AXIS is poised to capitalize upon investments made in 2017

2017 was a difficult and demanding year, for our industry in general and for AXIS. We began the year fully expecting difficult conditions, for we had witnessed a long period of year-by-year margin erosion in most lines of business, which attacked the underlying profitability of the industry as a whole. We received no assistance from interest rates either, which remained at historically low levels.

As the year developed, we were further severely tested by catastrophe events, a concern that had been relatively quiet during recent years. The insured cost of the year's catastrophes was well in excess of $120 billion, and the economic cost was probably three to five times greater. This serves to emphasize the gap in protection between what is covered and what society at large must bear on its own - which, in turn, represents a considerable opportunity.

Our industry has shown great resilience in the face of these recent tests; its solvency is strong and its risk management significantly improved, enabling us to better understand and regulate the risks to which we are exposed. This was certainly the case with AXIS.

In addition, the speed at which capital has been willingly reinvested into the industry clearly shows the important role we play in enabling society to replace and reconstruct its assets in the wake of disaster, and to adjust to challenges such as climate change, cyber threats and other evolving risks.

Just as it has shown its value to its clients, however, the industry now needs to reestablish a proper return for its investors, and reward them for the risks it carries.

At AXIS, despite this year's discouraging financial returns, there has been a great deal of good news and positive momentum building just below the surface.

"The improvements management has been making in the Company's risk profile, and our organizational changes, have made AXIS significantly more secure and less volatile."

Management's determination to invest in lines of business where we have relevance and leadership positions, as seen in our acquisitions of Novae and Aviabel, have reinforced our progress towards reducing volatility and driving profitable growth.

I am also delighted that, through Novae, we have taken a major step forward by significantly investing in the Lloyd's market. I believe Lloyd's will remain a global center of underwriting expertise for specialist lines, as it has been for so long in the past, and that these capabilities will continue to be appreciated in today's increasingly complex world.

I am disappointed, of course, that our share price declined so steeply following the third and fourth quarters' catastrophes. I am optimistic that the Company's strong record of rebuilding its book value through earnings following major events, and the constructive steps we have taken to grow the Company, will offset this overreaction and ultimately be reflected in our share price.

The regulatory environment remains challenging internationally, with increasing localized demands. In the U.S., unexpected developments due to the Tax Cuts and Jobs Act of 2017 will require us to keep more of our U.S. business onshore, but that will be offset by lower local tax rates. In the UK, there exists continuing uncertainty around the Brexit negotiations, but we are comfortable with AXIS' current structures; we will adjust as necessary, which may add some costs, but we do not view it as a threat to our business.

In Bermuda, the reins of government changed hands during the year, but the new government appears to remain committed to the insurance and reinsurance industry's success. We look forward to continuing our good relations with the Bermuda authorities and working with them on a cooperative basis.

For the year ahead, I look forward to the satisfactory implementation of the organizational changes that management has initiated, including completion of the integration of Novae into our business, and achieving the objectives and savings identified in that regard. This is a period for acute focus on execution by our management team.

I hope the events of 2017 will prove to be a sufficient tipping point so that the industry may reestablish more satisfactory underwriting margins. Nevertheless, it remains our view that improvement will likely be a gradual evolution - as opposed to the rapid changes we have sometimes seen in the past - as industry cycles have undergone a smoothing out in recent years.

I am confident in the essential role our industry plays in the global economy, and if growth continues to gain in strength as forecasts indicate, it will be beneficial for our industry as well as taking advantage of the opportunity of closing the protection gap.

I would like to express my gratitude to two of our directors who retired from the Board during the year, Jane Boisseau and Alice Young. Their contributions and thoughtful insights were greatly appreciated.

I also welcome Steve Arora as the new Chief Executive Officer of the Reinsurance business at AXIS. Steve is an accomplished and respected executive, and his decision to join AXIS demonstrates yet again our ability to attract talent of the highest caliber. I am also very pleased to congratulate Pete Vogt on his promotion to CFO. Pete brings a strong record of success as a leader within AXIS, and I expect the firm will benefit from his knowledge of both finance and operations.

Finally, on behalf of the entire Board, I want to thank Joe Henry and Chris DiSipio, who are both departing the Company's Executive Committee. Chris has been a catalyst in growing our A&H business, and I wish him well as he begins a new professional chapter. I must also express my deep appreciation to Joe, who retired at year-end from his position as Chief Financial Officer. Joe brought tremendous professionalism and exceptional achievement to the Company's financial functions. He was a great asset to AXIS and a valued adviser to all our directors.

I also wish to thank our shareholders for their continued support. The year ahead holds great promise for AXIS. I believe the Company is poised to capitalize upon the investments it made in 2017 and will further grow its leadership position, generating profits and delivering significant value to our shareholders.


Michael A. Butt
Chairman of the Board