Q2 2015 10-Q
Table of Contents



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 June 30, 2015
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)
BERMUDA
(State or other jurisdiction of incorporation or organization)
98-0395986
(I.R.S. Employer Identification No.)
92 Pitts Bay Road, Pembroke, Bermuda HM 08
(Address of principal executive offices and zip code)
(441) 496-2600
(Registrant’s telephone number, including area code)
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.  Yes  x    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).  Yes  x  No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x  Accelerated filer  ¨   Non-accelerated filer  ¨  Smaller reporting company  ¨
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 July 22, 2015, there were 100,638,757 Common Shares, $0.0125 par value per share, of the registrant outstanding.


Table of Contents




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 6.
 



2
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PART I
FINANCIAL INFORMATION
This quarterly report contains forward-looking statements within the meaning of the U.S. federal securities laws. 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” and “intend”. Forward-looking statements contained in this report may include information regarding our estimates of losses related to catastrophes and other large losses, measurements of potential losses in the fair value of our investment portfolio and derivative contracts, our expectations regarding pricing and other market conditions, our growth prospects, and valuations of the potential impact of movements in interest rates, equity 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 occurrence and magnitude of natural and man-made disasters,
•
actual claims exceeding our loss reserves,
•
general economic, capital and credit market conditions,
•
the failure of any of the loss limitation methods we employ,
•
the effects of emerging claims, coverage and regulatory issues, including uncertainty related to coverage definitions, limits, terms and conditions,
•
the failure of our cedants to adequately evaluate risks,
•
inability to obtain additional capital on favorable terms, or at all,
•
the loss of one or more key executives,
•
a decline in our ratings with rating agencies,
•
loss of business provided to us by our major brokers,
•
changes in accounting policies or practices,
•
the use of industry catastrophe models and changes to these models,
•
changes in governmental regulations,
•
increased competition,
•
changes in the political environment of certain countries in which we operate or underwrite business,
•
fluctuations in interest rates, credit spreads, equity prices and/or currency values,
•
the failure to complete our amalgamation with PartnerRe Ltd., and
•
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, 2014.
We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.




3
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ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS
 
 
Page  
 
 
Consolidated Balance Sheets at June 30, 2015 (Unaudited) and December 31, 2014
Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014 (Unaudited)
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014 (Unaudited)
Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, 2015 and 2014 (Unaudited)
Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation and Accounting Policies
Note 2 - Segment Information
Note 3 - Goodwill and Intangibles
Note 4 - Investments
Note 5 - Fair Value Measurements
Note 6 - Derivative Instruments
Note 7 - Reserve for Losses and Loss Expenses
Note 8 - Share-Based Compensation
Note 9 - Earnings Per Common Share
Note 10 - Shareholders' Equity
Note 11 - Noncontrolling Interests
Note 12 - Debt and Financing Arrangements
Note 13 - Commitments and Contingencies
Note 14 - Other Comprehensive Income (Loss)
Note 15 - Subsequent Events






4
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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2015 (UNAUDITED) AND DECEMBER 31, 2014
 
 
2015
 
2014
 
(in thousands)
Assets
 
 
 
Investments:
 
 
 
Fixed maturities, available for sale, at fair value
(Amortized cost 2015: $12,093,366; 2014: $12,185,973)
$
12,005,736

 
$
12,129,273

Equity securities, available for sale, at fair value
(Cost 2015: $618,869; 2014: $531,648)
659,181

 
567,707

Mortgage loans, held for investment, at amortized cost and fair value
79,606

 
—

Other investments, at fair value
853,101

 
965,465

Short-term investments, at amortized cost and fair value
30,618

 
107,534

Total investments
13,628,242

 
13,769,979

Cash and cash equivalents
989,395

 
921,830

Restricted cash and cash equivalents
190,664

 
287,865

Accrued interest receivable
78,409

 
83,070

Insurance and reinsurance premium balances receivable
2,394,037

 
1,808,620

Reinsurance recoverable on unpaid and paid losses
2,063,087

 
1,926,145

Deferred acquisition costs
594,863

 
466,987

Prepaid reinsurance premiums
387,639

 
351,441

Receivable for investments sold
1,304

 
169

Goodwill and intangible assets
101,053

 
88,960

Other assets
276,182

 
250,670

Total assets
$
20,704,875

 
$
19,955,736

 
 
 
 
Liabilities
 
 
 
Reserve for losses and loss expenses
$
9,693,440

 
$
9,596,797

Unearned premiums
3,324,578

 
2,735,376

Insurance and reinsurance balances payable
296,794

 
249,186

Senior notes
991,302

 
990,790

Payable for investments purchased
213,142

 
188,176

Other liabilities
237,061

 
315,471

Total liabilities
14,756,317

 
14,075,796

 
 
 
 
Shareholders’ equity
 
 
 
Preferred shares
627,843

 
627,843

Common shares (2015: 176,206; 2014: 175,478 shares issued and
2015: 100,284; 2014: 99,426 shares outstanding)
2,201

 
2,191

Additional paid-in capital
2,285,772

 
2,285,016

Accumulated other comprehensive loss
(78,067
)
 
(45,574
)
Retained earnings
5,875,147

 
5,715,504

Treasury shares, at cost (2015: 75,922; 2014: 76,052 shares)
(2,764,338
)
 
(2,763,859
)
Total shareholders’ equity attributable to AXIS Capital
5,948,558

 
5,821,121

Noncontrolling interests
—

 
58,819

Total shareholders’ equity
5,948,558

 
5,879,940

 
 
 
 
Total liabilities and shareholders’ equity
$
20,704,875

 
$
19,955,736


See accompanying notes to Consolidated Financial Statements.

5
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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 
Three months ended
 
Six months ended
 
2015
 
2014
 
2015
 
2014
 
(in thousands, except for per share amounts)
Revenues
 
 
 
 
 
 
 
Net premiums earned
$
941,211

 
$
1,000,400

 
$
1,845,264

 
$
1,946,349

Net investment income
88,544

 
114,867

 
180,651

 
197,610

Other insurance related income
3,486

 
1,683

 
11,162

 
4,766

Net realized investment gains (losses):
 
 
 
 
 
 
 
Other-than-temporary impairment (OTTI) losses
(12,893
)
 
(1,905
)
 
(30,461
)
 
(2,690
)
Other realized investment gains (losses)
1,783

 
35,166

 
(23,201
)
 
46,572

Total net realized investment gains (losses)
(11,110
)
 
33,261

 
(53,662
)
 
43,882

Total revenues
1,022,131

 
1,150,211

 
1,983,415

 
2,192,607

 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
Net losses and loss expenses
580,153

 
565,829

 
1,092,481

 
1,110,036

Acquisition costs
183,263

 
191,862

 
354,805

 
363,899

General and administrative expenses
148,482

 
151,081

 
311,723

 
303,810

Foreign exchange losses (gains)
22,108

 
9,705

 
(41,112
)
 
13,939

Interest expense and financing costs
12,939

 
19,975

 
25,196

 
36,569

Total expenses
946,945

 
938,452

 
1,743,093

 
1,828,253

 
 
 
 
 
 
 
 
Income before income taxes
75,186

 
211,759

 
240,322

 
364,354

Income tax expense
1,815

 
9,500

 
1,125

 
13,625

Net income
73,371

 
202,259

 
239,197

 
350,729

Amounts attributable to noncontrolling interests
—

 
1,573

 
—

 
2,795

Net income attributable to AXIS Capital
73,371

 
200,686

 
239,197

 
347,934

Preferred share dividends
10,022

 
10,022

 
20,044

 
20,044

Net income available to common shareholders
$
63,349

 
$
190,664

 
$
219,153

 
$
327,890

 
 
 
 
 
 
 
 
Per share data
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
Basic net income
$
0.63

 
$
1.81

 
$
2.19

 
$
3.06

Diluted net income
$
0.63

 
$
1.79

 
$
2.17

 
$
3.03

Weighted average number of common shares outstanding - basic
100,274

 
105,118

 
100,093

 
107,075

Weighted average number of common shares outstanding - diluted
101,160

 
106,289

 
101,151

 
108,329

Cash dividends declared per common share
$
0.29

 
$
0.27

 
$
0.58

 
$
0.54




See accompanying notes to Consolidated Financial Statements.

6
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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
 
 
Three months ended
 
Six months ended
 
2015
 
2014
 
2015
 
2014
 
(in thousands)
Net income
$
73,371

 
$
202,259

 
$
239,197

 
$
350,729

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Available for sale investments:
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
(72,041
)
 
120,550

 
(77,228
)
 
191,933

Adjustment for reclassification of net realized investment gains (losses) and OTTI losses recognized in net income
8,857

 
(33,929
)
 
53,960

 
(43,543
)
Unrealized gains (losses) arising during the period, net of reclassification adjustment
(63,184
)
 
86,621

 
(23,268
)
 
148,390

Foreign currency translation adjustment
2,188

 
3,790

 
(9,225
)
 
6,449

Total other comprehensive income (loss), net of tax
(60,996
)
 
90,411

 
(32,493
)
 
154,839

Comprehensive income
12,375

 
292,670

 
206,704

 
505,568

Amounts attributable to noncontrolling interests
—

 
(1,573
)
 
—

 
(2,795
)
Comprehensive income attributable to AXIS Capital
$
12,375

 
$
291,097

 
$
206,704

 
$
502,773




See accompanying notes to Consolidated Financial Statements.

7
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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
 
2015
 
2014
 
(in thousands)
Preferred shares
 
 
 
Balance at beginning and end of period
$
627,843

 
$
627,843

 
 
 
 
Common shares (par value)
 
 
 
Balance at beginning of period
2,191

 
2,174

Shares issued
10

 
15

Balance at end of period
2,201

 
2,189

 
 
 
 
Additional paid-in capital
 
 
 
Balance at beginning of period
2,285,016

 
2,240,125

Shares issued - common shares
2,605

 
2,549

Cost of treasury shares reissued
(17,451
)
 
(11,524
)
Stock options exercised
560

 
2,134

Share-based compensation expense
15,042

 
27,800

Balance at end of period
2,285,772

 
2,261,084

 
 
 
 
Accumulated other comprehensive income (loss)
 
 
 
Balance at beginning of period
(45,574
)
 
117,825

Unrealized gains (losses) on available for sale investments, net of tax:
 
 
 
Balance at beginning of period
(28,192
)
 
124,945

Unrealized gains (losses) arising during the period, net of reclassification adjustment
(23,268
)
 
148,390

Non-credit portion of OTTI losses
—

 
—

Balance at end of period
(51,460
)
 
273,335

Cumulative foreign currency translation adjustments, net of tax:
 
 
 
Balance at beginning of period
(17,382
)
 
(7,120
)
Foreign currency translation adjustments
(9,225
)
 
6,449

Balance at end of period
(26,607
)
 
(671
)
Balance at end of period
(78,067
)
 
272,664

 
 
 
 
Retained earnings
 
 
 
Balance at beginning of period
5,715,504

 
5,062,706

Net income
239,197

 
350,729

Amounts attributable to noncontrolling interests
—

 
(2,795
)
Preferred share dividends
(20,044
)
 
(20,044
)
Common share dividends
(59,510
)
 
(59,397
)
Balance at end of period
5,875,147

 
5,331,199

 
 
 
 
Treasury shares, at cost
 
 
 
Balance at beginning of period
(2,763,859
)
 
(2,232,711
)
Shares repurchased for treasury
(17,930
)
 
(318,082
)
Cost of treasury shares reissued
17,451

 
11,524

Balance at end of period
(2,764,338
)
 
(2,539,269
)
 
 
 
 
Total shareholders’ equity attributable to AXIS Capital
5,948,558

 
5,955,710

Noncontrolling interests
—

 
52,795

Total shareholders' equity
$
5,948,558

 
$
6,008,505

 
 
 
 

See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
 
2015
 
2014
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
239,197

 
$
350,729

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Net realized investment losses (gains)
53,662

 
(43,882
)
Net realized and unrealized gains on other investments
(45,037
)
 
(49,252
)
Amortization of fixed maturities
54,356

 
56,122

Other amortization and depreciation
10,265

 
10,919

Share-based compensation expense, net of cash payments
14,463

 
27,763

Changes in:
 
 
 
Accrued interest receivable
5,071

 
5,929

Reinsurance recoverable balances
(140,911
)
 
(20,663
)
Deferred acquisition costs
(128,010
)
 
(167,095
)
Prepaid reinsurance premiums
(34,247
)
 
(5,590
)
Reserve for loss and loss expenses
147,463

 
217,924

Unearned premiums
589,438

 
721,870

Insurance and reinsurance balances, net
(561,146
)
 
(696,877
)
Other items
(88,952
)
 
(15,654
)
Net cash provided by operating activities
115,612

 
392,243

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of:
 
 
 
Fixed maturities
(5,454,612
)
 
(6,581,006
)
Equity securities
(96,170
)
 
(209,381
)
Mortgage loans

(79,606
)
 
—

Other investments
(54,482
)
 
(37,512
)
Short-term investments
(30,745
)
 
(463,051
)
Proceeds from the sale of:
 
 
 
Fixed maturities
4,660,534

 
5,784,439

Equity securities
2,115

 
197,354

Other investments
211,883

 
88,080

Short-term investments
100,461

 
391,966

Proceeds from redemption of fixed maturities
782,367

 
532,445

Proceeds from redemption of short-term investments
6,987

 
16,503

Purchase of other assets
(12,093
)
 
(16,039
)
Change in restricted cash and cash equivalents
97,201

 
(80,827
)
Impact of the deconsolidation of a variable interest entity

(71,649
)
 
—

Net cash provided by (used in) investing activities
62,191

 
(377,029
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Dividends paid - common shares
(59,170
)
 
(60,903
)
Repurchase of common shares
(25,951
)
 
(318,082
)
Dividends paid - preferred shares
(20,044
)
 
(20,044
)
Proceeds from issuance of common shares
3,175

 
4,698

Net proceeds from issuance of senior notes
—

 
494,344

Net cash provided by (used in) financing activities
(101,990
)
 
100,013

 
 
 
 
Effect of exchange rate changes on foreign currency cash and cash equivalents
(8,248
)
 
5,473

Increase in cash and cash equivalents
67,565

 
120,700

Cash and cash equivalents - beginning of period
921,830

 
923,326

Cash and cash equivalents - end of period
$
989,395

 
$
1,044,026

 
 
 
 

See accompanying notes to Consolidated Financial Statements.

9

Table of Contents
AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1.
BASIS OF PRESENTATION AND ACCOUNTING POLICIES 

Basis of Presentation

These interim consolidated financial statements include the accounts of AXIS Capital Holdings Limited (“AXIS Capital”) and its subsidiaries (herein referred to as “we,” “us,” “our,” or the “Company”).

The consolidated balance sheet at June 30, 2015 and the consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for the periods ended June 30, 2015 and 2014 have not been audited. The balance sheet at December 31, 2014 is derived from our audited financial statements.

These financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) for interim financial information and with the Securities and Exchange Commission's (“SEC”) instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of our 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 following information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014. Tabular dollar and share amounts are in thousands, except per share amounts. All amounts are reported in U.S. dollars.

Significant Accounting Policies

There were no notable changes in our significant accounting policies subsequent to our Annual Report on Form 10-K for the year ended December 31, 2014, with the exception of the addition to our accounting policy for mortgage loans held-for-investment noted below.

Mortgage Loans Held-For-Investment

Mortgage loans held-for-investment are stated at amortized cost calculated as the unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, and are net of valuation allowances.  Interest income and prepayment fees are recognized when earned.  Interest income is recognized using an effective yield method giving effect to the amortization of premiums and accretion of discounts.

New Accounting Standards Adopted in 2015

Consolidation

During the second quarter of 2015, the Company early adopted the Accounting Standards Update (“ASU”) 2015-02, “Amendments to the Consolidation Analysis” issued by the Financial Accounting Standards Board (the “FASB”). The adoption of this amended accounting guidance resulted in the Company concluding that it no longer had a variable interest in AXIS Ventures Reinsurance Limited (“Ventures Re”) and therefore it was no longer required to consolidate the results of operations and the financial position of Ventures Re in its Consolidated Financial Statements. The Company adopted this revised accounting guidance using the modified retrospective approach and ceased to consolidate Ventures Re effective as of January 1, 2015. There was no impact from the adoption of ASU 2015-02 on the Company’s cumulative retained earnings. Refer to Note 11 to the Consolidated Financial Statements "Noncontrolling Interests" for more information.

The new consolidation guidance did not have an impact on any other investments currently held by the Company.




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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.
BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)

Recently Issued Accounting Standards Not Yet Adopted

Disclosures About Short-Duration Contracts

In May 2015, the FASB issued new guidance making targeted improvements to existing disclosure requirements for short-duration contracts. The guidance requires insurance entities to disclose additional information about the liability for unpaid claims and claim adjustment expenses. The guidance is effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016, with early adoption permitted. The guidance will be applied retrospectively. As the new guidance is disclosure-related only, the adoption of this guidance is not expected to impact our results of operations, financial condition or liquidity.

Investments Measured Using The Net Asset Value Per Share ("NAV") Practical Expedient

In May 2015, the FASB issued new guidance eliminating the requirement to categorize investments measured using the NAV practical expedient in the fair value hierarchy table. This guidance is effective for reporting periods beginning after December 15, 2015, with early adoption permitted. The guidance will be applied retrospectively. As the new guidance is disclosure-related only, the adoption of this guidance is not expected to impact our results of operations, financial condition or liquidity.

2.
SEGMENT INFORMATION

Our underwriting operations are organized around our global underwriting platforms, AXIS Insurance and AXIS Re. Therefore we have determined that we have two reportable segments, insurance and reinsurance. We do not allocate our assets by segment, with the exception of goodwill and intangible assets, as we evaluate the underwriting results of each segment separately from the results of our investment portfolio.



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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2.
SEGMENT INFORMATION (CONTINUED)


The following tables summarize the underwriting results of our reportable segments, as well as the carrying values of allocated goodwill and intangible assets:
 
  
2015
 
2014
 
 
Three months ended and at June 30,
Insurance
 
Reinsurance
 
Total
 
Insurance
 
Reinsurance
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
$
761,126

 
$
427,287

 
$
1,188,413

 
$
754,110

 
$
477,169

 
$
1,231,279

 
 
Net premiums written
534,263

 
412,281

 
946,544

 
541,097

 
459,065

 
1,000,162

 
 
Net premiums earned
452,322

 
488,889

 
941,211

 
457,670

 
542,730

 
1,000,400

 
 
Other insurance related income
269

 
3,217

 
3,486

 
—

 
1,683

 
1,683

 
 
Net losses and loss expenses
(297,534
)
 
(282,619
)
 
(580,153
)
 
(290,466
)
 
(275,363
)
 
(565,829
)
 
 
Acquisition costs
(66,920
)
 
(116,343
)
 
(183,263
)
 
(71,039
)
 
(120,823
)
 
(191,862
)
 
 
General and administrative expenses
(88,420
)
 
(36,013
)
 
(124,433
)
 
(83,512
)
 
(34,299
)
 
(117,811
)
 
 
Underwriting income (loss)
$
(283
)
 
$
57,131

 
56,848

 
$
12,653

 
$
113,928

 
126,581

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate expenses
 
 
 
 
(24,049
)
 
 
 
 
 
(33,270
)
 
 
Net investment income
 
 
 
 
88,544

 
 
 
 
 
114,867

 
 
Net realized investment gains (losses)
 
 
 
 
(11,110
)
 
 
 
 
 
33,261

 
 
Foreign exchange losses
 
 
 
 
(22,108
)
 
 
 
 
 
(9,705
)
 
 
Interest expense and financing costs
 
 
 
 
(12,939
)
 
 
 
 
 
(19,975
)
 
 
Income before income taxes
 
 
 
 
$
75,186

 
 
 
 
 
$
211,759

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss and loss expense ratio
65.8
%
 
57.8
%
 
61.6
%
 
63.5
%
 
50.7
%
 
56.6
%
 
 
Acquisition cost ratio
14.8
%
 
23.8
%
 
19.5
%
 
15.5
%
 
22.3
%
 
19.2
%
 
 
General and administrative expense ratio
19.5
%
 
7.4
%
 
15.8
%
 
18.2
%
 
6.3
%
 
15.0
%
 
 
Combined ratio
100.1
%
 
89.0
%
 
96.9
%
 
97.2
%
 
79.3
%
 
90.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and intangible assets
$
101,053

 
$
—

 
$
101,053

 
$
90,025

 
$
—

 
$
90,025

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  



12
Table of Contents

AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2.
SEGMENT INFORMATION (CONTINUED)

 
  
2015
 
2014
 
 
Six months ended and at June 30,
Insurance
 
Reinsurance
 
Total
 
Insurance
 
Reinsurance
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
$
1,363,850

 
$
1,503,495

 
$
2,867,345

 
$
1,355,831

 
$
1,696,847

 
$
3,052,678

 
 
Net premiums written
971,004

 
1,431,086

 
2,402,090

 
997,789

 
1,666,957

 
2,664,746

 
 
Net premiums earned
899,789

 
945,475

 
1,845,264

 
906,884

 
1,039,465

 
1,946,349

 
 
Other insurance related income
269

 
10,893

 
11,162

 
—

 
4,766

 
4,766

 
 
Net losses and loss expenses
(583,307
)
 
(509,174
)
 
(1,092,481
)
 
(569,889
)
 
(540,147
)
 
(1,110,036
)
 
 
Acquisition costs
(131,375
)
 
(223,430
)
 
(354,805
)
 
(136,096
)
 
(227,803
)
 
(363,899
)
 
 
General and administrative expenses
(176,109
)
 
(75,393
)
 
(251,502
)
 
(171,459
)
 
(70,375
)
 
(241,834
)
 
 
Underwriting income
$
9,267

 
$
148,371

 
157,638

 
$
29,440

 
$
205,906

 
235,346

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate expenses
 
 
 
 
(60,221
)
 
 
 
 
 
(61,976
)
 
 
Net investment income
 
 
 
 
180,651

 
 
 
 
 
197,610

 
 
Net realized investment gains (losses)
 
 
 
 
(53,662
)
 
 
 
 
 
43,882

 
 
Foreign exchange (losses) gains
 
 
 
 
41,112

 
 
 
 
 
(13,939
)
 
 
Interest expense and financing costs
 
 
 
 
(25,196
)
 
 
 
 
 
(36,569
)
 
 
Income before income taxes
 
 
 
 
$
240,322

 
 
 
 
 
$
364,354

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss and loss expense ratio
64.8
%
 
53.9
%
 
59.2
%
 
62.8
%
 
52.0
%
 
57.0
%
 
 
Acquisition cost ratio
14.6
%
 
23.6
%
 
19.2
%
 
15.0
%
 
21.9
%
 
18.7
%
 
 
General and administrative expense ratio
19.6
%
 
8.0
%
 
16.9
%
 
19.0
%
 
6.7
%
 
15.6
%
 
 
Combined ratio
99.0
%
 
85.5
%
 
95.3
%
 
96.8
%
 
80.6
%
 
91.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and intangible assets
$
101,053

 
$
—

 
$
101,053

 
$
90,025

 
$
—

 
$
90,025

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




13
Table of Contents

AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.
GOODWILL AND INTANGIBLES

On April 1, 2015, the Company announced that it completed the acquisition of Ternian Insurance Group LLC ("Ternian"), a leading provider of voluntary, limited benefit affordable health plans and other employee benefits coverage for hourly and part-time workers and their families. The Company recognized intangible assets of $13 million associated with this acquisition.

The following table shows an analysis of goodwill and intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
Intangible
assets with an
indefinite life
 
Intangible
assets with a
finite life
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net balance at December 31, 2014
$
47,148

 
$
26,036

 
$
15,776

 
$
88,960

 
 
Acquisition of Ternian
—

 
—

 
13,330

 
13,330

 
 
Amortization
n/a

 
n/a

 
(1,280
)
 
(1,280
)
 
 
Foreign currency translation adjustment
—

 
—

 
43

 
43

 
 
Net balance at June 30, 2015
$
47,148

 
$
26,036

 
$
27,869

 
$
101,053

 
 
 
 
 
 
 
 
 
 
 
 
Gross balance at June 30, 2015
$
42,237

 
$
26,036

 
$
48,926

 
$
117,199

 
 
Accumulated amortization
n/a

 
n/a

 
(26,863
)
 
(26,863
)
 
 
Foreign currency translation adjustment
4,911

 
—

 
5,806

 
10,717

 
 
Net balance at June 30, 2015
$
47,148

 
$
26,036

 
$
27,869

 
$
101,053

 
 
 
 
 
 
 
 
 
 
 
n/a – not applicable
We estimate that the amortization expense for our total intangible assets with a finite life for the next six months will be approximately $2 million and annual amortization expense for 2016 through 2018 will be approximately $3 million and 2019 through 2020 will be approximately $2 million each year. The estimated remaining useful lives of these assets range from four to twenty-four years.
Intangible assets with an indefinite life consist primarily of U.S. state licenses that provide a legal right to transact business indefinitely.




14
Table of Contents

AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.
INVESTMENTS

a)     Fixed Maturities and Equities

The amortized cost or cost and fair values of our fixed maturities and equities were as follows:
 
 
Amortized
Cost or
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Non-credit
OTTI
in AOCI(5)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,699,826

 
$
3,731

 
$
(20,448
)
 
$
1,683,109

 
$
—

 
 
Non-U.S. government
958,293

 
6,242

 
(64,000
)
 
900,535

 
—

 
 
Corporate debt
4,444,087

 
32,273

 
(72,408
)
 
4,403,952

 
—

 
 
Agency RMBS(1)
2,114,217

 
30,038

 
(9,279
)
 
2,134,976

 
—

 
 
CMBS(2)
1,093,612

 
9,814

 
(3,856
)
 
1,099,570

 
—

 
 
Non-Agency RMBS
99,590

 
2,667

 
(983
)
 
101,274

 
(839
)
 
 
ABS(3)
1,429,667

 
3,372

 
(5,978
)
 
1,427,061

 
—

 
 
Municipals(4)
254,074

 
3,405

 
(2,220
)
 
255,259

 
—

 
 
Total fixed maturities
$
12,093,366

 
$
91,542

 
$
(179,172
)
 
$
12,005,736

 
$
(839
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Exchange-traded funds
495,590

 
44,153

 
(3,763
)
 
535,980

 
 
 
 
Bond mutual funds
123,279

 
—

 
(78
)
 
123,201

 
 
 
 
Total equity securities
$
618,869

 
$
44,153

 
$
(3,841
)
 
$
659,181

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,645,068

 
$
3,337

 
$
(28,328
)
 
$
1,620,077

 
$
—

 
 
Non-U.S. government
1,080,601

 
7,383

 
(54,441
)
 
1,033,543

 
—

 
 
Corporate debt
4,386,432

 
40,972

 
(66,280
)
 
4,361,124

 
—

 
 
Agency RMBS(1)
2,241,581

 
40,762

 
(4,235
)
 
2,278,108

 
—

 
 
CMBS(2)
1,085,618

 
13,289

 
(2,019
)
 
1,096,888

 
—

 
 
Non-Agency RMBS
71,236

 
2,765

 
(915
)
 
73,086

 
(889
)
 
 
ABS(3)
1,475,026

 
2,748

 
(16,188
)
 
1,461,586

 
—

 
 
Municipals(4)
200,411

 
5,282

 
(832
)
 
204,861

 
—

 
 
Total fixed maturities
$
12,185,973

 
$
116,538

 
$
(173,238
)
 
$
12,129,273

 
$
(889
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Exchange-traded funds
416,063

 
43,583

 
(4,756
)
 
454,890

 
 
 
 
Bond mutual funds
115,585

 
—

 
(2,768
)
 
112,817

 
 
 
 
Total equity securities
$
531,648

 
$
43,583

 
$
(7,524
)
 
$
567,707

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Residential mortgage-backed securities (RMBS) originated by U.S. agencies.
(2)
Commercial mortgage-backed securities (CMBS).
(3)
Asset-backed securities (ABS) include debt tranched securities collateralized primarily by auto loans, student loans, credit cards, and other asset types. This asset class also includes collateralized loan obligations (CLOs) and collateralized debt obligations (CDOs).
(4)
Municipals include bonds issued by states, municipalities and political subdivisions.
(5)
Represents the non-credit component of the other-than-temporary impairment (OTTI) losses, adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment measurement date.

In the normal course of investing activities, we actively manage allocations to non-controlling tranches of structured securities (variable interests) issued by VIEs. These structured securities include RMBS, CMBS and ABS and are included in the above table. Additionally, within our other investments portfolio, we also invest in limited partnerships (hedge funds) and CLO equity tranched



15
Table of Contents

AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.
INVESTMENTS (CONTINUED)

securities, which are all variable interests issued by VIEs (see Note 4(c)). For these variable interests, we do not have the power to direct the activities that are most significant to the economic performance of the VIEs and accordingly we are not the primary beneficiary for any of these VIEs. Our maximum exposure to loss on these interests is limited to the amount of our investment. We have not provided financial or other support with respect to these structured securities other than our original investment.

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.
 
 
Amortized
Cost
 
Fair
Value
 
% of Total
Fair Value
 
 
 
 
 
 
 
 
 
 
At June 30, 2015
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
553,743

 
$
543,896

 
4.5
%
 
 
Due after one year through five years
4,407,166

 
4,373,414

 
36.4
%
 
 
Due after five years through ten years
2,069,297

 
2,005,587

 
16.7
%
 
 
Due after ten years
326,074

 
319,958

 
2.7
%
 
 
 
7,356,280

 
7,242,855

 
60.3
%
 
 
Agency RMBS
2,114,217

 
2,134,976

 
17.8
%
 
 
CMBS
1,093,612

 
1,099,570

 
9.2
%
 
 
Non-Agency RMBS
99,590

 
101,274

 
0.8
%
 
 
ABS
1,429,667

 
1,427,061

 
11.9
%
 
 
Total
$
12,093,366

 
$
12,005,736

 
100.0
%
 
 
 
 
 
 
 
 
 
 
At December 31, 2014
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
424,077

 
$
423,265

 
3.5
%
 
 
Due after one year through five years
4,925,780

 
4,892,411

 
40.3
%
 
 
Due after five years through ten years
1,755,248

 
1,695,641

 
14.0
%
 
 
Due after ten years
207,407

 
208,288

 
1.7
%
 
 
 
7,312,512

 
7,219,605

 
59.5
%
 
 
Agency RMBS
2,241,581

 
2,278,108

 
18.8
%
 
 
CMBS
1,085,618

 
1,096,888

 
9.0
%
 
 
Non-Agency RMBS
71,236

 
73,086

 
0.6
%
 
 
ABS
1,475,026

 
1,461,586

 
12.1
%
 
 
Total
$
12,185,973

 
$
12,129,273

 
100.0
%
 
 
 
 
 
 
 
 
 




16
Table of Contents

AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.
INVESTMENTS (CONTINUED)

 Gross Unrealized Losses

The following table summarizes fixed maturities and equities 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 June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
128,916

 
$
(6,688
)
 
$
881,631

 
$
(13,760
)
 
$
1,010,547

 
$
(20,448
)
 
 
Non-U.S. government
163,690

 
(46,219
)
 
298,542

 
(17,781
)
 
462,232

 
(64,000
)
 
 
Corporate debt
229,078

 
(19,633
)
 
2,326,826

 
(52,775
)
 
2,555,904

 
(72,408
)
 
 
Agency RMBS
65,726

 
(1,740
)
 
763,509

 
(7,539
)
 
829,235

 
(9,279
)
 
 
CMBS
64,037

 
(784
)
 
297,266

 
(3,072
)
 
361,303

 
(3,856
)
 
 
Non-Agency RMBS
4,963

 
(600
)
 
44,753

 
(383
)
 
49,716

 
(983
)
 
 
ABS
495,889

 
(5,090
)
 
336,672

 
(888
)
 
832,561

 
(5,978
)
 
 
Municipals
14,478

 
(405
)
 
148,681

 
(1,815
)
 
163,159

 
(2,220
)
 
 
Total fixed maturities
$
1,166,777

 
$
(81,159
)
 
$
5,097,880

 
$
(98,013
)
 
$
6,264,657

 
$
(179,172
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Exchange-traded funds
—

 
—

 
115,026

 
(3,763
)
 
115,026

 
(3,763
)
 
 
Bond mutual funds
—

 
—

 
16,692

 
(78
)
 
16,692

 
(78
)
 
 
Total equity securities
$
—

 
$
—

 
$
131,718

 
$
(3,841
)
 
$
131,718

 
$
(3,841
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
388,551

 
$
(24,319
)
 
$
786,850

 
$
(4,009
)
 
$
1,175,401

 
$
(28,328
)
 
 
Non-U.S. government
143,602

 
(29,171
)
 
435,670

 
(25,270
)
 
579,272

 
(54,441
)
 
 
Corporate debt
26,708

 
(2,221
)
 
2,199,672

 
(64,059
)
 
2,226,380

 
(66,280
)
 
 
Agency RMBS
259,914

 
(3,084
)
 
333,288

 
(1,151
)
 
593,202

 
(4,235
)
 
 
CMBS
68,624

 
(925
)
 
256,225

 
(1,094
)
 
324,849

 
(2,019
)
 
 
Non-Agency RMBS
6,689

 
(613
)
 
13,442

 
(302
)
 
20,131

 
(915
)
 
 
ABS
425,663

 
(10,325
)
 
750,679

 
(5,863
)
 
1,176,342

 
(16,188
)
 
 
Municipals
34,462

 
(644
)
 
25,284

 
(188
)
 
59,746

 
(832
)
 
 
Total fixed maturities
$
1,354,213

 
$
(71,302