AXIS Capital faces more ratings actions but 'confident' it will regain 'superior rating'

Re/insurer AXIS Capital Holdings is facing more downgrades from international ratings agencies after it reported a  first quarter net loss of $185 million, $235 million of COVID-19 related losses and a deteriorating combined ratio. The company, however, is "confident" that the actions it has taken to improve its book of business will help earn back the "superior rating".

After Fitch Ratings revised the outlook of AXIS to negative from stable citing concerns regarding its foreseeable results, both AM Best and S&P Ratings have taken similar actions in light of its deteriorating operating performance.

AM Best has downgraded the Financial Strength Rating to A (Excellent) from A+ (Superior), reflecting its view that the group’s operating performance is "no longer in line with companies with a strong operating performance assessment or its own historical results".

S&P Global Ratings said that it revised AXIS's outlook to negative from stable following its "underperformance in first quarter 2020, with a combined ratio of 120.5 percent, which will further delay the underwriting, operating expenses, and fixed-charge coverage improvements that we incorporated in our forecast to support the rating."

The agency emphasized that the re/insurer's COVID-19 pandemic-related losses are "not solely driving our outlook revision", as it believes those are "manageable".

"AXIS has underperformed 'A+' Bermudian rated peers with an average five-year (2015-2019) combined ratio of 101.9% and a return on equity (ROE) of 4.0% relative to peers' 94.5% and 7.6%, respectively. Furthermore, AXIS' operating expenses are higher than those of its peers by a few percentage points," S&P said.

The agency, however, acknowledged the company's "remediation actions to address its underwriting underperformance" and expects these initiatives to bear fruit in 2020, but noted that COVID-19 pandemic losses will further defer the expected improvements.

Commenting specifically on the AM Best downgrade, AXIS said in a statement that “while we acknowledge that we have not been satisfied with our operating performance, we believe the ratings change does not fully reflect the significant actions that AXIS has taken to improve our book of business, nor the tangible results that we have started to recognize through our income statement – progress that has only accelerated over the past two quarters.

“Since 2017, we have enhanced the quality of our book of business and lowered our overall volatility. We have also successfully integrated Novae into our business, growing market relevance, and solidifying leadership positions across most of our key lines. We are confident the actions taken will ultimately deliver the performance that will allow us to earn back the Superior rating.”

Commenting on S&P's revision of its outlook, AXIS said: “We share S&P’s disappointment with AXIS’ operating performance in recent years. We also agree with their assessment that COVID-19 will be a manageable earnings event for AXIS, and that the remediation actions that we have taken in recent years will continue to bear fruit in 2020. We are confident that this outlook will be reversed.”