AXIS Capital Sees Net Income of $495M for Year Ended

Bermuda-based AXIS Capital Holdings Ltd. has reported net income for the year ended Dec. 31, 2004 of $495.0 million, or $2.98 per diluted share, compared to $532.3 million, or $3.42 per diluted share, for the year ended Dec. 31, 2003.

The company’s 2004 net income included the impact of losses from the third quarter hurricanes. Net income for the quarter ended Dec. 31, 2004 was $181.1 million, or $1.09 per diluted share, compared to $160.5 million, or $0.97 per diluted share, for the quarter ended Dec. 31, 2003.

Net income excluding net realized gains and losses on investments, net of tax for the year ended Dec. 31, 2004 was $482.3 million, or $2.91 per diluted share, compared with $509.2 million, or $3.28 per diluted share, for the year ended Dec. 31, 2003. Net income excluding net realized gains and losses on investments, net of tax for the quarter ended Dec. 31, 2004 was $177.0 million, or $1.07 per diluted share, compared with net income of $158.4 million, or $0.96 per diluted share, for the quarter ended Dec. 31, 2003. Net income excluding net realized gains and losses on investments, net of tax is a non-GAAP financial measure.

John Charman, CEO and president, commented, “We are particularly pleased with our results for this year, a period that has been one of the most challenging in the history of our industry. Our solid results have been achieved against a backdrop of regulatory uncertainty, erratic competitive behavior and unprecedented industry losses from a series of worldwide natural disasters.

“In spite of these substantial challenges, our staff at AXIS have been able to generate a return on average equity of 16.3%, which is in excess of our stated goal of 15% over the cycle. We anticipate continuing uncertainty in the industry’s structural, regulatory and competitive landscapes during 2005; however, we are determined and prepared to continue to drive book value growth for shareholders.”

Gross premiums written during 2004 were $3,012.3 million compared to $2,273.6 million for 2003. Of these premiums written: $1,095.3 million were derived from global insurance compared to $980.7 million for 2003; $766.0 million from global reinsurance compared to $462.9 million for 2003; $824.2 million from U.S. insurance compared to $625.9 million for 2003; and $326.8 million from U.S. reinsurance compared to $204.1 million for 2003.

The increase in the global reinsurance premiums written was largely driven by the company’s strategic expansion into Continental Europe. The increase in the U.S. insurance and U.S. reinsurance gross premiums written was largely driven by greater market penetration.

For the year ended Dec. 31, 2004, the net premiums written rose to $2,423.7 million from $1,908.4 million for 2003. Ceded premiums were $588.6 million for 2004 compared to $365.3 million for 2003. The increase in ceded premiums was primarily due to the purchase of additional reinsurance protection by the company’s global insurance and U.S. insurance segments to mitigate volatility in their growing books of business. Net premiums earned increased to $2,028.4 million in 2004 from $1,436.2 million in 2003. The increase in net premiums earned reflects the increase in the net premiums written over the last 12 months.

For the year ended Dec. 31, 2004, net investment income, including realized gains of $13.6 million, was $165.7 million compared with $96.5 million, including realized gains of $22.6 million, for 2003. Cashflow generated from operations for the year ended Dec. 31, 2004 was $1,598.4 million compared with $1,343.6 million for 2003.

During 2004, the company generated a combined ratio of 84.4%, a loss ratio of 61.4% and an expense ratio of 23.0% compared to 73.6%, 51.1% and 22.5%, respectively, for 2003. During 2004, the company incurred net losses and loss expenses of $266.3 million for Hurricanes Charley, Frances, Ivan and Jeanne, whereas the 2003 loss ratio reflected limited catastrophic loss activity. The company’s losses from the hurricanes are before the impact of reinstatements and tax recoveries. The loss ratios benefited from favorable prior period development of 9.0 percentage points and 3.9 percentage points for 2004 and 2003, respectively.

Gross premiums written for the fourth quarter of 2004 were $651.2 million compared to $479.7 million for the fourth quarter of 2003, an increase of 36%. Of these premiums written: $364.4 million were derived from global insurance compared to $280.1 million in the corresponding quarter of 2003; $43.2 million from global reinsurance compared to $16.7 million in the corresponding quarter of 2003; $228.6 million from U.S. insurance compared to $174.8 million in the corresponding quarter of 2003; and $15.0 million from U.S. reinsurance compared to $8.1 million in the corresponding quarter of 2003. The increase in the global insurance gross premiums written and the U.S. insurance gross premiums written was largely driven by greater market penetration.

For the quarter ended Dec. 31, 2004, the net premiums written rose to $474.6 million from $384.0 million for the fourth quarter of 2003. Ceded premiums increased to $176.6 million for 2004 from $95.6 million for 2003. Net premiums earned increased to $548.9 million in 2004 from $400.7 million in 2003. The increase in net premiums earned reflects the increase in the company’s net premiums written over the last 12 months.

For the quarter ended Dec. 31, 2004, net investment income was $47.5 million and realized gains were $4.2 million, compared with $27.4 million in net investment income and $1.4 million in realized gains for the fourth quarter of 2003. The increase in net investment income was due to increased invested assets on which the company obtained improved investment yields.

During the fourth quarter of 2004, the company generated a combined ratio of 79.3%, a loss ratio of 54.7% and an expense ratio of 24.6% compared to 72.0%, 51.9% and 20.1%, respectively, for the fourth quarter of 2003. The loss ratio for the fourth quarter of 2004 includes the impact of a revision in the net loss estimate with respect to the third quarter hurricanes. The net loss estimate increased by $38.9 million, or 17.1%.

This increase was largely attributable to development on losses incurred in our global and U.S. reinsurance segments. The company experienced favorable prior period development of $40.4 million or 7.4 percentage points compared to $4.1 million or 1.0 percentage points for the fourth quarter of 2003.

Insurance industry investigation

As previously disclosed, the company’s U.S. holding company has received subpoenas from the Office of the Attorney General of the State of New York seeking information regarding incentive commission agreements, bid rigging, fictitious and inflated quotes, conditioning direct insurance on the placement of reinsurance and related matters.

In addition, the company’s U.S. insurance companies have received subpoenas and requests for information from various state insurance regulators regarding these same matters. These inquiries are part of industry-wide investigations. The company is reportedly cooperating fully with the Attorney General of the State of New York and the other state regulators in their investigations.

The company is reportedly continuing to conduct an internal investigation, led by outside counsel, to determine whether it has engaged in any of the improper business practices that are the focus of these inquiries. The company does not believe that it has engaged in any of these improper business activities, and to date the internal investigation has uncovered no evidence indicating that it has engaged in bid rigging, fictitious or inflated quotes, conditioning direct insurance on the placement of reinsurance or related matters.

Consistent with long-standing and wide-spread industry practice, the company has in the past entered into incentive commission agreements; however, it has ceased entering into, and have suspended making payments under, these agreements. The company said it does expect that its internal investigation will be complete by the end of the first quarter of 2005.

The company said it is aware that two purported shareholders class action lawsuits have been filed against it and some of its executive officers relating to the practices being investigated by the Attorney General of the State of New York and other state regulators.

As stated previously, the company said it does believe that these lawsuits are completely without merit and it does intend to vigorously defend against them.