Delivering value to shareholders
CASH & INVESTMENTS
Key facts and figures at December 31, 2017
($ in billions)
AXIS’ rating of A+ from both Standard & Poor’s and A.M. Best reflects our exceptional level of financial strength and our long-term track record of outstanding operating performance, placing AXIS among a select group of companies in our industry.
Shareholder Value Creation
Accumulated Dividends Declared
Total value creation is defined as growth in diluted book value per share* adjusted for dividends.
*Diluted book value per share calculated using treasury stock method.
12/31/02 diluted BVPS is pro forma for AXIS Capital IPO.
- During 2017, the Company recognized amortization of value of business acquired of $50 million related to the acquisition of Novae.
- During 2017, the Company recognized transaction and reorganization expenses of $27 million related to the acquisition and integration of Novae. This expense did not affect the Company’s non-GAAP operating income (loss), a non-GAAP financial measure.
- During 2017, the Company recognized a tax expense of $42 million due to the revaluation of net deferred tax assets pursuant to the U.S. Tax Reform. This expense did not affect the Company’s non-GAAP operating income (loss), a non-GAAP financial measure.
- During 2015, the Company accepted a request from PartnerRe Ltd., a Bermuda exempted company ("PartnerRe") to terminate the Agreement and Plan of Amalgamation (the "Amalgamation Agreement") with the Company. PartnerRe paid the Company a termination fee of $280 million. This expense did not affect the Company’s non-GAAP operating income (loss), a non-GAAP financial measure.
- During 2015, the Company implemented a number of profitability enhancement initiatives, which resulted in recognition of transaction and reorganization expenses of $46 million and additional general and administrative expenses of $5 million. The transaction and reorganization expenses did not affect the Company’s non-GAAP operating income (loss), a non-GAAP financial measure.
- Non-GAAP operating income (loss) represents after-tax operational results without consideration of after-tax net realized investment gains (losses), foreign exchange gains (losses), revaluation of net deferred tax asset, bargain purchase gain, transaction and reorganization expenses, loss on repurchase of preferred shares, and termination fee received. Non-GAAP operating income (loss) is a non-GAAP financial measure as defined in Regulation G. The reconciliation to the most comparable GAAP financial measure (net income (loss) available to common shareholders) is provided in Item 7 of Part II 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary, Results of Operations’ of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
- Non-GAAP operating income (loss) per common share - diluted is a non-GAAP financial measure as defined in Regulation G. The reconciliation to the most comparable GAAP financial measure (earnings (loss) per common share - diluted ) is provided in Item 7 of Part II 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary, Results of Operations’ of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
- Book value per common share and diluted book value per common share are based on total common shareholders’ equity divided by common shares and diluted common share equivalents outstanding, respectively.
- Calculations and share amounts at December 31, 2015 include 1,358,380 additional shares delivered to the Company in January 2016 under the Company's Accelerated Share Repurchase ("ASR") agreement entered into on August 17, 2015.
- Operating ratios are calculated by dividing the respective operating expenses by net premiums earned.
- Total capital represents the sum of total shareholders’ equity attributable to AXIS Capital and senior notes.
- Non-GAAP operating ROACE is calculated by dividing non-GAAP operating income (loss) for the year by the average shareholders’ equity determined by using the common shareholders’ equity balances at the beginning and end of the year. Non-GAAP Operating ROACE is a non-GAAP financial measure as defined in Regulation G. See Item 7 of Part II 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures' of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, for a detailed discussion of the measures used by AXIS to evaluate its financial performance.
Highlights of Financial Performance
Challenging industry conditions continued in 2017, which was also marked by an elevated level of catastrophe and weather-related losses. Excluding the impact of catastrophe and weather-related losses, the picture improved considerably. AXIS’ Insurance business had a solid year, as many initiatives put in place in previous years yielded positive results. For AXIS’ Reinsurance business, we were unable to offset relentless price declines, and results, though positive, suffered in comparison to the prior year.
For the year, net loss attributable to common shareholders was $415.8 million, or $4.94 per diluted common share, compared to net income of $465.5 million, or $5.08 per share. Fee income from strategic capital partners rose to $36 million, compared to $22 million in 2016. Diluted book value per share declined by 7.5% to $53.88, primarily due to the elevated level of catastrophe and weather-related losses. Adjusted for dividends, diluted book value declined by 5%.
Gross written premiums rose by 12%, including gross written premiums attributable to our acquisitions of Aviabel and Novae. Net premiums written rose by 7%, relecting the expansion of our partnership arrangements with third-party capital providers, including traditional reinsurers, AXIS Ventures and Harrington Re. Our combined ratio for the year was 113.1%, primarily due to the elevated level of catastrophe and weather-related losses. Adjusting for the impact of catastrophe and weather-related losses, our combined ratio for the year was 92.7%.
During 2017, we continued to deliver operational expense efficiencies, and have invested those savings back into the Company to fund various initiatives. Once again, we outsourced tasks where they could enhance productivity. More broadly, our general and administrative expense ratio dropped to 14.0% from 16.2%, principally fueled by a reduction in compensation expenses relecting the poor operating performance for 2017.
Our acquisition of Novae for $617 million closed during the fourth quarter. We identified intangible assets including value of business acquired (“VOBA”) and other finite lived and indefinite lived intangible assets associated with this acquisition. We subsequently completed a reinsurance-to-close transaction which covers the net reserve for losses and loss expenses associated with all business underwritten by Novae in 2015 and prior years. This transaction significantly reduced our reserve risk and generated positive economic value that was relected in Novae’s balance sheet at the acquisition date. On January 29, 2018, the Company furnished a Current Report on Form 8-K with the U.S. Securities and Exchange Commission, including details of fair value adjustments to Novae assets acquired and liabilities assumed at the acquisition date. In addition, the Company furnished supplemental financial information presenting unaudited historical financial information for Novae for the nine months ended September 30, 2017, and the quarterly periods therein.
The effect of tax reform in the U.S. at the end of 2017 resulted in an expense of $42 million related to the revaluation of our deferred tax asset, but on a go-forward basis we do not expect the impact of tax reform to be material to our business.
Continued sound capital management
Despite the year’s losses, AXIS remains in sound financial condition, with a strong balance sheet, and today we have more sources of capital available to us than ever in our history.
Our investment portfolio yielded a total return of 4.0% including foreign exchange movements, or 3.5% excluding foreign exchange movements, in line with our industry peers. Our fixed income portfolio, which represents approximately 85% of our investment portfolio, remained highly rated at AA-. Duration of 3.2 years is well matched to our liabilities and will enable us to take advantage of the modestly rising interest rate environment. In terms of our alternative investments portfolio, which represents approximately 6% of our portfolio, we continued our shift from hedge funds toward private equity and real estate investments with the expectation of generating better risk adjusted returns.
We strengthened our balance sheet with a successful offering of $350 million of 4.0% Senior Notes due in 2027, in advance of the 2019 expiration of $250 million of 2.65% Senior Notes. This additional capital, with a 10-year period at attractive rates, lowers our overall cost of capital and enabled AXIS to pay down Novae debt. During the year, we also redeemed all of our outstanding 6.875% Series C Preferred Shares, for approximately $351 million, with funds raised during 2016 at favorable rates.
We raised our dividend, maintaining our history of increasing dividends every year. We repurchased 3.9 million outstanding common shares, for $261 million, under our Board authorized share repurchase program, but suspended buybacks following the announcement to acquire Novae. Similar to other periods following significant industry catastrophes, we are focused on restoring our capital to levels held prior to the 2017 catastrophes.