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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, 2017
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x           
    Accelerated filer  ¨  
Non-accelerated filer   ¨ (do not check if a smaller reporting company)
 Smaller reporting company  ¨
 
Emerging growth company   ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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 28 2017, there were 83,154,772 Common Shares, $0.0125 par value per share, of the registrant outstanding.

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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 5.
Item 6.
 



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PART I
FINANCIAL INFORMATION
This quarterly report contains forward-looking statements within the meaning of the United States 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 cyclical nature of the re(insurance) business leading to periods with excess underwriting capacity and unfavorable premium rates,
•
the occurrence and magnitude of natural and man-made disasters,
•
losses from war, terrorism and political unrest or other unanticipated losses,
•
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,
•
our inability to purchase reinsurance or collect amounts due to us,
•
the breach by third parties in our program business of their obligations to us,
•
difficulties with technology and/or data security,
•
the failure of our policyholders and intermediaries to pay premiums,
•
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 and credit risk due to our reliance on brokers,
•
changes in accounting policies or practices,
•
the use of industry catastrophe models and changes to these models,
•
changes in governmental regulations and potential government intervention in our industry,
•
failure to comply with certain laws and regulations relating to sanctions and foreign corrupt practices,
•
increased competition,
•
changes in the political environment of certain countries in which we operate or underwrite business including the United Kingdom's expected withdrawal from the European Union,
•
fluctuations in interest rates, credit spreads, equity prices and/or currency values,
•
with respect to the offer to acquire Novae Group plc, (i) the effect of the announcement of the offer on our business relationships, operating results, share price or business generally, (ii) the occurrence of any event or other circumstances that could give rise to the termination or lapsing of the offer, (iii) the outcome of any legal proceedings that may be instituted against us relating to the offer and/or the acquisition, (iv) the failure to satisfy any of the conditions to completion of the acquisition, including the receipt of all required regulatory approvals and antitrust consents and (v) the failure to realize the expected synergies resulting from the acquisition, and



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•
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, 2016.
We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.



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ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS
 
 
Page  
 
 
Consolidated Balance Sheets at June 30, 2017 (Unaudited) and December 31, 2016
Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016 (Unaudited)
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016 (Unaudited)
Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, 2017 and 2016 (Unaudited)
Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation and Accounting Policies
Note 2 - Business Combinations
Note 3 - Segment Information
Note 4 - Investments
Note 5 - Fair Value Measurements
Note 6 - Derivative Instruments
Note 7 - Reserve for Losses and Loss Expenses
Note 8 - Earnings Per Common Share
Note 9 - Share-Based Compensation
Note 10 - Shareholders' Equity
Note 11 - Debt and Financing Arrangements
Note 12 - Commitments and Contingencies
Note 13 - Other Comprehensive Income
Note 14 - Subsequent Events






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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016
 
 
2017
 
2016
 
(in thousands)
Assets
 
 
 
Investments:
 
 
 
Fixed maturities, available for sale, at fair value
(Amortized cost 2017: $11,420,810; 2016: $11,523,316)
$
11,424,295

 
$
11,397,114

Equity securities, available for sale, at fair value
(Cost 2017: $651,656; 2016: $597,336)
738,489

 
638,744

Mortgage loans, held for investment, at amortized cost and fair value
349,916

 
349,969

Other investments, at fair value
813,617

 
830,219

Equity method investments
109,258

 
116,000

Short-term investments, at amortized cost and fair value
10,146

 
127,461

Total investments
13,445,721

 
13,459,507

Cash and cash equivalents
728,519

 
1,039,494

Restricted cash and cash equivalents
286,751

 
202,013

Accrued interest receivable
72,626

 
74,971

Insurance and reinsurance premium balances receivable
3,050,222

 
2,313,512

Reinsurance recoverable on unpaid and paid losses
2,184,934

 
2,334,922

Deferred acquisition costs
591,397

 
438,636

Prepaid reinsurance premiums
733,836

 
556,344

Receivable for investments sold
18,754

 
14,123

Goodwill and intangible assets
86,220

 
85,049

Other assets
300,658

 
295,120

Total assets
$
21,499,638

 
$
20,813,691

 
 
 
 
Liabilities
 
 
 
Reserve for losses and loss expenses
$
9,878,662

 
$
9,697,827

Unearned premiums
3,704,003

 
2,969,498

Insurance and reinsurance balances payable
677,204

 
493,183

Senior notes
993,511

 
992,950

Payable for investments purchased
95,865

 
62,550

Other liabilities
257,698

 
325,313

Total liabilities
15,606,943

 
14,541,321

 
 
 
 
Shareholders’ equity
 
 
 
Preferred shares
775,000

 
1,126,074

Common shares (2017: 176,580; 2016: 176,580 shares issued and
2017: 83,203; 2016: 86,441 shares outstanding)
2,206

 
2,206

Additional paid-in capital
2,283,523

 
2,299,857

Accumulated other comprehensive income (loss)
84,306

 
(121,841
)
Retained earnings
6,551,801

 
6,527,627

Treasury shares, at cost (2017: 93,377; 2016: 90,139 shares)
(3,804,141
)
 
(3,561,553
)
Total shareholders’ equity
5,892,695

 
6,272,370

 
 
 
 
Total liabilities and shareholders’ equity
$
21,499,638

 
$
20,813,691


See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016


 
Three months ended
 
Six months ended
 
2017
 
2016
 
2017
 
2016
 
(in thousands, except for per share amounts)
Revenues
 
 
 
 
 
 
 
Net premiums earned
$
981,431

 
$
946,990

 
$
1,920,133

 
$
1,849,331

Net investment income
106,063

 
91,730

 
204,728

 
140,896

Other insurance related income (losses)
2,560

 
(892
)
 
(1,222
)
 
(1,094
)
Bargain purchase gain
15,044

 
—

 
15,044

 
—

Net realized investment gains (losses):
 
 
 
 
 
 
 
Other-than-temporary impairment ("OTTI") losses
(1,528
)
 
(6,369
)
 
(8,082
)
 
(16,099
)
Other realized investment gains (losses)
(2,864
)
 
27,379

 
(21,361
)
 
(29,401
)
Total net realized investment gains (losses)
(4,392
)
 
21,010

 
(29,443
)
 
(45,500
)
Total revenues
1,100,706

 
1,058,838

 
2,109,240

 
1,943,633

 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
Net losses and loss expenses
605,332

 
632,294

 
1,212,273

 
1,131,256

Acquisition costs
204,361

 
189,125

 
394,153

 
369,761

General and administrative expenses
147,816

 
146,746

 
309,075

 
296,648

Foreign exchange losses (gains)
36,118

 
(56,602
)
 
57,583

 
(55,986
)
Interest expense and financing costs
12,751

 
12,914

 
25,543

 
25,747

Total expenses
1,006,378

 
924,477

 
1,998,627

 
1,767,426

 
 
 
 
 
 
 
 
Income before income taxes and interest in income (loss) of equity method investments
94,328

 
134,361

 
110,613

 
176,207

Income tax (expense) benefit
3,333

 
(4,901
)
 
12,670

 
1,639

Interest in loss of equity method investments
(1,975
)
 
—

 
(7,741
)
 
—

Net income
95,686

 
129,460

 
115,542

 
177,846

Preferred share dividends
10,656

 
9,969

 
25,497

 
19,938

Net income available to common shareholders
$
85,030

 
$
119,491

 
$
90,045

 
$
157,908

 
 
 
 
 
 
 
 
Per share data
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
Basic net income
$
1.01

 
$
1.30

 
$
1.06

 
$
1.70

Diluted net income
$
1.01

 
$
1.29

 
$
1.05

 
$
1.69

Weighted average number of common shares outstanding - basic
84,141

 
91,926

 
85,076

 
92,980

Weighted average number of common shares outstanding - diluted
84,511

 
92,558

 
85,647

 
93,705

Cash dividends declared per common share
$
0.38

 
$
0.35

 
$
0.76

 
$
0.70




See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
 
 
Three months ended
 
Six months ended
 
2017
 
2016
 
2017
 
2016
 
(in thousands)
Net income
$
95,686

 
$
129,460

 
$
115,542

 
$
177,846

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Available for sale investments:
 
 
 
 
 
 
 
Unrealized investment gains arising during the period
76,243

 
63,685

 
143,953

 
202,319

Adjustment for reclassification of net realized investment (gains) losses and OTTI losses recognized in net income
(1,503
)
 
(14,019
)
 
23,458

 
45,263

Unrealized investment gains arising during the period, net of reclassification adjustment
74,740

 
49,666

 
167,411

 
247,582

Foreign currency translation adjustment
8,867

 
(4,224
)
 
38,736

 
3,972

Total other comprehensive income, net of tax
83,607

 
45,442

 
206,147

 
251,554

Comprehensive income
$
179,293

 
$
174,902

 
$
321,689

 
$
429,400




See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016
 
2017
 
2016
 
(in thousands)
Preferred shares
 
 
 
Balance at beginning of period
$
1,126,074

 
$
627,843

Shares repurchased
(351,074
)
 
(2,843
)
Balance at end of period
775,000

 
625,000

 
 
 
 
Common shares (par value)
 
 
 
Balance at beginning of period
2,206

 
2,202

Shares issued
—

 
4

Balance at end of period
2,206

 
2,206

 
 
 
 
Additional paid-in capital
 
 
 
Balance at beginning of period
2,299,857

 
2,241,388

Shares issued - common shares
—

 
(4
)
Cost of treasury shares reissued
(38,840
)
 
(17,631
)
Settlement of accelerated share repurchase
—

 
60,000

Share-based compensation expense
22,506

 
18,804

Balance at end of period
2,283,523

 
2,302,557

 
 
 
 
Accumulated other comprehensive income (loss)
 
 
 
Balance at beginning of period
(121,841
)
 
(188,465
)
Unrealized gains (losses) on available for sale investments, net of tax:
 
 
 
Balance at beginning of period
(82,323
)
 
(149,585
)
Unrealized gains arising during the period, net of reclassification adjustment
167,411

 
247,582

Balance at end of period
85,088

 
97,997

Cumulative foreign currency translation adjustments, net of tax:
 
 
 
Balance at beginning of period
(39,518
)
 
(38,880
)
Foreign currency translation adjustment
38,736

 
3,972

Balance at end of period
(782
)
 
(34,908
)
Balance at end of period
84,306

 
63,089

 
 
 
 
Retained earnings
 
 
 
Balance at beginning of period
6,527,627

 
6,194,353

Net income
115,542

 
177,846

Preferred share dividends
(25,497
)
 
(19,938
)
Common share dividends
(65,871
)
 
(66,458
)
Balance at end of period
6,551,801

 
6,285,803

 
 
 
 
Treasury shares, at cost
 
 
 
Balance at beginning of period
(3,561,553
)
 
(3,010,439
)
Shares repurchased for treasury
(282,313
)
 
(323,050
)
Cost of treasury shares reissued
39,725

 
19,017

Balance at end of period
(3,804,141
)
 
(3,314,472
)
 
 
 
 
Total shareholders’ equity
$
5,892,695

 
$
5,964,183

 
 
 
 

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, 2017 AND 2016
 
2017
 
2016
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
115,542

 
$
177,846

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Net realized investment losses
29,443

 
45,500

Net realized and unrealized gains (losses) on other investments
(40,226
)
 
14,406

Amortization of fixed maturities
20,740

 
35,186

Interest in loss of equity method investments
7,741

 
—

Other amortization and depreciation
12,638

 
11,255

Share-based compensation expense, net of cash payments
(10,846
)
 
16,617

Non-cash foreign exchange losses

24,149

 
—

Bargain purchase gain
(15,044
)
 
—

Changes in:
 
 
 
Accrued interest receivable
4,208

 
2,262

Reinsurance recoverable balances
242,437

 
(103,215
)
Deferred acquisition costs
(151,633
)
 
(152,777
)
Prepaid reinsurance premiums
(180,107
)
 
(100,699
)
Reserve for loss and loss expenses
8,015

 
128,661

Unearned premiums
724,407

 
937,950

Insurance and reinsurance balances, net
(540,557
)
 
(859,502
)
Other items
(102,014
)
 
(90,954
)
Net cash provided by operating activities
148,893

 
62,536

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of:
 
 
 
Fixed maturities
(4,766,037
)
 
(4,687,409
)
Equity securities
(101,289
)
 
(215,324
)
Mortgage loans
(10,207
)
 
(120,923
)
Other investments
(107,020
)
 
(173,127
)
Equity method investments
(1,000
)
 
(103,548
)
Short-term investments
(9,029
)
 
(27,800
)
Proceeds from the sale of:
 
 
 
Fixed maturities
3,955,065

 
4,559,910

Equity securities
127,182

 
210,810

Other investments
177,238

 
110,077

Short-term investments
13,539

 
18,291

Proceeds from redemption of fixed maturities
1,043,002

 
558,715

Proceeds from redemption of short-term investments
116,111

 
2,539

Proceeds from the repayment of mortgage loans

10,467

 
—

Purchase of other assets
(12,205
)
 
(13,313
)
Change in restricted cash and cash equivalents
(84,738
)
 
(13,909
)
Purchase of subsidiary, net of cash acquired
(78,872
)
 
—

Net cash provided by investing activities
272,207

 
104,989

 
 
 
 
Cash flows from financing activities:
 
 
 
Repurchase of common shares
(286,962
)
 
(263,050
)
Dividends paid - common shares
(71,189
)
 
(69,347
)
Dividends paid - preferred shares
(31,532
)
 
(19,971
)
Repurchase of preferred shares
(351,074
)
 
(2,843
)
Proceeds from issuance of common shares
—

 
8

Net cash used in financing activities
(740,757
)
 
(355,203
)
 
 
 
 
Effect of exchange rate changes on foreign currency cash and cash equivalents
8,682

 
(7,510
)
Decrease in cash and cash equivalents
(310,975
)
 
(195,188
)
Cash and cash equivalents - beginning of period
1,039,494

 
988,133

Cash and cash equivalents - end of period
$
728,519

 
$
792,945

 
 
 
 
Supplemental disclosures of cash flow information: Non-cash foreign exchange losses were attributable to the reclass of the cumulative translation adjustment related to AXIS Specialty Australia from accumulated other comprehensive income to foreign exchange losses as the wind-down of this operation was substantially complete as of March 31, 2017. Also refer to Note 7 'Reserve for Losses and Loss Expenses' and Note 13 'Other Comprehensive Income'

See accompanying notes to Consolidated Financial Statements.

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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, 2017 and the consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for the periods ended June 30, 2017 and 2016 have not been audited. The balance sheet at December 31, 2016 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, 2016. 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, 2016.

New Accounting Standards Adopted in 2017

Stock Compensation - Improvements to Employee Share-Based Payment Accounting

Effective January 1, 2017, the Company adopted Accounting Standards Update ("ASU" ) ASU 2016-09, "Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting" which simplifies several aspects of the accounting for share-based payments to employees including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance requires all excess tax benefits and tax deficiencies to be recognized in the income statement with the tax effects of exercised or vested awards to be treated as discrete items in the reporting period in which they occur. Excess tax benefits should be classified along with other income tax cash flows as an operating activity on the statement of cash flows. In addition, companies will be required to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The guidance allows withholding up to the maximum statutory tax rates in the applicable jurisdictions to cover income taxes on share-based compensation awards without requiring liability classification. Cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. The adoption of this guidance did not have a material impact on our results of operations, financial condition and liquidity.

Recently Issued Accounting Standards Not Yet Adopted

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08 "Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities" which shortens the amortization period for certain purchased callable debt securities held at a premium. This guidance is effective for interim and annual reporting periods, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of this guidance on our results of operations, financial condition and liquidity.



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

1.
BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)

Stock Compensation - Scope of Modification Accounting

In May 2017, the FASB issued ASU 2017-08 "Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting" to provide clarity and reduce diversity in practice of applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award. This ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The guidance states that an entity should account for the effects of a modification unless all the following are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this Update. This guidance is effective for interim and annual reporting periods, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of this guidance on our results of operations, financial condition and liquidity.






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

2.        BUSINESS COMBINATIONS

On April 1, 2017 ("the closing date" or the "acquisition date"), the Company acquired a 100% ownership interest in Compagnie Belge d'Assurances Aviation NV/SA (“Aviabel”). Aviabel is an insurer operating under Belgian law that has its head office in Belgium, a branch office in the Netherlands and a re-insurance company, Aviabel RE S.A. (“Aviabel RE”), in Luxembourg. The Company acquired Aviabel to increase its scale and relevance in the global aviation market.

The purchase price was allocated to the acquired assets and liabilities of Aviabel based on estimated fair values on the closing date. Consequently, the Company recognized investments with a fair value of $182 million, reserves for losses and loss expenses with a fair value of $79 million, and a bargain purchase gain of $15 million. The bargain purchase gain arose as the fair values of the net identifiable assets acquired exceeded the fair value of the consideration transferred at the acquisition date.

The allocation of the purchase price was based on information included in unaudited financial statements prepared by Aviabel's management at March 31, 2017. The allocation is subject to change if additional information becomes available within the measurement period, which cannot exceed 12 months from the acquisition date. The fair values of the acquired assets and liabilities may be subject to adjustments, which may impact the amounts recorded for the acquired assets and liabilities, as well as the bargain purchase gain.

The underwriting results of Aviabel are included in the underwriting results of our insurance segment from the acquisition date.






13
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.
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.
Insurance
Our insurance segment provides insurance coverage on a worldwide basis. The product lines in this segment are property, marine, terrorism, aviation, credit and political risk, professional lines, liability and accident and health.
 
Reinsurance
Our reinsurance segment provides non-life treaty reinsurance to insurance companies on a worldwide basis. The product lines in this segment are catastrophe, property, professional lines, credit and surety, motor, liability, agriculture, engineering and marine and other. The reinsurance segment also writes derivative based risk management products designed to address weather and commodity price risks.

The following tables summarize the underwriting results of our reportable segments, as well as the carrying values of allocated goodwill and intangible assets:
 
  
2017
 
2016
 
 
Three months ended and at June 30,
Insurance
 
Reinsurance
 
Total
 
Insurance
 
Reinsurance
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
$
796,023

 
$
566,304

 
$
1,362,327

 
$
784,017

 
$
536,417

 
$
1,320,434

 
 
Net premiums written
527,678

 
428,339

 
956,017

 
526,764

 
480,586

 
1,007,350

 
 
Net premiums earned
493,836

 
487,595

 
981,431

 
439,279

 
507,711

 
946,990

 
 
Other insurance related income (losses)
508

 
2,052

 
2,560

 
(234
)
 
(658
)
 
(892
)
 
 
Net losses and loss expenses
(325,728
)
 
(279,604
)
 
(605,332
)
 
(306,141
)
 
(326,153
)
 
(632,294
)
 
 
Acquisition costs
(81,276
)
 
(123,085
)
 
(204,361
)
 
(61,829
)
 
(127,296
)
 
(189,125
)
 
 
General and administrative expenses
(87,822
)
 
(29,464
)
 
(117,286
)
 
(82,487
)
 
(32,332
)
 
(114,819
)
 
 
Underwriting income (loss)
$
(482
)
 
$
57,494

 
57,012

 
$
(11,412
)
 
$
21,272

 
9,860

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate expenses
 
 
 
 
(30,530
)
 
 
 
 
 
(31,927
)
 
 
Net investment income
 
 
 
 
106,063

 
 
 
 
 
91,730

 
 
Net realized investment gains (losses)
 
 
 
 
(4,392
)
 
 
 
 
 
21,010

 
 
Foreign exchange (losses) gains
 
 
 
 
(36,118
)
 
 
 
 
 
56,602

 
 
Interest expense and financing costs
 
 
 
 
(12,751
)
 
 
 
 
 
(12,914
)
 
 
Bargain purchase gain
 
 
 
 
15,044

 
 
 
 
 
—

 
 
Income before income taxes and interest in income (loss) of equity method investments
 
 
 
 
$
94,328

 
 
 
 
 
$
134,361

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss and loss expense ratio
66.0
%
 
57.3
%
 
61.7
%
 
69.7
%
 
64.2
%
 
66.8
%
 
 
Acquisition cost ratio
16.5
%
 
25.2
%
 
20.8
%
 
14.1
%
 
25.1
%
 
20.0
%
 
 
General and administrative expense ratio
17.7
%
 
6.1
%
 
15.1
%
 
18.7
%
 
6.4
%
 
15.4
%
 
 
Combined ratio
100.2
%
 
88.6
%
 
97.6
%
 
102.5
%
 
95.7
%
 
102.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and intangible assets
$
86,220

 
$
—

 
$
86,220

 
$
85,954

 
$
—

 
$
85,954

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  



14
Table of Contents

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

3.
SEGMENT INFORMATION (CONTINUED)

 
  
2017
 
2016
 
 
Six months ended and at June 30,
Insurance
 
Reinsurance
 
Total
 
Insurance
 
Reinsurance
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
$
1,490,030

 
$
1,784,169

 
$
3,274,199

 
$
1,437,365

 
$
1,842,230

 
$
3,279,595

 
 
Net premiums written
1,033,008

 
1,431,968

 
2,464,976

 
999,926

 
1,693,230

 
2,693,156

 
 
Net premiums earned
952,265

 
967,868

 
1,920,133

 
877,958

 
971,373

 
1,849,331

 
 
Other insurance related income (losses)
551

 
(1,773
)
 
(1,222
)
 
(96
)
 
(998
)
 
(1,094
)
 
 
Net losses and loss expenses
(612,630
)
 
(599,643
)
 
(1,212,273
)
 
(580,546
)
 
(550,710
)
 
(1,131,256
)
 
 
Acquisition costs
(149,433
)
 
(244,720
)
 
(394,153
)
 
(123,227
)
 
(246,534
)
 
(369,761
)
 
 
General and administrative expenses
(178,270
)
 
(60,816
)
 
(239,086
)
 
(168,064
)
 
(70,345
)
 
(238,409
)
 
 
Underwriting income
$
12,483

 
$
60,916

 
73,399

 
$
6,025

 
$
102,786

 
108,811

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate expenses
 
 
 
 
(69,989
)
 
 
 
 
 
(58,239
)
 
 
Net investment income
 
 
 
 
204,728

 
 
 
 
 
140,896

 
 
Net realized investment losses
 
 
 
 
(29,443
)
 
 
 
 
 
(45,500
)
 
 
Foreign exchange (losses) gains
 
 
 
 
(57,583
)
 
 
 
 
 
55,986

 
 
Interest expense and financing costs
 
 
 
 
(25,543
)
 
 
 
 
 
(25,747
)
 
 
Bargain purchase gain
 
 
 
 
15,044

 
 
 
 
 
—

 
 
Income before income taxes and interest in income (loss) of equity method investments
 
 
 
 
$
110,613

 
 
 
 
 
$
176,207

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss and loss expense ratio
64.3
%
 
62.0
%
 
63.1
%
 
66.1
%
 
56.7
%
 
61.2
%
 
 
Acquisition cost ratio
15.7
%
 
25.3
%
 
20.5
%
 
14.0
%
 
25.4
%
 
20.0
%
 
 
General and administrative expense ratio
18.7
%
 
6.2
%
 
16.2
%
 
19.2
%
 
7.2
%
 
16.0
%
 
 
Combined ratio
98.7
%
 
93.5
%
 
99.8
%
 
99.3
%
 
89.3
%
 
97.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and intangible assets
$
86,220

 
$
—

 
$
86,220

 
$
85,954

 
$
—

 
$
85,954

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



15
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, 2017
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,644,697

 
$
2,822

 
$
(15,507
)
 
$
1,632,012

 
$
—

 
 
Non-U.S. government
545,812

 
9,988

 
(18,279
)
 
537,521

 
—

 
 
Corporate debt
4,707,988

 
60,389

 
(32,210
)
 
4,736,167

 
—

 
 
Agency RMBS(1)
2,314,585

 
11,654

 
(23,983
)
 
2,302,256

 
—

 
 
CMBS(2)
649,645

 
6,312

 
(2,150
)
 
653,807

 
—

 
 
Non-Agency RMBS
46,658

 
1,831

 
(1,071
)
 
47,418

 
(868
)
 
 
ABS(3)
1,370,118

 
3,772

 
(1,000
)
 
1,372,890

 
—

 
 
Municipals(4)
141,307

 
1,471

 
(554
)
 
142,224

 
—

 
 
Total fixed maturities
$
11,420,810

 
$
98,239

 
$
(94,754
)
 
$
11,424,295

 
$
(868
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
13,533

 
$
779

 
$
(565
)
 
$
13,747

 
 
 
 
Exchange-traded funds
457,562

 
84,472

 
—

 
542,034

 
 
 
 
Bond mutual funds
180,561

 
3,325

 
(1,178
)
 
182,708

 
 
 
 
Total equity securities
$
651,656

 
$
88,576

 
$
(1,743
)
 
$
738,489

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,681,425

 
$
1,648

 
$
(27,004
)
 
$
1,656,069

 
$
—

 
 
Non-U.S. government
613,282

 
2,206

 
(49,654
)
 
565,834

 
—

 
 
Corporate debt
4,633,834

 
42,049

 
(75,140
)
 
4,600,743

 
—

 
 
Agency RMBS(1)
2,487,837

 
13,275

 
(35,977
)
 
2,465,135

 
—

 
 
CMBS(2)
664,368

 
5,433

 
(3,564
)
 
666,237

 
—

 
 
Non-Agency RMBS
57,316

 
1,628

 
(2,023
)
 
56,921

 
(823
)
 
 
ABS(3)
1,221,813

 
3,244

 
(2,843
)
 
1,222,214

 
—

 
 
Municipals(4)
163,441

 
1,510

 
(990
)
 
163,961

 
—

 
 
Total fixed maturities
$
11,523,316

 
$
70,993

 
$
(197,195
)
 
$
11,397,114

 
$
(823
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
379

 
$
41

 
$
(342
)
 
$
78

 
 
 
 
Exchange-traded funds
463,936

 
53,405

 
(2,634
)
 
514,707

 
 
 
 
Bond mutual funds
133,051

 
—

 
(9,092
)
 
123,959

 
 
 
 
Total equity securities
$
597,366

 
$
53,446

 
$
(12,068
)
 
$
638,744

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Residential mortgage-backed securities (RMBS) originated by U.S. government-sponsored 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, maturities and redemptions. It does not include the change in fair value subsequent to the impairment measurement date.




16
Table of Contents

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

4.
INVESTMENTS (CONTINUED)

In the normal course of investing activities, we actively manage allocations to non-controlling tranches of structured securities (variable interests) issued by Variable Interest Entities ("VIEs"). These structured securities include RMBS, CMBS and ABS and are included in the above table. Additionally, within our other investments portfolio, we invest in limited partnerships (hedge funds, direct lending funds, private equity funds and real estate funds) and CLO equity tranched securities, which are 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 therefore we are not the primary beneficiary of 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, 2017
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
413,461

 
$
405,807

 
3.5
%
 
 
Due after one year through five years
4,128,650

 
4,131,253

 
36.2
%
 
 
Due after five years through ten years
2,272,956

 
2,279,703

 
20.0
%
 
 
Due after ten years
224,737

 
231,161

 
2.0
%
 
 
 
7,039,804

 
7,047,924

 
61.7
%
 
 
Agency RMBS
2,314,585

 
2,302,256

 
20.2
%
 
 
CMBS
649,645

 
653,807

 
5.7
%
 
 
Non-Agency RMBS
46,658

 
47,418

 
0.4
%
 
 
ABS
1,370,118

 
1,372,890

 
12.0
%
 
 
Total
$
11,420,810

 
$
11,424,295

 
100.0
%
 
 
 
 
 
 
 
 
 
 
At December 31, 2016
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
313,287

 
$
305,972

 
2.8
%
 
 
Due after one year through five years
3,906,190

 
3,850,149

 
33.8
%
 
 
Due after five years through ten years
2,546,299

 
2,510,975

 
22.0
%
 
 
Due after ten years
326,206

 
319,511

 
2.8
%
 
 
 
7,091,982

 
6,986,607

 
61.4
%
 
 
Agency RMBS
2,487,837

 
2,465,135

 
21.6
%
 
 
CMBS
664,368

 
666,237

 
5.8
%
 
 
Non-Agency RMBS
57,316

 
56,921

 
0.5
%
 
 
ABS
1,221,813

 
1,222,214

 
10.7
%
 
 
Total
$
11,523,316

 
$
11,397,114

 
100.0
%
 
 
 
 
 
 
 
 
 




17
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, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
65,015

 
$
(2,795
)
 
$
1,303,677

 
$
(12,712
)
 
$
1,368,692

 
$
(15,507
)
 
 
Non-U.S. government
103,740

 
(16,923
)
 
180,768

 
(1,356
)
 
284,508

 
(18,279
)
 
 
Corporate debt
163,247

 
(14,667
)
 
1,532,619

 
(17,543
)
 
1,695,866

 
(32,210
)
 
 
Agency RMBS
93,978

 
(1,760
)
 
1,539,025

 
(22,223
)
 
1,633,003

 
(23,983
)
 
 
CMBS
22,821

 
(502
)
 
190,379

 
(1,648
)
 
213,200

 
(2,150
)
 
 
Non-Agency RMBS
8,563

 
(1,070
)
 
61

 
(1
)
 
8,624

 
(1,071
)
 
 
ABS
58,106

 
(576
)
 
318,030

 
(424
)
 
376,136

 
(1,000
)
 
 
Municipals
763

 
(37
)
 
44,800

 
(517
)
 
45,563

 
(554
)
 
 
Total fixed maturities
$
516,233

 
$
(38,330
)
 
$
5,109,359

 
$
(56,424
)
 
$
5,625,592

 
$
(94,754
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
40

 
$
(128
)
 
$
4,438

 
$
(437
)
 
$
4,478

 
$
(565
)
 
 
Exchange-traded funds
—

 
—

 
—

 
—

 
—

 
—

 
 
Bond mutual funds
—

 
—

 
23,718

 
(1,178
)
 
23,718

 
(1,178
)
 
 
Total equity securities
$
40

 
$
(128
)
 
$
28,156

 
$
(1,615
)
 
$
28,196

 
$
(1,743
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
54,051

 
$
(2,729
)
 
$
1,340,719

 
$
(24,275
)
 
$
1,394,770

 
$
(27,004
)
 
 
Non-U.S. government
149,360

 
(38,683
)
 
283,796

 
(10,971
)
 
433,156

 
(49,654
)
 
 
Corporate debt
230,218

 
(30,652
)
 
1,948,976

 
(44,488
)
 
2,179,194

 
(75,140
)
 
 
Agency RMBS
76,694

 
(1,101
)
 
1,724,170

 
(34,876
)
 
1,800,864

 
(35,977
)
 
 
CMBS
84,640

 
(749
)
 
193,499

 
(2,815
)
 
278,139

 
(3,564
)
 
 
Non-Agency RMBS
13,642

 
(1,752
)
 
7,194

 
(271
)
 
20,836

 
(2,023
)
 
 
ABS
362,110

 
(1,950
)
 
266,763

 
(893
)
 
628,873

 
(2,843
)
 
 
Municipals
774

 
(29
)
 
68,598

 
(961
)
 
69,372

 
(990
)
 
 
Total fixed maturities
$
971,489

 
$
(77,645
)
 
$
5,833,715

 
$
(119,550
)
 
$
6,805,204

 
$
(197,195
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
—

 
$
—

 
$
37

 
$
(342
)
 
$
37