AXIS Capital Keefe, Bruyette and Woods 2009 Insurance Conference New York, NY David Greenfield, CFO Exhibit 99.1 |
2 Safe Harbor Disclosure Cautionary Statement Regarding Forward-looking Statements Statements in this presentation that are not historical facts, including statements regarding our estimates, beliefs, expectations, intentions, strategies or projections, may be “forward-looking statements” within the meaning of the U.S. federal securities laws, including the Private Securities Litigation Reform Act of 1995. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the United States securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may,” “should,” “could,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “potential,” “intend” or similar expressions. Our expectations are not guarantees and are based on currently available competitive, financial and economic data along with our operating plans. Forward-looking statements contained in this presentation may include, but are not limited to, information regarding our estimates of losses related to hurricanes and other catastrophes, our expectations regarding pricing and other market conditions, our growth prospects, the amount of our acquisition costs, the amount of our net losses and loss reserves, the projected amount of our capital expenditures, management of interest rate and foreign currency risks, valuations of potential interest rate shifts and foreign currency rate changes and measurements of potential losses in fair market values of our investment portfolio. Forward-looking statements only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause actual events or results to be materially different from our expectations include (1) the occurrence of natural and man-made disasters, (2) general economic, capital and credit market conditions, (3) actual claims exceeding our loss reserves, (4) the failure of any of the loss limitation methods we employ, (5) the effects of emerging claims and coverage issues, (6) the failure of our cedants to adequately evaluate risks, (7) the loss of one or more key executives, (8) a decline in our ratings with rating agencies, (9) loss of business provided to us by our major brokers, (10) changes in accounting policies or practices, (11) changes in governmental regulations, (12) increased competition, (13) changes in the political environment of certain countries in which we operate or underwrite business, (14) fluctuations in interest rates, credit spreads, equity prices and/or currency values, (15) general economic conditions and (16) other matters that can be found in our filings with the Securities and Exchange Commission. Forward-looking statements are only as of the date they are made, and we do not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. |
3 AXIS Capital – Overview Well-diversified leader in the global P&C markets Established global insurance and reinsurance platforms Well-diversified mix of specialty and niche businesses Geographic diversification globally Disciplined and proven underwriter Proven steward of capital (generated profitability in every year since inception in 2001) Conservative reserving practices Well-managed exposure Platform built to execute in all phases of (re)insurance cycle Strong balance sheet with solid financial performance Conservative balance sheet with total assets of $15.4 billion and total capitalization of $5.4 billion High-quality, conservative investment portfolio Ratings of A+ (S&P - Stable), A2 (Moody’s - Stable) and A (A.M. Best - Stable) S&P ERM evaluation: Strong 14% compound annual growth in diluted book value and accumulated dividends since 2002 Experienced management, underwriting and claims teams |
4 4 Consistent and Strong Franchise Since our inception, our return on equity has averaged 16.5% Franchise performed strongly in 2008 Despite the third most costly catastrophe on record, an unprecedented financial market meltdown and continued intense market competition, we achieved a return on equity of over 8% Gustav/Ike – Excellent risk management – Well-understood exposures AXIS market share less than 1% of estimated $60Bn in 2008 worldwide cat and major property and energy risk losses – Particularly important given our franchise risk preference for short-tail business Strong start to 2009 despite challenges of the current economic environment |
5 5 AXIS Underwriting Has Outperformed Average P&C Combined Ratio 2004-2008 (1) Source: Company Reports Note: Peer Universe includes Bermuda (re)insurers. For companies with less than 5 years of history, average combined ratio is measured from 2006 through 2008. (1) P&C Operations only. Includes corporate expenses. Class of 2005 103.0% 99.3% 99.2% 98.2% 95.9% 95.2% 95.1% 93.8% 92.9% 92.8% 92.5% 92.4% 91.8% 91.6% 89.8% 85.7% 70.3% 69.9% 0% 20% 40% 60% 80% 100% Company O Company N Company M Company L Company K Company J Average of Peers Excluding Public Bermuda Class of 2005 Company I Company H Company G Company F Company E Average of Peers Company D Company C Company B Company A |
6 GPW by Segment TTM GPW = $3,490 M AXIS Re 50% AXIS Insurance 50% AXIS Capital – Global Specialty Insurer & Reinsurer Well-positioned to navigate all phases of insurance/reinsurance cycle with established, diversified presence in both insurance and reinsurance markets globally GPW by Source 2008 GPW = $3,390 million U.S. 44.3% Europe 30.3% Bermuda 25.4% |
7 7 Robust global platform built deliberately at the “right” time allowed access to wide array of business supporting execution of soft- market strategy Price adequacy varied by line and by geography Critically, terms and conditions have not deteriorated significantly We substantially reduced participation in price-inadequate lines (e.g. aviation) Price adequacy for natural perils exposure varied by region and we reduced participation in price-inadequate regions (e.g. non-U.S. for AXIS Insurance) We continue to navigate amongst classes within the casualty space Product structuring and risk selection continue to significantly influence profitability outcome Reinsurance purchasing key component of soft-market strategy Soft Market Execution Successful |
8 AXIS Insurance – GPW and Combined Ratio Since Inception 0 300 600 900 1,200 1,500 1,800 2,100 2002 2003 2004 2005 2006 2007 2008 TTM 6/30/09 ($ in millions) $794 $1,607 $1,920 Property Marine Terrorism Aviation & Aerospace $1,875 $2,070 Credit & Political Risk Professional Lines Casualty Other $2,039 $1,842 $1,743 Combined Ratio: 62% 68% 81% 93% 72% 69% 81% 84% Combined Ratio |
9 AXIS Re – GPW and Combined Ratio Since Inception 0 300 600 900 1,200 1,500 1,800 2002 2003 2004 2005 2006 2007 2008 TTM 6/30/09 ($ in millions) $667 $1,093 $1,519 (1) $1,539 Catastrophe Property Professional Lines Credit & Bond Motor Liability Engineering/Other $314 (1) Includes KRW reinstatement premiums of $88 million. (2) Includes Ike/Gustav reinstatement premiums of $28 million. $1,551 $1,548 (2) $1,748 Combined Ratio: 62% 66% 85% 106% 78% 76% 92% 91% Combined Ratio |
10 AXIS Insurance – Highlights TTM 6/30/09 GPW by Line of Business Total GPW = $1,743 M Property 30% Marine 11% Terrorism 2% Aviation 4% Credit & Political Risk 4% Professional Lines 37% Liability 13% Other <1% Net Premiums Earned Underwriting Profit Combined Ratio $1,161 M 127 M (1) 84.1% (1) TTM 6/30/09 Financial Highlights (1) Includes $93 million in pre-tax net losses related to Hurricane Ike Pricing is broadly firming with loss-affected and capital- consuming lines firming significantly Current margins within the company’s target range Franchise perception constantly strengthening Continue to avoid classes of business lacking long-term underwriting return potential Continuing to build sustainable competitive advantages |
11 AXIS Insurance – Strategic Global Presence North America • Nationwide network of 11 offices in U.S. • Flexibility to write on admitted and non-admitted basis in all 50 states • Top 15 E&S carrier in the U.S. • Canada Branch Bermuda • Global capability with few exceptions • Ability to transact with both Bermuda and London wholesale markets Europe • London and Dublin • Surplus-lines eligible in 48 U.S. states • Freedom of Services permissions in many EU countries • Business written in 188 countries since inception Australia/Asia • Singapore Branch • Australia Branch |
12 AXIS Re – Highlights TTM 6/30/09 GPW by Line of Business Total GPW = $1,748 M Catastrophe 28% Property 17% Professional Lines 17% Credit and Bond 12% Motor 6% Liability 13% Engineering / Other 6% Net Premiums Earned Underwriting Profit Combined Ratio $1,560 M 140 M (1) 91.1% (1) TTM 6/30/09 Financial Highlights (1) Includes $261 million in pre-tax net losses related to Hurricane Ike Focus on non-life treaty reinsurance diversified across products Maintain balance between proximity to client and long-term returns (Strategically located centers in NY, Bermuda and Zurich) Capital base of top 10 reinsurer, but small enough to grow in targeted areas Strong relationships with cedants supported by consistency of approach Operate in broadly syndicated marketplace where we strive to be in the upper quartile of the pricing market |
$1,148 $1,347 H1 2008 H1 2009 17.4% 13 AXIS Capital – H1 2009 Results $2,138 $2,238 H1 2008 H1 2009 Consolidated Gross Premiums Written 4.7% AXIS Re Gross Premiums Written $990 $891 H1 2008 H1 2009 AXIS Insurance Gross Premiums Written (10.0%) 81.2% 83.4% H1 2008 H1 2009 Consolidated Combined Ratio = 2.1% $223 $212 H1 2008 H1 2009 (5.0%) $469 $275 H1 2008 H1 2009 Consolidated Net Income to Common Shareholders Consolidated Net Investment Income (41.4%) ($ in millions) |
14 Significant reserve redundancies since inception Nearly all from short-tail lines Cautious approach to medium and long-tail lines reflected in limited releases from these lines Proactive reserving Reserving for major cats Professional lines Credit-exposed lines Strong cash flows and high-quality, short-duration, liquid investment portfolio Limited credit risk from reinsurance recoverables Immaterial goodwill and other intangible assets Strong enterprise risk management Capital and liquidity levels in excess of requirements Priority is reinvestment in business Opportunistic capital is critical, particularly in uncertain times Strong Balance Sheet and Liquidity |
15 15 Net Reserve Position $447 $66 $161 $366 $394 $151 $476 $281 $809 $491 $789 $687 $0 $300 $600 $900 $1,200 $1,500 Property and Other Liability Professional Lines Cat, Property & other Credit & Bond, Motor & Liability Professional Lines Net Case Reserves Net IBNR Reserves AXIS Insurance Net IBNR Reserves = $1,566 Total Net Reserves = $2,240 AXIS Re Net IBNR Reserves = $1,967 Total Net Reserves = $2,878 $923 $347 $970 $857 $1,183 $838 ($ in millions) IBNR represents 69% ($3.5 Bn) of net reserves at June 30, 2009 |
16 High Quality, Well-Diversified Investment Portfolio Total Cash and Investments: $10.9 Billion Total Portfolio Allocation Total Portfolio Ratings Allocation Note: Other investments include hedge funds, CLO equity tranches, credit funds and short duration high yield funds (As of June 30, 2009) Equities 1% Short Term Investments 2% Other Investments 5% Municipals 5% Corporates 24% Foreign Govt Agency 3% Cash & Cash Equivalents 11% US Govt/Agency 16% Agency MBS 21% ABS 3% Non Agency RMBS 2% Non Agency CMBS 7% US Govt/Agency/Cash & Cash Equivalents 51% A 9% BBB and lower 8% Equities 1% Other Investments (unrated) 5% AA 7% AAA 19% Portfolio Characteristics of Fixed Maturity Investments Average duration Average credit quality 3.1 years AA+ |
17 Strong Cash Flow and Investment Income $8,346 $7,895 $6,369 $4,796 $3,183 $1,600 $0 $2,000 $4,000 $6,000 $8,000 Cumulative Cash Flow from 1/1/04 ($ in millions) $197 $474 $461 $369 $246 $157 $0 $100 $200 $300 $400 $500 Investment Income from Cash/Fixed Income (1) $21 -$213 $34 $46 $17 $3 -$250 -$150 -$50 $50 (1) Excludes Net Investment Expenses Investment Income from All Other (1) |
18 Financial Flexibility ($ in millions) $3,737 $4,011 $4,912 Common Equity Series A Preferred Equity Series B Preferred Equity Debt $5,658 6/30/09 Capitalization Ratios Debt / Total Capital 9.2% Debt + Preferred / Total Capital 18.5% $4,960 $5,409 3,238 3,012 3,913 4,659 3,961 4,409 250 250 250 250 250 250 250 250 250 250 499 499 499 499 499 499 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 |
19 19 AXIS Risk Framework Board Review and approve recommendations of Board Risk Committee Risk Committee of the Board Assist Board in its oversight and review of risks to which AXIS is exposed To provide a reasonable framework under which AXIS’s key objectives can be achieved Review (and recommend for approval) Risk Standards (“RS”) to provide risk framework RS provide principles, guidelines and risk tolerances under which business will operate RS provide a guide to the risk appetite of the business Risk Management Committee (“RMC”) Draft, set, maintain and update RS (including risk tolerances) Monitor aggregation, risk tolerances and emerging risks Provides the interface between the RS and the AXIS business Chief Risk Officer Implements an ERM framework to monitor and measure the risk within our business Implements Economic Capital Model to provide CEO and RMC with ability to measure the business against the defined risk appetite Actively monitors aggregation risks across our business Business Manage to the risk tolerances as defined by CEO and RMC. |
20 20 Principles of our Risk Framework Controlled risk taking: our financial strength and sustainable value creation are integral to our existence We operate within a clearly defined risk policy and risk control framework Clear accountability: we operate on the principle of delegated and clearly defined authority Individuals are accountable for the risks they take on and incentives are aligned to overall business objectives Independent risk controlling: to avoid conflicts of interests Risk Management Committee and team monitor group risk-taking activities Open risk culture: risk transparency and responsiveness to change are integral to our risk control process We institutionalize knowledge-sharing processes at all levels |
21 21 Earnings Quality through Organic Growth Initiatives • Enhancing operational fit • Acquisitions of underwriting teams / integration of best-in-class MGAs with strategic significance • Access to specialty small/middle market business • New branches in Australia and Canada Distribution-oriented Initiatives New Products / Markets • Global Accident & Health We are prepared to execute hard market strategy in many P&C lines and continue to improve overall earnings quality with ongoing strategic initiatives. Leverage Current Market Position • Continue to drive increased submissions • Focus on relationships with long-term reinsurance dependent cedants • Broaden relationships with existing cedants |
22 AXIS Has Delivered Excellent Returns… 12/31/03 – 12/31/08 Actual Average Annual Growth in Diluted BVPS 10.1% Dividends (as % of beginning diluted BVPS) 2.9% Average Annual Value Creation (1) 13.0% Average ROACE 15.7% Average Operating ROACE 16.3% (1) Value Creation = Diluted Book Value Growth + Dividend Return AXIS has increased dividend every year since we began paying dividends |
23 Bermuda Performance 2004 - 2008 Company Cumulative Value Creation (2004-2008) Average Annual Value Creation (2004-2008) Company A 101.3% 15.8% 72.1% 13.0% Company C 69.5% 12.8% Company D 68.5% 12.1% Company E 62.8% 11.1% Company F 57.6% 11.4% Company G 51.4% 9.4% Company H 45.2% 13.5% Company I 45.0% 10.1% Company J 36.6% 7.1% Company K 36.2% 6.9% Company L 22.5% 6.6% Company M 17.0% 6.9% Company N 14.4% 5.6% Company O 0.8% 4.9% Company P (49.5%) (8.3%) Note: Value Creation = Diluted Book Value Growth + Dividend Return Source: Company Reports, SNL |
Questions? David Greenfield, CFO |