 14 | % | | (8%) | | 226,515 |
| | 13 | % | | 241,687 |
| | 13 | % | | (6%) | |
| Professional lines | 50,966 |
| | 8 | % | | 54,658 |
| | 9 | % | | (7%) | | 154,390 |
| | 9 | % | | 162,407 |
| | 9 | % | | (5%) | |
| Credit and surety | 55,625 |
| | 9 | % | | 67,926 |
| | 11 | % | | (18%) | | 154,638 |
| | 9 | % | | 186,408 |
| | 10 | % | | (17%) | |
| Motor | 107,930 |
| | 17 | % | | 102,178 |
| | 17 | % | | 6% | | 301,622 |
| | 17 | % | | 323,685 |
| | 18 | % | | (7%) | |
| Liability | 95,632 |
| | 15 | % | | 96,017 |
| | 16 | % | | —% | | 279,639 |
| | 16 | % | | 275,120 |
| | 15 | % | | 2% | |
| Agriculture | 47,519 |
| | 8 | % | | 47,401 |
| | 8 | % | | —% | | 131,746 |
| | 7 | % | | 121,289 |
| | 7 | % | | 9% | |
| Engineering | 16,611 |
| | 3 | % | | 15,541 |
| | 3 | % | | 7% | | 47,290 |
| | 3 | % | | 49,839 |
| | 3 | % | | (5%) | |
| Marine and other | 17,924 |
| | 3 | % | | 6,349 |
| | 1 | % | | nm | | 44,529 |
| | 2 | % | | 25,424 |
| | 1 | % | | 75% | |
| Accident and health | 81,500 |
| | 13 | % | | 62,382 |
| | 10 | % | | 31% | | 239,388 |
| | 13 | % | | 219,381 |
| | 12 | % | | 9% | |
| Discontinued lines - Novae | (32 | ) | | — | % | | 1,461 |
| | — | % | | nm | | (572 | ) | | — | % | | 7,708 |
| | — | % | | nm | |
| Total | $ | 620,856 |
| | 100 | % | | $ | 609,280 |
| | 100 | % | | 2% | | $ | 1,784,653 |
| | 100 | % | | $ | 1,804,900 |
| | 100 | % | | (1%) | |
| | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
Net premiums earned for the three months ended September 30, 2019, increased by $12 million or 2% ($16 million or 3% on a constant currency basis), compared to the three months ended September 30, 2018. The increase was primarily driven by increases in gross premiums earned in accident and health, and marine and other lines, partially offset by a decrease in gross premium earned in credit and surety lines, and increases in ceded premiums earned in credit and surety, and accident and health lines.
Net premiums earned for the nine months ended September 30, 2019, decreased by $20 million or 1% ($11 million or 1% on a constant currency basis), compared to the nine months ended September 30, 2018. The decrease was primarily driven by increases in ceded premiums earned in accident and health, and credit and surety lines, together with decreases in gross premiums earned in motor, and credit and surety lines, partially offset by increases in gross premiums earned in accident and health, and marine and other lines.
Other Insurance Related Income (Loss):
Other insurance related income was $1 million and $10 million for the three and nine months ended September 30, 2019, respectively, compared to $7 million and $15 million for the three and nine months ended September 30, 2018, respectively. The decreases of $6 million and $5 million for the three and nine months ended September 30, 2019, respectively, were due to a decrease in fees associated with arrangements with strategic capital partners.
Loss Ratio:
The table below shows the components of our loss ratio: |
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Point Change | | 2018 | | 2019 | | % Point Change | | 2018 | |
| | | | | | | | | | | | | |
| Current accident year | 84.4 | % | | 16.8 | | 67.6 | % | | 69.9 | % | | 3.6 | | 66.3 | % | |
| Prior year reserve development | (1.9 | %) | | 3.4 | | (5.3 | %) | | (1.2 | %) | | 4.3 | | (5.5 | %) | |
| Loss ratio | 82.5 | % | | 20.2 | | 62.3 | % | | 68.7 | % | | 7.9 | | 60.8 | % | |
| | | | | | | | | | | | | |
Current Accident Year Loss Ratio:
The current accident year loss ratio increased to 84.4% and 69.9% for the three and nine months ended September 30, 2019, respectively, from 67.6% and 66.3% for the three and nine months ended September 30, 2018, respectively.
The increase in the current accident year loss ratio for three and nine months ended September 30, 2019, compared to the same period in 2018, was impacted by a higher level of catastrophe and weather-related losses. During the three and nine months ended September 30, 2019, we incurred pre-tax catastrophe and weather-related losses, net of reinstatement premiums, of $119 million or 19.6 points and $132 million or 7.6 points, respectively, primarily attributable to Hurricane Dorian, the Japanese typhoons, and other weather-related events. Comparatively, during the three and nine months ended September 30, 2018, we incurred pre-tax catastrophe and weather-related losses of $30 million or 5.0 points and $50 million or 2.8 points, respectively.
After adjusting for the impact of the catastrophe and weather-related losses, our current accident year loss ratio for the three and nine months ended September 30, 2019 was 64.8% and 62.3%, respectively, compared to 62.6% and 63.5% for the three and nine months ended September 30, 2018, respectively.
The increase in the current accident year loss ratio after adjusting for the impact of catastrophe and weather-related losses for the three months ended September 30, 2019, compared to the same period in 2018, was principally due to an increase in mid-size loss experience in aviation (included in marine and other), and credit and surety lines, partially offset by a decrease in mid-size loss experience in property and engineering lines, and the impact of improved pricing over loss trends.
The decrease in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses for the nine months ended September 30, 20172019, compared to the same period in 2016,2018, was principally due to the recognition of better than expected attritionala decrease in mid-size loss experience in our professionalproperty and engineering lines, the impact of improved pricing over loss trends, partially offset by the adverse impact of rate and trend.an increase in mid-size loss experience in aviation lines.
Refer to the ‘Prior Year Reserve Development’ section for further details.
Acquisition Cost Ratio:Ratio:
The acquisition cost ratio increased to 15.0% and 15.4% for the three and nine months ended September 30, 2017, respectively, from 13.9% and 14.0% for the three and nine months ended September 30, 2016, respectively, attributable to changes in business mix in our accident and health lines. In addition,23.3% for the three months ended September 30, 20172019, compared to 22.4% for the three months ended September 30, 2018. The increase in the acquisition cost ratio for the three months ended September 30, 2019, compared to the same period in 2018, was primarily attributable to adjustments related to an increase in variable acquisition costs associated with on certain linesloss sensitive features and the impact of business,retrocessional contracts, partially offset by an increasechanges in ceding commissions following increased cessions in our liability lines.business mix.
The acquisition cost ratio of 23.4% for the nine months ended September 30, 2019, was comparable to 23.2% for the nine months ended September 30, 2018.
General and Administrative Expense Ratio:Ratio:
The general and administrative expense ratio decreased to 15.1% and 17.6% for the three and nine months ended September 30, 2017, respectively, from 19.1% and 19.0% for the three and nine months ended September 30, 2016, respectively, reflecting a decrease in performance-related compensation costs and an increase in net premiums earned, partially offset by increases in the allocation of certain corporate expenses and information technology fees.
REINSURANCE SEGMENT
Results from our reinsurance segment were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | % Change | | 2016 | | 2017 | | % Change | | 2016 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 441,208 |
| | 55% | | $ | 284,532 |
| | $ | 2,225,377 |
| | 5% | | $ | 2,126,762 |
| |
| Net premiums written | 332,721 |
| | 105% | | 162,300 |
| | 1,764,689 |
| | (5%) | | 1,855,529 |
| |
| Net premiums earned | 521,127 |
| | 6% | | 489,724 |
| | 1,488,995 |
| | 2% | | 1,461,097 |
| |
| Other insurance related income (losses) | (3,723 | ) | | nm | | 5,905 |
| | (5,497 | ) | | nm | | 4,907 |
| |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current year net losses and loss expenses | (651,667 | ) | | | | (314,433 | ) | | (1,318,900 | ) | | | | (990,763 | ) | |
| Prior year reserve development | 45,165 |
| | | | 55,331 |
| | 112,755 |
| | | | 180,950 |
| |
| Acquisition costs | (120,493 | ) | | | | (128,055 | ) | | (365,214 | ) | | | | (374,588 | ) | |
| General and administrative expenses | (21,658 | ) | | | | (29,635 | ) | | (82,474 | ) | | | | (99,980 | ) | |
| | | | | | | | | | | | | |
| Underwriting income (loss) | $ | (231,249 | ) | | nm | | $ | 78,837 |
| | $ | (170,335 | ) | | nm | | $ | 181,623 |
| |
| Ratios: | | | % Point Change | | | | | | % Point Change | | | |
| Current accident year loss ratio | 125.0 | % | | 60.8 | | 64.2 | % | | 88.6 | % | | 20.8 | | 67.8 | % | |
| Prior year reserve development | (8.6 | %) | | 2.7 | | (11.3 | %) | | (7.6 | %) | | 4.8 | | (12.4 | %) | |
| Acquisition cost ratio | 23.1 | % | | (3.0) | | 26.1 | % | | 24.5 | % | | (1.1) | | 25.6 | % | |
| General and administrative expense ratio | 4.2 | % | | (1.9) | | 6.1 | % | | 5.6 | % | | (1.3) | | 6.9 | % | |
| Combined ratio | 143.7 | % | | 58.6 | | 85.1 | % | | 111.1 | % | | 23.2 | | 87.9 | % | |
| | | | | | | | | | | | | |
nm – not meaningful
Gross Premiums Written:
The following table provides gross premiums written by line of business for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2017 | | | | 2016 | | | | % Change | | 2017 | | | | 2016 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Catastrophe | $ | 89,510 |
| | 19 | % | | $ | 46,338 |
| | 16 | % | | 93% | | $ | 411,004 |
| | 18 | % | | $ | 316,692 |
| | 15 | % | | 30% | |
| Property | 90,001 |
| | 20 | % | | 61,957 |
| | 22 | % | | 45% | | 341,265 |
| | 15 | % | | 283,555 |
| | 13 | % | | 20% | |
| Professional Lines | 20,175 |
| | 5 | % | | 19,479 |
| | 7 | % | | 4% | | 217,772 |
| | 10 | % | | 235,094 |
| | 11 | % | | (7%) | |
| Credit and Surety | 38,216 |
| | 9 | % | | 36,174 |
| | 13 | % | | 6% | | 183,284 |
| | 8 | % | | 315,102 |
| | 15 | % | | (42%) | |
| Motor | 40,385 |
| | 9 | % | | 13,344 |
| | 5 | % | | nm | | 373,901 |
| | 17 | % | | 338,403 |
| | 16 | % | | 10% | |
| Liability | 139,083 |
| | 32 | % | | 91,387 |
| | 32 | % | | 52% | | 368,999 |
| | 17 | % | | 365,380 |
| | 17 | % | | 1% | |
| Agriculture | 11,152 |
| | 3 | % | | 1,286 |
| | — | % | | nm | | 218,437 |
| | 10 | % | | 151,315 |
| | 7 | % | | 44% | |
| Engineering | 10,120 |
| | 2 | % | | 13,588 |
| | 5 | % | | (26%) | | 58,000 |
| | 3 | % | | 56,719 |
| | 3 | % | | 2% | |
| Marine and Other | 2,566 |
| | 1 | % | | 979 |
| | — | % | | nm | | 52,715 |
| | 2 | % | | 64,502 |
| | 3 | % | | (18%) | |
| Total | $ | 441,208 |
| | 100 | % | | $ | 284,532 |
| | 100 | % | | 55% | | $ | 2,225,377 |
| | 100 | % | | $ | 2,126,762 |
| | 100 | % | | 5% | |
| | | | | | | | | | | | | | | | | | | | | |
| Constant currency(1) | $ | 444,600 |
| | | | $ | 284,532 |
| | | | 56% | | $ | 2,277,100 |
| | | | $ | 2,126,762 |
| | | | 7% | |
| | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
| |
(1) | Amounts presented on a constant currency basis are non-GAAP financial measures as defined in SEC Regulation G. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance. |
Gross premiums written increased by $157 million, or 55% (56% on a constant currency basis),4.1% for the three months ended September 30, 20172019, compared to the same period in 2016. The increase was attributable to our liability, catastrophe, property and motor lines. The increase in our liability lines was primarily due to timing differences related to the restructuring of large quota share treaties which affected the timing of premium recognition. The increase in our catastrophe lines was largely due to reinstatement premiums associated with the third quarter catastrophe losses. The increase in our property and motor lines was primarily driven by new business opportunities. Timing differences also contributed to the increase in premiums written in our motor lines.
Gross premiums written increased by $99 million, or 5% (7% on a constant currency basis), for the nine months ended September 30, 2017 compared to the same period in 2016. The increase in gross premiums written was attributable to our catastrophe, agriculture, property and motor lines, partially offset by a decrease in our credit and surety lines. The increase in our catastrophe and property lines was driven by new business spread across several cedants. The increase in our agriculture lines was due to increased participation on a renewing treaty, which more than offset the cancellation of a large treaty. Reinstatement premiums and favorable premium estimate adjustments also contributed to the increase in premiums written in our catastrophe and agriculture lines. The increase in our motor lines was driven by new business and favorable premium adjustments, partially offset by a lower level of premiums written on a multi-year basis during 2017 compared to 2016, together with the impact of foreign exchange movements as the strengthening of the U.S. dollar drove comparative premium decreases in treaties denominated in foreign currencies. The decrease in our credit and surety lines was primarily due to a lower level of premiums written on a multi-year basis.
Ceded Premiums Written:
Ceded premiums written for the three and nine months ended September 30, 2017 were $108 million or 25% of gross premiums written and $461 million or 21% of gross premiums written, respectively, compared to $122 million or 43% of gross premiums written and $271 million or 13% of gross premiums written for the three and nine months ended September 30, 2016, respectively.
The decrease in the ratio of ceded premiums written to gross premiums written4.8% for the three months ended September 30, 2017 compared to the same period2018. The decrease was driven by increases in 2016, was primarily due to an increase in grossnet premiums written in the quarter togetherearned and fees associated with a decrease in premiums ceded to ourarrangements with strategic capital partners. The decrease in premiums ceded was attributable to our professional and liability lines, due to the timing of premiums ceded to the retrocessional cover entered into with Harrington Re Ltd., in the same period in 2016,partners, partially offset by an increase in premiums ceded in our catastrophe lines.
The increase in the ratio of ceded premiums written to gross premiums written for the nine months ended September 30, 2017 comparedcorporate costs to the same period in 2016, was primarily due to an increase in premiums ceded in our catastrophe, agriculture and our credit and surety lines, together with the impact of the retrocessional cover entered into with Harrington Re Ltd., which increased premiums ceded in our liability lines, partially offset by an increase in gross premiums written.segment.
Net Premiums Earned:
The following table provides net premiums earned by line of business:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2017 | | | | 2016 | | | | % Change | | 2017 | | | | 2016 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Catastrophe | $ | 63,032 |
| | 11 | % | | $ | 48,799 |
| | 10 | % | | 29% | | $ | 150,134 |
| | 12 | % | | $ | 151,416 |
| | 12 | % | | (1%) | |
| Property | 81,522 |
| | 16 | % | | 71,649 |
| | 15 | % | | 14% | | 228,043 |
| | 15 | % | | 208,179 |
| | 14 | % | | 10% | |
| Professional Lines | 52,390 |
| | 10 | % | | 73,109 |
| | 15 | % | | (28%) | | 170,438 |
| | 11 | % | | 225,813 |
| | 15 | % | | (25%) | |
| Credit and Surety | 62,215 |
| | 12 | % | | 67,430 |
| | 14 | % | | (8%) | | 176,754 |
| | 12 | % | | 192,135 |
| | 13 | % | | (8%) | |
| Motor | 92,147 |
| | 18 | % | | 77,786 |
| | 16 | % | | 18% | | 273,568 |
| | 18 | % | | 232,383 |
| | 16 | % | | 18% | |
| Liability | 89,927 |
| | 17 | % | | 80,137 |
| | 16 | % | | 12% | | 258,500 |
| | 17 | % | | 247,103 |
| | 17 | % | | 5% | |
| Agriculture | 45,688 |
| | 9 | % | | 36,704 |
| | 7 | % | | 24% | | 138,554 |
| | 9 | % | | 106,251 |
| | 7 | % | | 30% | |
| Engineering | 18,529 |
| | 4 | % | | 18,573 |
| | 4 | % | | —% | | 49,577 |
| | 3 | % | | 51,024 |
| | 3 | % | | (3%) | |
| Marine and Other | 15,677 |
| | 3 | % | | 15,537 |
| | 3 | % | | 1% | | 43,427 |
| | 3 | % | | 46,793 |
| | 3 | % | | (7%) | |
| Total | $ | 521,127 |
| | 100 | % | | $ | 489,724 |
| | 100 | % | | 6% | | $ | 1,488,995 |
| | 100 | % | | $ | 1,461,097 |
| | 100 | % | | 2% | |
| | | | | | | | | | | | | | | | | | | | | |
| Constant currency(1) | $ | 529,700 |
| | | | $ | 489,724 |
| | | | 8% | | $ | 1,540,200 |
| | | | $ | 1,461,097 |
| | | | 5% | |
| | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
| |
(1) | Amounts presented on a constant currency basis are non-GAAP financial measures as defined in SEC Regulation G. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance. |
Net premiums earned increased by $31 million, or 6% ($40 million or 8% on a constant currency basis), and $28 million, or 2% ($79 million or 5% on a constant currency basis), for the three and nine months ended September 30, 2017, compared to the same periods in 2016, respectively.
The increase in net premiums earned for the three months ended September 30, 2017 compared to the same period in 2016, was primarily driven by strong premium growth in our motor lines, as well as favorable reinstatement premiums impacting our catastrophe lines, and favorable premium estimate adjustments impacting our agriculture lines. These increases were partially offset by an increase in ceded premiums earned in our catastrophe and agriculture lines, together with the impact of the retrocession to Harrington Re, which increased ceded premiums earned in our professional lines, as well as a decrease in gross premium earned in our professional lines.
The increase in net premiums earned for the nine months ended September 30, 2017 compared to the same period in 2016, was primarily driven by an increase in gross premiums earned in our motor and agriculture lines, partially offset by an increase in ceded premiums earned in our agriculture and professional lines, together with a decrease in gross premiums earned in our professional lines.
Other Insurance Related Income (Losses):
Other insurance related losses was $4 million for the three months ended September 30, 2017, compared to other insurance related income of $6 million for the same period in 2016. The decrease of $10 million for the three months ended September 30, 2017 compared to the same period in 2016, reflected a decrease in profit commissions associated withretrocessional agreements with strategic capital partners related to the third quarter catastrophe losses.
Other insurance related losses was $5 million for the nine months ended September 30, 2017, compared to other insurance related income of $5 million for the same period in 2016. The decrease of $10 million for the nine months ended September 30, 2017 compared to the same period in 2016, reflected net realized losses on our weather and commodities derivative portfolio, partially offset by fees from our strategic capital partners.
Loss Ratio:
The table below shows the components of our loss ratio: |
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | % Point Change | | 2016 | | 2017 | | % Point Change | | 2016 | |
| | | | | | | | | | | | | |
| Current accident year | 125.0 | % | | 60.8 | | 64.2 | % | | 88.6 | % | | 20.8 | | 67.8 | % | |
| Prior year reserve development | (8.6 | %) | | 2.7 | | (11.3 | %) | | (7.6 | %) | | 4.8 | | (12.4 | %) | |
| Loss ratio | 116.4 | % | | 63.5 | | 52.9 | % | | 81.0 | % | | 25.6 | | 55.4 | % | |
| | | | | | | | | | | | | |
Current Accident Year Loss Ratio:
The current accident year loss ratio increased to 125.0% and 88.6% for the three and nine months ended September 30, 2017, respectively, from 64.2% and 67.8% for the three and nine months ended September 30, 2016, respectively.
The increase in the current accident year loss ratios for the three and nine months ended September 30, 2017 compared to the same period in 2016, was impacted by a higher level of catastrophe and weather-related losses. During the three and nine months ended September 30, 2017, we incurred pre-tax catastrophe and weather-related losses, net of reinstatement premiums, of $299 million, or 58.7 points, and $323 million, or 22.2 points, respectively, attributable to Hurricanes Harvey, Irma and Maria, the two earthquakes in Mexico and U.S. weather-related events. Comparatively, during the three and nine months ended September 30, 2016 we incurred pre-tax catastrophe and weather-related losses, net of reinstatement premiums of $7 million, or 1.5 points, and $72 million, or 5.0 points, respectively.
After adjusting for the impact of the catastrophe and weather-related losses, our current accident year loss ratio for the three and nine months ended September 30, 2017 was 66.3% and 66.4%, respectively, compared to 62.7% and 62.8% for the three and nine months ended September 30, 2016, respectively. The increase in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses for the three months ended September 30, 2017 compared to the same period in 2016, was principally due to an increase in mid-size loss experience in our credit and surety lines, the ongoing impact of the Ogden rate change on our motor lines, and the adverse impact of rate and trend.
The increase in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses for the nine months ended September 30, 2017 compared to the same period in 2016 was principally due to a large risk loss in our property lines, the ongoing impact of the Ogden rate change on our motor lines, and the adverse impact of rate and trend.
Refer ‘Prior Year Reserve Development’ for further details.
Acquisition Cost Ratio:
The acquisition cost ratio decreased to 23.1% for the three months ended September 30, 2017 compared to 26.1% for the three months ended September 30, 2016 attributable to changes in business mix and the impact of favorable reinstatement premiums.
The acquisition cost ratio decreased to 24.5% for the nine months ended September 30, 2017 compared to 25.6% for the nine months ended September 30, 2016, attributable to changes in business mix, partially offset by the impact of retrocessional contracts.
General and Administrative Expense Ratio:
The general and administrative expense ratio decreased to 4.2% and 5.6%4.9% for the three and nine months ended September 30, 2017, respectively, from 6.1% and 6.9%2019, compared to 5.5% for the three and nine months ended September 30, 2016, respectively, reflecting a2018. The decrease performance-related compensation costs, together withwas driven by an increase in fees fromassociated with arrangements with strategic capital partners.partners, together with a decrease in information technology costs, partially offset by a decrease in net premiums earned, and an increase in the allocation of corporate costs to the segment.
OTHER EXPENSES (REVENUES), NET
The following table provides a breakdownsummary of our other expenses (revenues), net:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | % Change | | 2016 | | 2017 | | % Change | | 2016 | |
| | | | | | | | | | | | | |
| Corporate expenses | $ | 27,933 |
| | (3%) | | $ | 28,683 |
| | $ | 97,922 |
| | 13% | | $ | 86,922 |
| |
| Foreign exchange losses (gains) | 32,510 |
| | nm | | (13,795 | ) | | 90,093 |
| | nm | | (69,781 | ) | |
| Interest expense and financing costs | 12,835 |
| | —% | | 12,839 |
| | 38,377 |
| | (1%) | | 38,586 |
| |
| Income tax expense (benefit) | (25,877 | ) | | nm | | 9,352 |
| | (38,547 | ) | | nm | | 7,712 |
| |
| Total | $ | 47,401 |
| | nm | | $ | 37,079 |
| | $ | 187,845 |
| | nm | | $ | 63,439 |
| |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Corporate expenses | $ | 28,903 |
| | 17% | | $ | 24,643 |
| | $ | 97,468 |
| | 15% | | $ | 85,069 |
| |
| Foreign exchange losses (gains) | (59,543 | ) | | nm | | 8,305 |
| | (64,868 | ) | | nm | | 2,066 |
| |
| Interest expense and financing costs | 18,042 |
| | 7% | | 16,897 |
| | 49,545 |
| | (2%) | | 50,758 |
| |
| Income tax expense (benefit) | 8,147 |
| | nm | | (3,525 | ) | | 23,850 |
| | nm | | (3,565 | ) | |
| Total | $ | (4,451 | ) | | nm | | $ | 46,320 |
| | $ | 105,995 |
| | (21%) | | $ | 134,328 |
| |
| | | | | | | | | | | | | |
nm – not meaningful
Corporate Expenses: Expenses
Our corporateCorporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As a percentage of net premiums earned, corporate expenses were 2.7%2.5% and 3.3%2.9% for the three and nine months ended September 30, 2017,2019, respectively, compared to 3.1%2.0% and 3.1%2.4%, for the same periods in 2016,2018, respectively.
The decreaseincrease in corporate expenses for the three and nine months ended September 30, 20172019, was primarily drivenattributable to ongoing investments in information technology and digital capabilities, professional fees, and adjustments associated with performance-related compensation costs, partially offset by a decrease in performance related compensationoffice costs and an increase in the allocation of corporate costs to the reinsurance segment. In addition, the increase in corporate expenses for the nine months ended September 30, 2019, was partially offset by an increase in the allocation of corporate costs to the insurance and reinsurance segments, and a decrease in professional fees, partially offset by higher personnel expenses.segment.
The increase in corporate expenses for the nine months ended September 30, 2017 was primarily driven by an increase in personnel expenses and information technology costs, partially offset by an increase in the allocation
Foreign Exchange Losses (Gains):
Some of our business is written in currencies other than the U.S. dollar. Foreign exchange lossesgains of $33 million for the three months ended September 30, 2017 were primarily attributable to the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities mainly denominated in pound sterling and euro.
Foreign exchange losses of $90 million for the nine months ended September 30, 2017 were primarily attributable to the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities mainly denominated in pound sterling and euro and the reclass of a cumulative translation adjustment balance of $24 million related to the wind-down of AXIS Specialty Australia from accumulated other comprehensive income to foreign exchange losses.
Foreign exchange gains $14$60 million and $70$65 million for the three and nine months ended September 30, 2016,2019, respectively, were primarily attributable to the impact of the strengthening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in pound sterling and euro.
The foreign exchange losses of $8 million and $2 million for the three and nine months ended September 30, 2018, respectively, were primarily attributable to the impact of the strengthening of the U.S. dollar on the remeasurement of other investments, specifically, overseas deposits mainly denominated in australian dollar and pound sterling.
Interest Expense and Financing Costs
Interest expense and financing costs are related to interest due on 5.875% Senior Notes issued in 2010, 5.15% Senior Notes issued in 2014, 4.0% Senior Notes issued in 2017, and 3.90% Senior Notes issued in 2019. Interest expenses and financing costs increased by $1 million for the three months ended September 30, 2019, compared to the same period in 2018, primarily attributable to the issuance of the 3.90% Senior Notes on June 19, 2019, partially offset by the repayment of the 2.65% Senior Notes on April 1, 2019 and the repayment of the Dekania Notes on November 15, 2018.
78
Income Tax Expense (Benefit):
Income tax expense (benefit) primarily results from income (loss) generated by our foreign operations in the U.S. and Europe. Our effective tax rate is calculated as income tax expense (benefit) divided by net income (loss) before tax including interest in lossincome (loss) of equity method investments. This effective rate can vary between periods depending on the distribution of net income amongst(loss) among tax jurisdictions, as well as other factors.
The tax benefitexpense of $26$8 million recognized in the three months ended September 30, 2017 was primarily driven by an underwriting loss associated with catastrophe losses recognized in our U.S. operations.
The tax benefit of $39and $24 million recognized in the nine months ended September 30, 2017 was primarily driven by an underwriting loss associated with catastrophe losses recognized in our U.S. operations, share based compensation excess tax benefits which were recognized in the income statement, and a tax adjustment related to the bargain purchase gain recognized in connection with the acquisition of Aviabel.
Income tax expenses recognized infor the three and nine months ended September 30, 2016 were primarily2019, respectively, was attributable to the generation of pre-tax income in our U.S. and European operations, partially offset by pre-tax losses in our U.K. operations.
The tax benefit of $4 million recognized for the three and nine months ended September 30, 2018, respectively, was driven by the generation of consolidated pre-tax netlosses in our U.K. and European operations, largely offset by the generation of pre-tax income in our EuropeanU.S. operations.
NET INVESTMENT INCOME AND NET REALIZED INVESTMENT GAINS (LOSSES)
Net Investment Income
The following table provides a breakdowndetails of income earned fromgenerated by our cash and investment portfolio by major asset class:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | % Change | | 2016 | | 2017 | | % Change | | 2016 | |
| | | | | | | | | | | | | |
| Fixed maturities | $ | 74,978 |
| | (1%) | | $ | 75,827 |
| | $ | 230,603 |
| | 1% | | $ | 229,423 |
| |
| Other investments | 17,373 |
| | (55%) | | 38,248 |
| | 59,973 |
| | nm | | 25,770 |
| |
| Equity securities | 3,223 |
| | (30%) | | 4,633 |
| | 11,048 |
| | (14%) | | 12,843 |
| |
| Mortgage loans | 2,895 |
| | 32% | | 2,191 |
| | 7,970 |
| | 40% | | 5,683 |
| |
| Cash and cash equivalents | 3,111 |
| | (17%) | | 3,768 |
| | 9,640 |
| | 36% | | 7,071 |
| |
| Short-term investments | 698 |
| | nm | | 337 |
| | 1,797 |
| | nm | | 708 |
| |
| Gross investment income | 102,278 |
| | (18%) | | 125,004 |
| | 321,031 |
| | 14% | | 281,498 |
| |
| Investment expense | (7,109 | ) | | (12%) | | (8,081 | ) | | (21,132 | ) | | (11%) | | (23,680 | ) | |
| Net investment income | $ | 95,169 |
| | (19%) | | $ | 116,923 |
| | $ | 299,899 |
| | 16% | | $ | 257,818 |
| |
| | | | | | | | | | | | | |
| Pre-tax yield:(1) | | | | | | | | | | | | |
| Fixed maturities | 2.7 | % | | | | 2.7 | % | | 2.7 | % | | | | 2.6 | % | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Fixed maturities | $ | 96,311 |
| | 7% | | $ | 89,887 |
| | $ | 285,062 |
| | 9% | | $ | 262,165 |
| |
| Other investments | 11,143 |
| | (30%) | | 15,933 |
| | 49,271 |
| | 12% | | 44,179 |
| |
| Equity securities | 2,232 |
| | 6% | | 2,099 |
| | 7,757 |
| | 11% | | 7,015 |
| |
| Mortgage loans | 3,984 |
| | 20% | | 3,322 |
| | 10,735 |
| | 9% | | 9,805 |
| |
| Cash and cash equivalents | 7,034 |
| | 1% | | 6,992 |
| | 20,974 |
| | 25% | | 16,770 |
| |
| Short-term investments | 973 |
| | (71%) | | 3,413 |
| | 5,975 |
| | 1% | | 5,933 |
| |
| Gross investment income | 121,677 |
| | —% | | 121,646 |
| | 379,774 |
| | 10% | | 345,867 |
| |
| Investment expense | (5,914 | ) | | (18%) | | (7,225 | ) | | (18,760 | ) | | (8%) | | (20,487 | ) | |
| Net investment income | $ | 115,763 |
| | 1% | | $ | 114,421 |
| | $ | 361,014 |
| | 11% | | $ | 325,380 |
| |
| | | | | | | | | | | | | |
| Pre-tax yield:(1) | | | | | | | | | | | | |
| Fixed maturities | 3.1 | % | | | | 3.0 | % | | 3.2 | % | | | | 2.9 | % | |
| | | | | | | | | | | | | |
nm - not meaningful(1) Pre-tax yield is calculated by dividing annualized net investment income by the average month-end amortized cost balances.
| |
(1) | Pre-tax yield is annualized and calculated as net investment income divided by the average month-end amortized cost balances for the periods indicated. |
Fixed Maturities
Net investment income attributable to fixed maturities for the three and nine months ended September 30, 20172019 was comparable$96 million and $285 million, respectively, compared to same periodsnet investment income of $90 million and $262 million for the three and nine months ended September 30, 2018. The increase was due to the increase in 2016.yields and a larger allocation of the portfolio to fixed maturities.
Other Investments
The following table provides a breakdowndetails of total net investment income from other investments:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| Hedge, direct lending, private equity and real estate funds | $ | 14,786 |
| | $ | 29,459 |
| | $ | 52,526 |
| | $ | 6,127 |
| |
| Other privately held investments | 1,185 |
| | 370 |
| | 3,517 |
| | 177 |
| |
| CLO - Equities | 1,402 |
| | 8,419 |
| | 3,930 |
| | 19,466 |
| |
| Total net investment income from other investments | $ | 17,373 |
| | $ | 38,248 |
| | $ | 59,973 |
| | $ | 25,770 |
| |
| | | | | | | | | |
| Pre-tax return on other investments(1) | 2.1 | % | | 4.5 | % | | 7.5 | % | | 3.1 | % | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Hedge, direct lending, private equity and real estate funds | $ | 10,411 |
| | $ | 13,390 |
| | $ | 32,665 |
| | $ | 35,847 |
| |
| Other privately held investments | 2,040 |
| | 508 |
| | 16,666 |
| | 1,613 |
| |
| CLO-Equities | (1,308 | ) | | 2,035 |
| | (60 | ) | | 6,719 |
| |
| Net investment income from other investments (1) | $ | 11,143 |
| | $ | 15,933 |
| | $ | 49,271 |
| | $ | 44,179 |
| |
| | | | | | | | | |
| Pre-tax return on other investments(2) | 1.6 | % | | 2.1 | % | | 7.0 | % | | 5.7 | % | |
| | | | | | | | | |
| |
(1) | Excluding overseas deposits. |
| |
(2) | The pre-tax return on other investments is non-annualized and calculated by dividing total net investment income from other investments (non-annualized) by the average month-end fair value balances held for the periods indicated.indicated, excluding overseas deposits. |
Net investment income attributable to other investments for the three and nine months ended September 30, 2019 was $17$11 million and $60$49 million, respectively, compared to net investment income of $16 million and $44 million for the three and nine months ended September 30, 2017, respectively, compared to net investment income of $38 million and $26 million2018, respectively. The decrease for the three months ended September 30, 2019, compared to the same period in 2018, was attributable to lower returns from credit funds and CLO-Equities. The increase for the nine months ended September 30, 2016, respectively, as the improvement in the performance of the global equity and credit markets translated into higher valuations of our hedge and direct lending funds.2019,
compared to the same period in 2018, was attributable to a realized gain of $13 million associated with the sale of a privately held investment, partially offset by lower returns from credit funds and CLO-Equities.
Net Realized Investment Gains (Losses)
The following table provides a breakdowndetails of net realized investment gains (losses): |
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| On sale of investments: | | | | | | | | |
| Fixed maturities and short-term investments | $ | 3,404 |
| | $ | 4,303 |
| | $ | (25,659 | ) | | $ | (22,869 | ) | |
| Equity securities | 17,935 |
| | 4,994 |
| | 33,536 |
| | 2,881 |
| |
| | 21,339 |
| | 9,297 |
| | 7,877 |
| | (19,988 | ) | |
| OTTI charges recognized in earnings | (5,412 | ) | | (4,247 | ) | | (13,493 | ) | | (20,346 | ) | |
| Change in fair value of investment derivatives | (1,295 | ) | | 155 |
| | (9,195 | ) | | 39 |
| |
| Net realized investment gains (losses) | $ | 14,632 |
| | $ | 5,205 |
| | $ | (14,811 | ) | | $ | (40,295 | ) | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| On sale of investments: | | | | | | | | |
| Fixed maturities and short-term investments | $ | 17,918 |
| | $ | (21,383 | ) | | $ | 17,069 |
| | $ | (71,971 | ) | |
| Equity securities | 1,745 |
| | 15 |
| | 3,221 |
| | 17,444 |
| |
| | 19,663 |
| | (21,368 | ) | | 20,290 |
| | (54,527 | ) | |
| OTTI charges recognized in net income | (1,458 | ) | | (5,546 | ) | | (6,328 | ) | | (7,634 | ) | |
| Change in fair value of investment derivatives | 2,592 |
| | 2,626 |
| | 287 |
| | 9,782 |
| |
| Net unrealized gains (losses) on equity securities | (6,270 | ) | | 6,660 |
| | 34,273 |
| | (25,172 | ) | |
| Net investment gains (losses) | $ | 14,527 |
| | $ | (17,628 | ) | | $ | 48,522 |
| | $ | (77,551 | ) | |
| | | | | | | | | |
Net investment gains for the three months ended September 30, 2019 were $15 million compared to net investment losses of $18 million for the three months ended September 30, 2018, an increase of $33 million. For the three months ended September 30, 2019, the net investment gains were primarily due to net realized gains on the sale of U.S. government and agency RMBS securities partially offset by net unrealized losses on equity securities. For the three months ended September 30, 2018, the net investment losses were primarily due to net realized losses on the sale of U.S. government, agency RMBS and corporate debt securities, partially offset by net unrealized gains on equity securities.
Net investment gains for the nine months ended September 30, 2019 were $49 million compared to net investment losses of $78 million for the nine months ended September 30, 2018, an increase of $127 million. For the nine months ended September 30, 2019, net investment gains were primarily due to net unrealized gains on equity securities and net realized gains on the sale of U.S. government and agency RMBS securities. For the nine months ended September 30, 2018, net investment losses were primarily due to net realized losses on the sale of U.S. government, agency RMBS and corporate debt securities and net unrealized losses on equity securities.
On saleSale of investmentsInvestments
Generally, sales of individual securities occur when there are changes in the relative value, credit quality or duration of a particular issue. We may also sell securities to re-balance our investment portfolio in order to change exposure to particular asset classes or sectors.
Net realized investment gains for the three months ended September 30, 2017 were $15 million compared to net realized investment gains of $5 million for the three months ended September 30, 2016, an increase of $9 million. For the three months ended September 30, 2017, net realized investment gains were primarily due to improved pricing on equity securities. For the three months ended September 30, 2016, net realized investment gains were driven by improved pricing on fixed maturities and equity securities.
Net realized investment losses for the nine months ended September 30, 2017 were $15 million compared to net realized investment losses of $40 million for the nine months ended September 30, 2016, a decrease of $25 million. For the nine months ended September 30, 2017 and 2016, net realized investment losses were primarily due to foreign exchange losses on non-U.S. denominated securities.
OTTI chargesCharges
The OTTI charges for the three months ended September 30, 20172019 and 2018 were $5$1 million compared to $4and $6 million, for the three months ended September 30, 2016, a decrease of $1 million.respectively. The OTTI charges for the nine months ended September 30, 20172019 were $13$6 million, compared to $20$8 million for the nine months ended September 30, 2016,2018, a decrease of $7$2 million. For all periods presented theThese OTTI charges were primarily due to impairments onof non-U.S. denominated securities as a resultdue to the impact of the decline in foreign exchange rates againststrengthening of the U.S. dollar.
Change in fair valueFair Value of investment derivativesInvestment Derivatives
From time to time, we may economically hedge the foreign exchange exposure of non-U.S. denominated securities by entering into foreign exchange forwardand interest rate risk with derivative contracts.
During 2017, we also introduced the use of interest rate swaps to reduce duration risk of our fixed income portfolio.
For the three months ended September 30, 2017,2019, we recorded lossesgains of $2$3 million relatingrelated to foreign exchange contracts. For the three months ended September 30, 2018, we recorded gains of $1 million related to foreign exchange contracts and gains of $1$2 million relatingrelated to interest rates swaps. For the three months ended September 30, 2016 the fair value
For the nine months ended September 30, 2017,2019, we recorded lossesgains of $6$4 million relatingrelated to foreign exchange contracts and losses of $3$4 million relatingrelated to interest rates swaps. For the nine months ended September 30, 2016 the fair value2018, we recorded gains of $2 million related to foreign exchange contracts was unchanged.and gains of $8 million related to interest rates swaps.
Total Return
The following table provides a breakdowndetails of the total return on cash and investments for the period indicated:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | | |
| Net investment income | $ | 95,169 |
| | $ | 116,923 |
| | $ | 299,899 |
| | $ | 257,818 |
| |
| Net realized investments gains (losses) | 14,632 |
| | 5,205 |
| | (14,811 | ) | | (40,295 | ) | |
| Change in net unrealized gains (losses)(1) | 48,506 |
| | 35,075 |
| | 223,630 |
| | 303,573 |
| |
| Interest in loss of equity method investments | (661 | ) | | (2,434 | ) | | (8,402 | ) | | (2,434 | ) | |
| Total | $ | 157,646 |
| | $ | 154,769 |
| | $ | 500,316 |
| | $ | 518,662 |
| |
| | | | | | | | | |
| Average cash and investments(2) | $ | 14,533,027 |
| | $ | 14,470,231 |
| | $ | 14,519,902 |
| | $ | 14,457,978 |
| |
| | | | | | | | | |
| Total return on average cash and investments, pre-tax: | | | | | | | | |
| Inclusive of investment related foreign exchange movements | 1.1 | % | | 1.1 | % | | 3.4 | % | | 3.6 | % | |
| Exclusive of investment related foreign exchange movements(3) | 0.9 | % | | 1.1 | % | | 3.0 | % | | 3.9 | % | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Net investment income | $ | 115,763 |
| | $ | 114,421 |
| | $ | 361,014 |
| | $ | 325,380 |
| |
| Net investments gains (losses) | 14,527 |
| | (17,628 | ) | | 48,522 |
| | (77,551 | ) | |
| Change in net unrealized gains (losses) on fixed maturities (1) | 29,493 |
| | (1,073 | ) | | 388,939 |
| | (184,082 | ) | |
| Interest in income of equity method investments | 792 |
| | 1,667 |
| | 5,645 |
| | 5,045 |
| |
| Total | $ | 160,575 |
| | $ | 97,387 |
| | $ | 804,120 |
| | $ | 68,792 |
| |
| | | | | | | | | |
| Average cash and investments(2) | $ | 15,492,106 |
| | $ | 15,160,361 |
| | $ | 15,199,356 |
| | $ | 15,366,875 |
| |
| | | | | | | | | |
| Total return on average cash and investments, pre-tax: | | | | | | | | |
| Including investment related foreign exchange movements | 1.0 | % | | 0.6 | % | | 5.3 | % | | 0.4 | % | |
| Excluding investment related foreign exchange movements(3) | 1.2 | % | | 0.7 | % | | 5.5 | % | | 0.6 | % | |
| | | | | | | | | |
| |
(1) | Change in net unrealized gains (losses) on fixed maturities is calculated by taking net unrealized gains (losses) at period end less net unrealized gains (losses) at the prior period end. |
| |
(2) | The average cash and investments balance is calculated by taking the average of the month-endperiod end fair value balances held for the periods indicated.balances. |
| |
(3) | Pre-tax total return on cash and investments excluding foreign exchange movements is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation G.S-K. The reconciliation to pre-tax total return on cash and investments, the most comparable GAAP financial measure, included foreign exchange (losses) gains (losses) of $22$(31) million and $(8)$(10) million for the three months ended September 30, 20172019 and 2016,2018, respectively, and foreign exchange gains (losses) of $62$(28) million and $(39) million for the nine months ended September 30, 20172019 and 2016, respectively.2018. |
CASH AND INVESTMENTS
The table below provides a breakdowndetails of our cash and investments:
|
| | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 | |
| | | Fair Value | | | Fair Value | |
| | | | | | | |
| Fixed maturities | | $ | 11,086,386 |
| | | $ | 11,397,114 |
| |
| Equity securities | | 659,751 |
| | | 638,744 |
| |
| Mortgage loans | | 360,381 |
| | | 349,969 |
| |
| Other investments | | 830,253 |
| | | 830,219 |
| |
| Equity method investments | | 108,597 |
| | | 116,000 |
| |
| Short-term investments | | 15,282 |
| | | 127,461 |
| |
| Total investments | | $ | 13,060,650 |
| | | $ | 13,459,507 |
| |
| | | | | | | |
| Cash and cash equivalents(1) | | $ | 1,631,127 |
| | | $ | 1,241,507 |
| |
| | | | | | | |
|
| | | | | | | | | | | |
| | September 30, 2019 | December 31, 2018 | |
| | | Fair Value | | | Fair Value | |
| | | | | | | |
| Fixed maturities | | $ | 12,616,241 |
| | | $ | 11,435,347 |
| |
| Equity securities | | 429,903 |
| | | 381,633 |
| |
| Mortgage loans | | 407,790 |
| | | 298,650 |
| |
| Other investments | | 779,200 |
| | | 787,787 |
| |
| Equity method investments | | 113,748 |
| | | 108,103 |
| |
| Short-term investments | | 12,539 |
| | | 144,040 |
| |
| Total investments | | $ | 14,359,421 |
| | | $ | 13,155,560 |
| |
| | | | | | | |
| Cash and cash equivalents(1) | | $ | 1,208,551 |
| | | $ | 1,830,020 |
| |
| | | | | | | |
| |
(1) | Includes restricted cash and cash equivalents of $281$445 million and $202$597 million at September 30, 20172019 and at December 31, 2016,2018, respectively. |
Overview
The fair value of total investments decreasedincreased by $399 million$1.2 billion for the nine months ended September 30, 2017,2019, driven by the investment of cash balances, the increase in the market value of fixed maturities due to a decrease in interest rates and the tightening of credit spreads and the increase in the market value of equity securities due to the fundingimproved performance of financing and operating activities, partially offset by the improvementequity markets which resulted in valuations of fixed income and equity securities.higher valuations.
The following provides a further analysis on our investment portfolio by asset classes:class:
Fixed Maturities
The followingtable below provides a breakdowndetails of our investment in fixed maturities:maturities portfolio:
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 | |
| | Fair Value | | % of Total | | Fair Value | | % of Total | |
| | | | | | | | | |
| Fixed maturities: | | | | | | | | |
| U.S. government and agency | $ | 1,547,318 |
| | 14 | % | | $ | 1,656,069 |
| | 15 | % | |
| Non-U.S. government | 573,640 |
| | 5 | % | | 565,834 |
| | 5 | % | |
| Corporate debt | 4,503,967 |
| | 41 | % | | 4,600,743 |
| | 40 | % | |
| Agency RMBS | 2,306,822 |
| | 21 | % | | 2,465,135 |
| | 22 | % | |
| CMBS | 669,736 |
| | 6 | % | | 666,237 |
| | 6 | % | |
| Non-Agency RMBS | 43,817 |
| | — | % | | 56,921 |
| | — | % | |
| ABS | 1,288,870 |
| | 12 | % | | 1,222,214 |
| | 11 | % | |
| Municipals(1) | 152,216 |
| | 1 | % | | 163,961 |
| | 1 | % | |
| Total | $ | 11,086,386 |
| | 100 | % | | $ | 11,397,114 |
| | 100 | % | |
| | | | | | | | | |
| Credit ratings: | | | | | | | | |
| U.S. government and agency | $ | 1,547,318 |
| | 14 | % | | $ | 1,656,069 |
| | 15 | % | |
| AAA(2) | 4,381,049 |
| | 40 | % | | 4,165,226 |
| | 36 | % | |
| AA | 875,668 |
| | 8 | % | | 1,124,167 |
| | 10 | % | |
| A | 1,659,488 |
| | 15 | % | | 1,747,857 |
| | 15 | % | |
| BBB | 1,602,395 |
| | 14 | % | | 1,563,352 |
| | 14 | % | |
| Below BBB(3) | 1,020,468 |
| | 9 | % | | 1,140,443 |
| | 10 | % | |
| Total | $ | 11,086,386 |
| | 100 | % | | $ | 11,397,114 |
| | 100 | % | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| | Fair Value | | % of Total | | Fair Value | | % of Total | |
| | | | | | | | | |
| Fixed maturities: | | | | | | | | |
| U.S. government and agency | $ | 2,133,956 |
| | 17 | % | | $ | 1,515,697 |
| | 13 | % | |
| Non-U.S. government | 537,632 |
| | 4 | % | | 493,016 |
| | 4 | % | |
| Corporate debt | 5,077,095 |
| | 40 | % | | 4,876,921 |
| | 44 | % | |
| Agency RMBS | 1,632,768 |
| | 13 | % | | 1,643,308 |
| | 14 | % | |
| CMBS | 1,368,890 |
| | 11 | % | | 1,092,530 |
| | 10 | % | |
| Non-Agency RMBS | 58,952 |
| | — | % | | 40,687 |
| | — | % | |
| ABS | 1,600,535 |
| | 13 | % | | 1,637,603 |
| | 14 | % | |
| Municipals(1) | 206,413 |
| | 2 | % | | 135,585 |
| | 1 | % | |
| Total | $ | 12,616,241 |
| | 100 | % | | $ | 11,435,347 |
| | 100 | % | |
| | | | | | | | | |
| Credit ratings: | | | | | | | | |
| U.S. government and agency | $ | 2,133,956 |
| | 17 | % | | $ | 1,515,697 |
| | 13 | % | |
| AAA(2) | 4,867,996 |
| | 39 | % | | 4,569,632 |
| | 40 | % | |
| AA | 900,443 |
| | 6 | % | | 874,932 |
| | 8 | % | |
| A | 1,865,289 |
| | 15 | % | | 1,769,686 |
| | 15 | % | |
| BBB | 1,741,081 |
| | 14 | % | | 1,678,962 |
| | 15 | % | |
| Below BBB(3) | 1,107,476 |
| | 9 | % | | 1,026,438 |
| | 9 | % | |
| Total | $ | 12,616,241 |
| | 100 | % | | $ | 11,435,347 |
| | 100 | % | |
| | | | | | | | | |
| |
(1) | Includes bonds issued by states, municipalities, and political subdivisions. |
| |
(2) | Includes U.S. government-sponsored agency RMBSagencies, Residential mortgage-backed securities ("RMBS") and CMBS.Commercial mortgage-backed securities ("CMBS"). |
| |
(3) | Non-investment grade and non-rated securities. |
At September 30, 2017,2019, fixed maturities had a weighted average credit rating of AA- (2016:(2018: AA-), a book yield of 2.9% (2018: 3.1%) and an average duration of 3.33.1 years (2016: 3.5(2018: 3.0 years). The interest rate swap positions, which reduced duration to 2.8 years at December 31, 2018, were closed during the nine months ended September 30, 2019. At September 30, 2019, fixed maturities together with short-term investments, and cash and cash equivalents (i.e. total investments of $13.8 billion), had an average credit rating of AA- (2018: AA-), an average duration of 2.9 years (2018: 2.6 years) and duration inclusive of interest rate swaps of 3.2 years. was 2.5 years at December 31, 2018.
At September 30, 2017, inclusive of the short-term investments and cash and cash equivalents, the average credit rating was AA- (2016: AA-) and duration (including interest rate swaps) was 2.8 years (2016: 3.2 years).
Net2019, net unrealized investment gains on fixed maturities were $43$209 million, at September 30, 2017 compared to net unrealized investment losses of $126$181 million at December 31, 2016, primarily2018, an increase of $390 million due to the strengthening of the pound sterlingdecrease in U.S. Treasury rates and the euro against U.S. dollar which positively impacted valuations of non-U.S. denominated fixed maturity securities, together with the impact of the tightening of credit spreads on investment grade and high yield corporate debt.spreads.
Equity Securities
NetAt September 30, 2019, net unrealized investment gains on equity securities were $41$49 million, compared to unrealized gains of $16 million at December 31, 2016 compared to $97 million at September 30, 2017,2018, an increase of $56$33 million due to an improvementdriven by the rally in valuations reflective of performance of the global equity markets.
Mortgage Loans
During the nine months ended September 30, 2017,2019, our investment in commercial mortgage loans was comparable to December 31, 2016.increased by $109 million. The commercial mortgage loans are high quality and collateralized by a variety of commercial properties and are diversified both geographically throughout the U. S.U.S. and by property type to reduce the risk of concentration. At September 30, 2017,2019, there were no credit losses or past due amounts associated with our commercial mortgage loans portfolio.
Other Investments
The compositiontable below provides details of our other investments portfolio is summarized as follows:portfolio:
|
| | | | | | | | | | | | | | | |
| | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 | |
| | | | | | | | | |
| Hedge funds | | | | | | | | |
| Long/short equity funds | $ | 64,067 |
| | 8 | % | | $ | 118,619 |
| | 14 | % | |
| Multi-strategy funds | 286,452 |
| | 35 | % | | 285,992 |
| | 34 | % | |
| Event-driven funds | 48,578 |
| | 6 | % | | 93,539 |
| | 11 | % | |
| Total hedge funds | 399,097 |
| | 49 | % | | 498,150 |
| | 59 | % | |
| | | | | | | | | |
| Direct lending funds | 232,389 |
| | 28 | % | | 134,650 |
| | 16 | % | |
| Private equity funds | 71,896 |
| | 9 | % | | 81,223 |
| | 10 | % | |
| Real estate funds | 46,691 |
| | 6 | % | | 13,354 |
| | 2 | % | |
| Total hedge, direct lending, private equity and real estate funds | 750,073 |
| | 92 | % | | 727,377 |
| | 87 | % | |
| | | | | | | | | |
| Other privately held investments | 43,398 |
| | 5 | % | | 42,142 |
| | 5 | % | |
| CLO - Equities | 36,782 |
| | 3 | % | | 60,700 |
| | 8 | % | |
| Total other investments | $ | 830,253 |
| | 100 | % | | $ | 830,219 |
| | 100 | % | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| | Fair Value | | % of Total | | Fair Value | | % of Total | |
| | | | | | | | | |
| Hedge funds | | | | | | | | |
| Long/short equity funds | $ | 30,617 |
| | 4 | % | | $ | 26,779 |
| | 3 | % | |
| Multi-strategy funds | 166,079 |
| | 21 | % | | 167,819 |
| | 22 | % | |
| Total hedge funds | 196,696 |
| | 25 | % | | 194,598 |
| | 25 | % | |
| | | | | | | | | |
| Direct lending funds | 275,619 |
| | 35 | % | | 274,478 |
| | 35 | % | |
| Private equity funds | 67,210 |
| | 9 | % | | 64,566 |
| | 8 | % | |
| Real estate funds | 130,209 |
| | 17 | % | | 84,202 |
| | 11 | % | |
| Total hedge, direct lending, private equity and real estate funds | 669,734 |
| | 86 | % | | 617,844 |
| | 79 | % | |
| | | | | | | | | |
| CLO-Equities | 15,454 |
| | 2 | % | | 21,271 |
| | 2 | % | |
| Other privately held investments | 30,719 |
| | 4 | % | | 44,518 |
| | 6 | % | |
| Overseas deposits | 63,293 |
| | 8 | % | | 104,154 |
| | 13 | % | |
| Total other investments | $ | 779,200 |
| | 100 | % | | $ | 787,787 |
| | 100 | % | |
| | | | | | | | | |
TheDuring the nine months ended September 30, 2019, the fair value of total hedge funds decreasedincreased by $99$2 million during the nine month period ended September 30, 2017 driven by $127$8 million of net redemptions, offset by $28$10 million of price appreciation. Certain of these funds may be subject to restrictions on redemptions which may limit our ability to liquidate these investments in the short term. See Note 4(c)3(c) to the Consolidated Financial Statements 'Investments' for further details on these restrictions and details on unfunded commitments relating to our other investment portfolio.
Overseas deposits include investments in private funds held by Syndicate 2007 where the underlying investments are primarily U.S. government, non-U.S. government and corporate debt securities. The funds do not trade on an exchange and therefore are not included within the available for sale investments category.
Equity Method Investments
During 2016, we paid $108 million including direct transactions costs to acquire 19% of the common equity of Harrington Reinsurance Holdings Limited ("Harrington"), the parent company of Harrington Re Ltd. ("Harrington Re"), an independent reinsurance company jointly sponsored by AXIS Capital and Blackstone.The Blackstone Group L.P. ("Blackstone"). Harrington is not a variable interest entity. Givenentity that we exercise significant influence over this investee weis required to be included in our consolidated financial statements. We account for our ownership interest in Harrington under the equity method of accounting.
During the nine months ended September 30, 2017, we recorded an impairment charge of $9 million, related to a U.S. based insurance company, which reduced its carrying value to $nil. This charge is included in interest in income (loss) of equity method investments in the Consolidated Statement of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Refer to the ‘Liquidity and Capital Resources’ section included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20162018 for a general discussion of our liquidity and capital resources. During the nine months ended September 30, 2017, we:
redeemed the remaining $351 million of 6.875% Series C preferred shares on April 17, 2017; and
suspended our open market share repurchase program following the announcement of the offer to acquire Novae on July 5, 2017.
The following table summarizes our consolidated capital at:capital:
|
| | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 | |
| | | | | |
| Senior notes | $ | 993,797 |
| | $ | 992,950 |
| |
| | | | | |
| Preferred shares | 775,000 |
| | 1,126,074 |
| |
| Common equity | 4,679,699 |
| | 5,146,296 |
| |
| Shareholders’ equity | 5,454,699 |
| | 6,272,370 |
| |
| Total capital | $ | 6,448,496 |
| | $ | 7,265,320 |
| |
| | | | | |
| Ratio of debt to total capital | 15.4 | % | | 13.7 | % | |
| | | | | |
| Ratio of debt and preferred equity to total capital | 27.4 | % | | 29.2 | % | |
| | | | | |
|
| | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| | | | | |
| Debt | $ | 1,388,135 |
| | $ | 1,341,961 |
| |
| | | | | |
| Preferred shares | 775,000 |
| | 775,000 |
| |
| Common equity | 4,810,870 |
| | 4,255,071 |
| |
| Shareholders’ equity | 5,585,870 |
| | 5,030,071 |
| |
| Total capital | $ | 6,974,005 |
| | $ | 6,372,032 |
| |
| | | | | |
| Ratio of debt to total capital | 19.9 | % | | 21.1 | % | |
| Ratio of debt and preferred equity to total capital | 31.0 | % | | 33.2 | % | |
| | | | | |
We finance our operations with a combination of debt and equity capital. Our debt to total capital and debt and preferred equity to total capital ratios provide an indication of our capital structure, along with some insight into our financial strength. A company with higher ratios in comparison
On April 1, 2019, we repaid $250 million aggregate principal amount of 2.65% senior unsecured notes (the "2.65% Senior Notes") at their stated maturity.
On June 19, 2019, we issued $300 million aggregate principal amount of 3.90% senior unsecured notes (the "3.90% Senior Notes"), due 2029. Refer to industry average may show weak financial strength becauseItem 1, Note 10 'Debt and Financing Arrangements' to the cost of its debts may adversely affect results of operations and/or increase its default risk.Consolidated Financial Statements for details on recent debt transactions.
Our consolidated balance sheet at September 30, 2017 reflected a decrease in preferred equity due to redemption of the remaining $351 million of 6.875% Series C preferred shares on April 17, 2017.
We believe that our financial flexibility remains strong.
Secured Letter of Credit FacilitiesFacility
On March 27, 2017, the $250 million credit facility entered into by AXIS Capital and certain of its subsidiaries and a syndication of lenders expired.
On March 27, 2017,28, 2019, certain of AXIS Capital’s operating subsidiaries (the "Participating Subsidiaries") amended their existing $250 million secured letter of credit facility with Citibank Europe plc (the "$250 Million Facility") under their aggregate $750 million secured letter of credit facility with Citibank Europe plc (the "$750 Million Facility") to extend the expiration date to March 31, 2020.
The terms and conditions of the additional $500 million secured letter of credit facility (the “LOC Facility”) with Citibank Europe plc (“Citibank”) to include an additional
$250under the $750 Million Facility remain unchanged. The $500 million of secured letter of credit capacity (the “$250 Million Facility”) pursuant to a Committed Facility Letter and an amendment tofacility expires December 31, 2019.
Letters of credit issued under the Master Reimbursement Agreement (the “LOC Facility Documents”). Under the terms of the $250$750 Million Facility letters of credit to a maximum aggregate amount of $250 million are available for issuance on behalf of the Participating Subsidiaries. These letters of credit will principally be used to support the reinsurance obligations of the Participating Subsidiaries. The $250 Million Facility isParticipating Subsidiaries are subject to certain covenants, including the requirement to maintain sufficient collateral as defined in the LOC Facility Documents, to cover all of the obligations outstanding under the LOC$750 Million Facility.
Such obligations include contingent reimbursement obligations for outstanding letters of credit and fees payable to Citibank. In the event of default, Citibank Europe plc may exercise certain remedies, including the exercise of control over pledged collateral and the termination of the availability of the LOC$750 Million Facility to any or all of the Participating Subsidiaries. The $250 million Facility expires March 31, 2018. The terms and conditions
Common Equity
During the nine months endedSeptember 30, 20172019, our common equity decreasedincreased by $467556 million. The following table reconciles our opening and closing common equity positions: |
| | | | | |
| Nine months ended September 30, | 2017 | |
| | | |
| Common equity - opening | $ | 5,146,296 |
| |
| Net loss | (341,541 | ) | |
| Shares repurchased for treasury | (285,659 | ) | |
| Change in unrealized appreciation on available for sale investments, net of tax | 216,630 |
| |
| Common share dividends | (98,273 | ) | |
| Preferred share dividends | (36,154 | ) | |
| Share-based compensation expense recognized in equity | 30,692 |
| |
| Foreign currency translation adjustment | 46,824 |
| |
| Cost of treasury shares reissued | 884 |
| |
| Common equity - closing | $ | 4,679,699 |
| |
| | | |
|
| | | | | |
| Nine months ended September 30, | 2019 | |
| | | |
| Common equity - opening | $ | 4,255,071 |
| |
| Treasury shares reissued | 1,734 |
| |
| Share-based compensation expense | 21,014 |
| |
| Change in unrealized gains (losses) on available for sale investments, net of tax | 352,797 |
| |
| Foreign currency translation adjustment | 609 |
| |
| Net income | 324,227 |
| |
| Preferred share dividends | (31,969 | ) | |
| Common share dividends | (103,168 | ) | |
| Treasury shares repurchased | (9,445 | ) | |
| Common equity - closing | $ | 4,810,870 |
| |
| | | |
During the nine months ended September 30, 2017,2019, we repurchased 4.3 million165,000 common shares repurchased for a total cost of $286$9 million (including $261 million pursuant to our Board-authorized share repurchase program and $25 million relating to shares purchased in connection with the vesting of restricted stock awards granted under our 2007 and 2017 Long-Term Equity Compensation Plan).Plans.
At November 8, 2017, the remaining authorization under the
A common share repurchase program approved by our Board of Directors was $739 million (refer to Part II, Item 2 'Unregistered Sales of Equity Securities and Use of Proceeds'plan has not been authorized for additional information).2019.
However, following the Company's announcement of the offer to acquire Novae on July 5, 2017, the Company suspended its open market share repurchase program.
We continue to expect that cash flows generated from our operations, combined with the liquidity provided by our investment portfolio, will be sufficient to cover our required cash outflows and other contractual commitments through the foreseeable future.
CRITICAL ACCOUNTING ESTIMATES
OurThe Company's Consolidated Financial Statements include certain amounts that are inherently uncertain and judgmental in nature. As a result, we arethe Company is required to make assumptions and best estimates in order to determine the reported values. We considerThe Company considers an accounting estimate to be critical if: (1) it requires that significant assumptions be made in order to deal with uncertainties and (2) changes in the estimate could have a material impact on ourthe Company's results of operations, financial condition or liquidity.
As disclosed in our 2016the Company's 2018 Annual Report on Form 10-K, we believe thatthe Company believes the material items requiring such subjective and complex estimates are our:are:
reserves for losses and loss expenses;
reinsurance recoverable balances;on unpaid losses, including the provision for uncollectible amounts;
premiums;gross premiums written;
fair value measurements for ourof financial assets and liabilities; and
assessmentsother-than-temporary impairments ("OTTI") in the carrying value of other-than-temporary impairments.available for sale securities.
We believeThe Company believes that the critical accounting estimates discussion in Item 7 of ourits Annual Report on Form 10-K for the year ended December 31, 2016,2018, continues to describe the significant estimates and judgments included in the preparation of ourthe Consolidated Financial Statements.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Item 1, Note 1 'Basis of Presentation and Significant Accounting Policies' to the Consolidated Financial Statements and Item 8, Note 2 'Basis of Presentation and Significant Accounting Policies' to the Consolidated Financial Statements in ourthe Company's Annual Report on Form 10-K for the year ended December 31, 2016,2018, for a discussion of recently issued accounting pronouncements that we have not yet adopted.pronouncements.
OFF-BALANCE SHEET AND SPECIAL PURPOSE ENTITY ARRANGEMENTS
At September 30, 20172019, we havethe Company had not entered into any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to Item 7A included in our 2016Annual Report on Form 10-K. With10-K for the year ended December 31, 2018. There have been no material changes to this item since December 31, 2018, with the exception of the changes in exposure to foreign currency risk presented below, there have been no material changes to this item since December 31, 2016.below.
Foreign Currency Risk
The table below provides a sensitivity analysis of our total net foreign currency exposures.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | AUD | | NZD | | CAD | | EUR | | GBP | | JPY | | Other | | Total | |
| | | | | | | | | | | | | | | | | |
| At September 30, 2017 | | | | | | | | | | | | | | | | |
| Net managed assets (liabilities), excluding derivatives | $ | (29,134 | ) | | $ | (9,733 | ) | | $ | 85,047 |
| | $ | (177,485 | ) | | $ | 167,796 |
| | $ | 38,025 |
| | $ | 156,473 |
| | $ | 230,989 |
| |
| Foreign currency derivatives, net | 12,702 |
| | 7,221 |
| | (101,930 | ) | | 249,587 |
| | 89,740 |
| | (8,879 | ) | | 9,880 |
| | 258,321 |
| |
| Net managed foreign currency exposure | (16,432 | ) | | (2,512 | ) | | (16,883 | ) | | 72,102 |
| | 257,536 |
| | 29,146 |
| | 166,353 |
| | 489,310 |
| |
| Other net foreign currency exposure | 1 |
| | — |
| | (49 | ) | | 1,558 |
| | 1,049 |
| | — |
| | 83,283 |
| | 85,842 |
| |
| Total net foreign currency exposure | $ | (16,431 | ) | | $ | (2,512 | ) | | $ | (16,932 | ) | | $ | 73,660 |
| | $ | 258,585 |
| | $ | 29,146 |
| | $ | 249,636 |
| | $ | 575,152 |
| |
| Net foreign currency exposure as a percentage of total shareholders’ equity | (0.3 | %) | | — | % | | (0.3 | %) | | 1.4 | % | | 4.7 | % | | 0.5 | % | | 4.6 | % | | 10.5 | % | |
| Pre-tax impact of net foreign currency exposure on shareholders’ equity given a hypothetical 10% rate movement(1) | $ | (1,643 | ) | | $ | (251 | ) | | $ | (1,693 | ) | | $ | 7,366 |
| | $ | 25,859 |
| | $ | 2,915 |
| | $ | 24,964 |
| | $ | 57,517 |
| |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | AUD | | NZD | | CAD | | EUR | | GBP | | JPY | | Other | | Total | |
| | | | | | | | | | | | | | | | | |
| At September 30, 2019 | | | | | | | | | | | | | | | | |
| Net managed assets (liabilities), excluding derivatives | $ | 34,266 |
| | $ | (2,075 | ) | | $ | 144,344 |
| | $ | (279,800 | ) | | $ | (202,714 | ) | | $ | 21,202 |
| | $ | 115,846 |
| | $ | (168,931 | ) | |
| Foreign currency derivatives, net | (30,364 | ) | | 3,443 |
| | (121,781 | ) | | 257,361 |
| | 38,102 |
| | (8,784 | ) | | 6,058 |
| | 144,035 |
| |
| Net managed foreign currency exposure | 3,902 |
| | 1,368 |
| | 22,563 |
| | (22,439 | ) | | (164,612 | ) | | 12,418 |
| | 121,904 |
| | (24,896 | ) | |
| Other net foreign currency exposure | — |
| | — |
| | 114 |
| | 2,215 |
| | 215 |
| | — |
| | 47,892 |
| | 50,436 |
| |
| Total net foreign currency exposure | $ | 3,902 |
| | $ | 1,368 |
| | $ | 22,677 |
| | $ | (20,224 | ) | | $ | (164,397 | ) | | $ | 12,418 |
| | $ | 169,796 |
| | $ | 25,540 |
| |
| Net foreign currency exposure as a percentage of total shareholders’ equity | 0.1 | % | | — | % | | 0.4 | % | | (0.4 | %) | | (2.9 | %) | | 0.2 | % | | 3.0 | % | | 0.5 | % | |
| Pre-tax impact of net foreign currency exposure on shareholders’ equity given a hypothetical 10% rate movement(1) | $ | 390 |
| | $ | 137 |
| | $ | 2,268 |
| | $ | (2,022 | ) | | $ | (16,440 | ) | | $ | 1,242 |
| | $ | 16,979 |
| | $ | 2,554 |
| |
| | | | | | | | | | | | | | | | | |
| |
(1) | Assumes 10% change in underlying currencies relative to the U.S. dollar. |
Total Net Foreign Currency Exposure
At September 30, 2017,2019, our total net foreign currency exposure was $575$26 million net long, driven by increases in our exposures to the euro, pound sterling, Japanese yencanadian dollar and other non-core currencies primarily due to new business written during the nine months ended September 30, 2017. In addition, our pound sterling2019. Our total net foreign currency exposure was increasedincluded $48 million of assets managed by specific investment managers who have the discretion to fundhold foreign currency exposures as part of their total return strategy. Our emerging market debt portfolio is the acquisitionprimary contributor to this group of Novae. Managed exposure in Other is primarily Indian rupee, UAE Dirham (pegged to USD) and Israeli shekel. Other net exposure of $83 million is driven by our emerging markets debt fixed income portfolio.assets.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management has performed an evaluation, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of ourthe Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”"Exchange Act")) as of at September 30, 20172019. Based upon that evaluation, ourthe Company's Chief Executive Officer and Chief Financial Officer concluded that, as of at September 30, 20172019, ourthe Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by usthe Company in reports that we fileit files or submitsubmits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
The Company’s management has performed an evaluation, with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of changes in the Company’s internal control over financial reporting that occurred during the three months ended September 30, 20172019. Based upon that evaluation, there were no changes in ourthe Company's internal control over financial reporting that occurred during the three months ended September 30, 20172019 that have materially affected, or are reasonably likely to materially affect, ourthe Company's internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we arethe Company is subject to routine legal proceedings, including arbitrations, arising in the ordinary course of business. These legal proceedings generally relate to claims asserted by or against usthe Company in the ordinary course of insurance or reinsurance operations; estimatedoperations. Estimated amounts payable under such proceedings are included in the reserve for losses and loss expenses in the Consolidated Balance Sheets.consolidated balance sheets.
We areThe Company is not a party to any material legal proceedings arising outside the ordinary course of business.
ITEM 1A. RISK FACTORS
Other than the additional risk factor disclosed in our Quarterly Report on Form 10-Q for the period ended June 30, 2017, there have beenThere were no material changes tofrom the risk factors previously disclosed in ourthe Company's Annual Report on Form 10-K for the year ended December 31, 2016.2018.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents informationIssuer Purchases of Equity Securities
Common Shares
Information regarding the number of common shares we repurchased duringin the three monthsquarter ended September 30, 2017:
ISSUER PURCHASES OF EQUITY SECURITIES
Common Shares2019 is shown in the following table:
|
| | | | | | | | | |
Period | Total Number of Shares Repurchased | Average Price Paid Per Share | Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs(1) | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Repurchased Under the Announced Plans or Programs(2) | |
| | | | | |
July 1-31, 2017 | 51 |
|
| $65.74 |
| 49 |
| $739.0 million | |
August 1-31, 2017
| — |
|
| $— |
| — |
| $739.0 million | |
September 1-30, 2017
| — |
|
| $— |
| — |
| $739.0 million | |
Total | 51 |
| | 49 |
| $739.0 million | |
| | | | | |
|
| | | | | | | | | | | | | |
Period | Total number of shares purchased(a) (b) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs(b) | |
| | | | | | | | |
July - September 2019 | 1 |
| |
| $61.23 |
| | — |
| | — |
| |
| | | | | | | | |
| |
(1)(a) | From time to time, we purchase shares in connection with the vesting of restricted stock awards granted to our employees under our 2007 Long-Term Equity Compensation Plan. The purchase of these shares is separately authorized and is not part of our Board-authorized share repurchase program, described below.In thousands. |
| |
(2)(b) | On December 9, 2016, our BoardShares are repurchased from employees to satisfy withholding tax liabilities that arise upon the vesting of Directors authorized a share repurchase plan to repurchase up to $1 billion of our common shares through to December 31, 2017. The share repurchase authorization which became effective on January 1, 2017, replaced the previous plan which had $253 million available through the end of 2016. Share repurchases may be effected from time to time in the open market or privately negotiated transactions, depending on market conditions.restricted stock units. |
ITEM 5. OTHER INFORMATION
Disclosure of Certain Activities Under Section 13(r) of the Securities Exchange Act of 1934
Section 13(r) of the Securities Exchange Act of 1934, as amended, requires issuers to disclose in their annual and quarterly reports whether they or any of their affiliates knowingly engaged in certain activities with Iran or with individuals or entities that are subject to certain sanctions under U.S. law. Issuers are required to provide this disclosure even where the activities, transactions or dealings are conducted outside of the U.S. in compliance with applicable law.
As and when allowed by the applicable law and regulations, certain of our non-U.S. subsidiaries provide treaty reinsurance coverage to non-U.S. insurers on a worldwide basis, including insurers of liability, marine, aviation and energy risks, and as a result, these underlying reinsurance portfolios may have some exposure to Iran. In addition, we underwrite insurance and facultative reinsurance on a global basis to non-U.S. insureds and insurers, including for liability, marine, aviation and energy risks. Coverage provided to non-Iranian business may indirectly cover an exposure in Iran. For example, certain of our operations underwrite global marine hull and cargo policies that provide coverage for vessels navigating into and out of ports worldwide, including Iran. For the quarter ended September 30, 2017,2019, there has been no material amount of premium allocated or apportioned to activities relating to Iran. As we believe these activities are permitted under applicable laws and regulations, weWe intend for our non-U.S. subsidiaries to continue to provide such coverage only to the extent permitted by applicable law.
ITEM 6. EXHIBITS
|
| |
| Rule 2.7 Announcement, dated July 5, 2017 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on July 6, 2017). |
| Rule 2.7 Announcement, dated August 24, 2017 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on August 25, 2017). |
| Certificate of Incorporation and Memorandum of Association (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1(Amendment No. 1) (No. 333-103620) filed on April 16, 2003). |
| Amended and Restated Bye-Laws (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 filed on May 15, 2009). |
| Specimen Common Share Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (Amendment No. 3) (No. 333-103620) filed on June 10, 2003). |
| Certificate of Designations establishing the specific rights, preferences, limitations and other terms of the Series D Preferred Shares (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on May 20, 2013). |
| Certificate of Designations establishing the specific rights, preferences, limitations and other terms of the Series E Preferred Shares (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on November 7, 2016). |
| 2018 Directors Annual Compensation Program.First Supplemental Indenture, dated as of April 3, 2019, among AXIS Specialty Finance PLC, AXIS Capital Holdings Limited and The Bank of New York Mellon Trust Company, N.A., relating to the 5.150% Senior Notes due 2045 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on April 4, 2019). |
| Form of 3.900% Senior Notes due 2029 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on June 19, 2019). |
| Amendment No. 7 to Consulting Agreement by and between Michael A. Butt and AXIS Specialty Limited dated July 18, 2019 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 7, 2019). |
| Amendment No. 2 to Employment Agreement by and between Peter W. Wilson and AXIS Specialty U.S. Services, Inc. dated September 19, 2019 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 24, 2019). |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
†101 | The following financial information from AXIS Capital Holdings Limited’s Quarterly Report on Form 10-Q for the quarter ended September 30, 20172019 formatted in Inline XBRL: (i) Consolidated Balance Sheets at September 30, 20172019 and December 31, 2016;2018; (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 20172019 and 2016;2018; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 20172019 and 2016;2018; (iv) Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, 20172019 and 2016;2018; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 20172019 and 2016;2018; and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail. |
†104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| |
* | ExhibitExhibits 10.1 representsand 10.2 represent a management contract, compensatory plan or arrangement in which directors and/or executive officers are eligible to participate. |
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 8, 20176, 2019
|
| |
AXIS CAPITAL HOLDINGS LIMITED |
By: | /S/ S/ ALBERT BENCHIMOL |
| Albert Benchimol |
| President and Chief Executive Officer |
| (Principal Executive Officer) |
| /S/ JOSEPH HENRY
|
| Joseph Henry/S/ PETER VOGT |
| Executive Vice President and Peter Vogt |
| Chief Financial Officer |
| (Principal Financial Officer) |