vi) Impairment Losses and the Allowance for Expected Credit Losses - Fixed Maturities, 105 Available for Sale
•Net income available to common shareholders of $193 million, or $2.27 per common share, and $2.25 per diluted common share
•Operating income(1) of $498 million, or $5.81 per diluted common share(1)
•Gross premiums written of $8.2 billion
•Net premiums written of $5.3 billion
•Net premiums earned of $5.2 billion
•Net favorable prior year reserve development of $26 million
•Underwriting income(2) of $359 million and combined ratio of 95.8%
•Net investment income of $419 million
•Net investment losses of $457 million
•Foreign exchange gains of $158 million
•Reorganization expenses of $31 million
•Total cash and investments of $15.6 billion; fixed maturities, short-term investments, and cash and cash equivalents comprise 85% of total cash and investments and have an average credit rating of AA-
•Total assets of $27.6 billion
•Reserve for losses and loss expenses of $15.2 billion and reinsurance recoverable on unpaid and paid losses and loss expenses of $6.4 billion, including $422 million related to loss portfolio transfer reinsurance agreements. Refer to 'Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview - Recent Developments - Loss Portfolio Transfer Reinsurance Agreements'.
•Debt of $1.3 billion and a debt to total capital ratio(3) of 22.0%
•Common shares repurchased were 897,000 common shares for a total of $49 million,
•Common shareholders' equity of $4.1 billion; book value per diluted common share of $46.95
(3)The debt to total capital ratio is calculated by dividing debt by total capital. Total capital represents the sum of total shareholders' equity and debt.
•increasing our relevance in a select number of attractive specialty lines insurance and treaty reinsurance markets including U.S. excess and surplus lines, North America professional lines and Lloyd's specialty insurance business;
•re-balancing our portfolio towards less volatile lines of business, including the exit from catastrophe and property reinsurance lines in June 2022, that carry attractive returns while deploying capital with risk limits, diversification and risk management;
•continuing the implementation of a more focused distribution strategy while building mutually beneficial relationships with clients and partners;
•improving the effectiveness and efficiency of our operating platforms and processes;
•investing in data and technology capabilities, and tools to empower our underwriters and enhance the service we provide to our customers;
•utilizing reinsurance markets and third-party capital relationships;
•fostering a positive workplace environment that enables us to attract, retain and develop top talent; and
•growing our corporate citizenship program to give back to our communities and help contribute to a more sustainable future.
Following the Russian invasion of Ukraine and the triggering of sanctions against the countries involved, organizations and named individuals, we established a task-force to coordinate our response to this situation.
The Russia-Ukraine war, and its related impacts, are an emerging and evolving risk to which we are exposed from an underwriting and reserving perspective.
Our team is tracking the situation closely, and is performing stress and scenario testing on existing underwriting exposures. A range of economic impacts and external pressures across individual product lines are being considered.
At December 31, 2022, estimated pre-tax net losses attributable to the Russia-Ukraine war were $43 million.
Refer to 'Management's Discussion and Analysis of Financial Condition and Results of Operations - Results by Segment' for further information.
At December 31, 2022, we had no direct exposures to Russia or Ukraine within our investments portfolio.
Refer to Item 1A, 'Risk Factors' in our most recent Annual Report on Form 10-K for further details.
AXIS Re's exit from Catastrophe and Property lines of business
Loss Portfolio Transfer Reinsurance Agreements
The transaction covers net reserves for losses and loss expenses of approximately $400 million and provides ground-up cover to a policy limit of $605 million.
Under the terms of the loss portfolio transfer reinsurance agreements, the reinsurer also assumed responsibility for the management of certain claims. At the closing date, we recognized income of $12 million in losses and loss expenses associated with this change in claims management responsibility.
We also recognized acquisition costs of $6 million associated with the transaction.
In subsequent periods, we will reassess the reserves for losses and loss expenses subject to the loss portfolio transfer reinsurance agreements.
Transition in our senior leadership
Income (loss) before income taxes and interest
Interest in income (loss) of equity method
Net income (loss) available (attributable) to
nm - not meaningful is defined as a variance greater than +/-100%
Underwriting revenues by segment were as follows:
Refer to 'Management's Discussion and Analysis of Financial Condition and Results of Operations - Results by Segment' for further details on underwriting revenues.
The components of the combined ratio were as follows:
Refer to 'Management's Discussion and Analysis of Financial Condition and Results of Operations - Results by Segment' for further details on underwriting expenses.
Results for the insurance segment were as follows:
Current accident year loss ratio, excluding
Gross premiums written by line of business were as follows:
The increases in liability, property, marine and aviation lines, and professional lines were due to favorable rate changes and new business. The increase in cyber lines was due to favorable rate changes. The increases in accident and health, and credit and political risk were due to new business.
(1) Amounts presented on a constant currency basis are non-GAAP financial measures as defined in Item10 (e) of SEC Regulation S-K. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance.
Net premiums earned by line of business were as follows:
The components of the loss ratio were as follows:
Current accident year loss ratio 57.5 % (0.3) 57.8
Prior year reserve development ratio (0.5 %) 0.2 (0.7
Current Accident Year Loss Ratio
The current accident year loss ratio decreased to 57.5% in 2022 from 57.8% in 2021.
Comparatively, in 2021, catastrophe and weather-related losses, net of reinstatement premiums, were $175 million, or 6.4 points, primarily attributable to Hurricane Ida, Winter Storms Uri and Viola, and other weather-related events.
Underwriting-Related General and Administrative Expense Ratio
Results for the reinsurance segment were as follows:
Current accident year loss ratio, excluding
Gross premiums written by line of business were as follows:
The increases in credit and surety, agriculture, professional lines, and accident and health lines were driven by new business.
The increases in credit and surety, and accident and health lines were also due to premium adjustments related to significant contracts.
The increase in engineering lines was due to premium adjustments related to a significant contract.
The increase in marine and aviation lines was attributable to new business and premium adjustments.
The decrease in catastrophe lines reflected the decrease in gross premiums written in 2022, compared to 2021.
The increase in credit and surety lines was attributable to the increase in gross premiums written in 2022, compared to 2021, premium adjustments and the restructuring of a significant quota share retrocessional treaty.
Net premiums earned by line of business were as follows:
Other Insurance Related Income (Loss)
Other insurance related income of $13 million in 2022, compared to other insurance related income of $22 million in 2021, a decrease of $9 million, primarily due to a decrease in fees related to arrangements with strategic capital partners.
The components of the loss ratio were as follows:
Current Accident Year Loss Ratio
Underwriting-Related General and Administrative Expense Ratio
NET INVESTMENT INCOME AND NET INVESTMENT GAINS (LOSSES)
Net investment income from our cash and investment portfolio by major asset class was as follows:
2022 versus 2021: Net investment income in 2022 increased by $68 million or 26%, compared to 2021 due to an increase in yields.
Other investments include hedge funds, direct lending funds, private equity funds, real estate funds, other privately held investments and an indirect investment in CLO-Equities. These investments are recorded at fair value, with changes in fair value and income distributions reported in net investment income. Consequently, the pre-tax return on other investments may vary materially year over year, particularly during volatile equity and credit markets.
Net investment income from other investments was as follows:
Changes in the fair value of investment derivatives, mainly foreign exchange forward contracts are recorded in net investment gains (losses).
Net investment gains (losses) were as follows:
Net unrealized gains (losses) on equity securities (135,915) 30,111 21,449
The impairment losses (refer to 'Critical Accounting Estimates - Impairment losses' for further details) recognized in net income were as follows:
Change in Fair Value of Investment Derivatives
From time to time, we economically hedge foreign exchange exposure with derivative contracts.
Total return on cash and investments was as follows:
The following table provides a summary of other expenses (revenues), net:
Corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As a percentage of net premiums earned, corporate expenses decreased to 2.5% in 2022 from 2.7% in 2021.
Some of our business is written in currencies other than the U.S. dollar.
Foreign exchange gains in 2022 were primarily related to the impact of the strengthening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in pound sterling and euro.
Foreign exchange losses in 2021 were primarily related to the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in pound sterling, Australian dollar and other currencies, largely offset by the strengthening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in euro and Japanese yen.
Interest Expense and Financing Costs
Interest expense and financing costs increased by $1 million in 2022, compared to 2021, due to the FHLB advances in 2022.
The tax expense of $62 million in 2021 was principally due to the generation of pre-tax income in our U.S., U.K. and European operations.
We believe that the following financial indicators are important in evaluating performance and measuring the overall growth in value generated for common shareholders:
Return on Average Common Equity
Book Value per Diluted Common Share
Cash Dividends Declared per Common Share
We believe in returning excess capital to shareholders by way of dividends. Accordingly, dividend policy is an integral part of the value we create for shareholders. Our Board of Directors have approved nineteen successive annual increases in quarterly common share dividends.
Book Value per Diluted Common Share Adjusted for Dividends
In 2022, the decrease in total value of $7.10, or 13%, was driven by net unrealized investment losses recognized in other comprehensive income (loss), partially offset by the net income generated in the year.
In 2021, the increase in total value of $2.38, or 4%, was driven by the net income generated in the year, partially offset by a decrease in net unrealized investment gains recognized in accumulated other comprehensive income.
Net income (loss) available (attributable) to common $ 192,833 $ 588,359 $ (150,674)
Rationale for the Use of Non-GAAP Financial Measures
Underwriting-Related General and Administrative Expenses
The reconciliation of underwriting-related general and administrative expenses to general and administrative expenses, the most comparable GAAP financial measure, is presented in 'Management's Discussion and Analysis of Financial Condition and Results of Operations - Consolidated Results of Operations'.
We evaluate our underwriting results separately from the performance of our investment portfolio. As a result, we believe it is appropriate to exclude net investment income and net investment gains (losses) from our underwriting profitability measure.
Reorganization expenses include compensation-related costs and software asset impairments mainly attributable to our exit from catastrophe and property reinsurance lines of business, part of an overall approach to reduce our exposure to volatile
Certain users of our financial statements evaluate performance exclusive of after-tax net investment gains (losses), foreign exchange losses (gains), reorganization expenses, and interest in income (loss) of equity method investments in order to understand the profitability of recurring sources of income.
Pre-Tax Total Return on Cash and Investments excluding Foreign Exchange Movements
Details of cash and investments are as follows:
An analysis of our investment portfolio by asset class is detailed below:
Details of our fixed maturities portfolio are as follows:
(1)Includes bonds issued by states, municipalities, and political subdivisions. (2)Includes U.S. government-sponsored agencies, residential mortgage-backed securities ("RMBS") and commercial mortgage-backed securities ("CMBS"). (3)Non-investment grade and non-rated securities.
An analysis of our fixed maturities portfolio by major asset classes is detailed below:
Details of exposures to governments in the eurozone and other non-U.S. government concentrations by fair value are as follows:
(1)Includes supranationals only in the eurozone.
Corporate debt securities consist primarily of investment grade debt of a wide variety of corporate issuers and industries.
Details of the fair value of our ABS portfolio by underlying collateral and credit rating are as follows:
At December 31, 2022, the average duration our ABS portfolio was 0.5 years (2021: 0.7 years) and the weighted average life was 3.7 years (2021: 4.1 years).
Details of the fair value of our municipals portfolio by state and between Revenue bonds and General Obligation bonds are as follows:
At December 31, 2022, the gross unrealized losses on our fixed maturities, available for sale portfolio were $857 million (2021: $94 million).
Investment grade fixed maturities, available for sale
The severity of the unrealized loss position as a percentage of amortized cost for all investment grade fixed maturities in an unrealized loss position including any impact of foreign exchange losses (gains) was as follows:
The increase in gross unrealized losses on investment grade fixed maturities reflected the impact of the increase in yields and the widening of credit spreads on investment grade corporate debt securities.
Non-investment grade fixed maturities, available for sale
Details of our other investments portfolio are as follows:
Refer to Item 8, Note 5(e) to the Consolidated Financial Statements 'Investments'.
Our ownership interest in Harrington Reinsurance Holdings Limited ("Harrington") is reported in interest in income (loss) of equity method investments.
Interest in income (loss) of equity method investments was $2 million in 2022, compared to $32 million in 2021. The decrease was attributable to lower investment gains realized by Harrington.
Refer to Item 8, Note 5(j) to the Consolidated Financial Statements 'Investments'.
Consolidated cash flows from operating, investing and financing activities in the last three years were as follows:
(1) Refer to Item 8, 'Consolidated Statements of Cash Flows' for further details.
The following table summarizes consolidated capital:
While the impact of unrealized investment losses recognized in other comprehensive income (loss), following a decrease in market value of our fixed maturities, has reduced common shareholders' equity, we believe that our financial flexibility remains strong, and adjustments are made if there are developments that are different from previous expectations.
Federal Home Loan Bank Advances
The Company's subsidiaries, AXIS Insurance Company and AXIS Surplus Insurance Company are members of the Federal Home Loan Bank of Chicago ("FHLB").
Secured Letter of Credit Facilities
On November 20, 2013, certain of AXIS Capital's operating subsidiaries (the "Participating Subsidiaries") entered into an amendment to extend the term of its secured $750 million letter of credit facility with Citibank Europe plc ("Citibank") (the "$750 million Facility").
On December 24, 2019, the expiration date of the $500 million Facility was extended to December 31, 2023.
On March 28, 2020, the expiration date of the $250 million Facility was extended to March 31, 2021.
During the year ended December 31, 2022, common equity decreased by $771 million. The following table reconciles opening and closing common equity positions:
sale investments, net of tax
The following are the most recent financial strength ratings from internationally recognized agencies in relation to our principal insurance and insurance operating subsidiaries:
We believe that the material items requiring such subjective and complex estimates are:
•reserves for losses and loss expenses;
•reinsurance recoverable on unpaid losses and loss expenses, including the allowance for expected credit losses;
•gross premiums written and net premiums earned;
•fair value measurements of financial assets and liabilities; and
•the allowance for credit losses associated with fixed maturities, available for sale.
Reserve for Losses and Loss Expenses
Gross loss reserves for each of the reportable segments, segregated between case reserves and IBNR, by line of business are shown below:
Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses - Reserving Methodology - Claim Tail Analysis' for details of the lines of business included in short-tail business and the associated key actuarial assumptions.
Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses - Reserving Methodology - Claim Tail Analysis' for details of the lines of business included in medium-tail business and the associated key actuarial assumptions.
Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses - Reserving Methodology - Claim Tail Analysis' for details of the lines of business included in long-tail business and the associated key actuarial assumptions.
Factors that contribute additional uncertainty to estimates for long-tail business include, but are not limited to:
•inherent uncertainties about loss trends, claims inflation (e.g., medical, judicial, social) and general economic conditions; and
Reserving for Credit and Political Risk Business
Selection of Reported Reserves - Management's Best Estimate
Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses - Reserving Methodology - Selection of Reported Reserves - Management's Best Estimate' for further details.
Assumed loss development patterns are another significant assumption in estimating loss reserves. Accelerating a loss reporting pattern (i.e., shortening the claim tail) results in lower ultimate losses, as the estimated proportion of losses already incurred would be higher.
The results show the cumulative increase (decrease) in loss reserves across all accident years.
Reinsurance Recoverable on Unpaid Losses and Loss Expenses
Reinsurance recoverables for each of the reportable segments, segregated between case reserves and IBNR, by line of business are shown below:
The recognition of reinsurance recoverables requires two key estimates as follows:
•The first estimate is the amount of loss reserves to be ceded to our reinsurers. This amount consists of amounts related to case reserves and amounts related to IBNR. Refer to Item 8, Note 2 to the Consolidated Financial Statements 'Basis of Presentation and Significant Accounting Policies' for further details.
Consequently, we review reinsurance recoverables at least quarterly to estimate an allowance for expected credit losses. Refer to Item 8, Note 2 to the Consolidated Financial Statements 'Basis of Presentation and Significant Accounting Policies' for further details.
At December 31, 2022, the allowance for expected credit losses was $31 million (2021: $30 million). We have not written off any significant reinsurance recoverable balances in the last three years.
assumptions relating to prepayments/refinancing. At December 31, 2022, the average duration of unearned premiums for credit and political risk line of business was 5.4 years (2021: 5.2 years).
•changes in underlying exposure values; and/or
•changes in rates being charged by cedants.
Gross premiums written (reinsurance segment) $ 2,629,014 $ 2,822,752 $ 2,808,539
However, larger variations, positive or negative, are possible.
Fair Value Measurements of Financial Assets and Liabilities
Fixed Maturities and Equity Securities
At December 31, 2022 and 2021, we did not adjust any pricing provided by independent pricing services.
•initial and ongoing evaluation of the pricing methodologies and valuation models used by outside parties to calculate fair value;
•a review of multiple quotes obtained in the pricing process and the range of resulting fair values for each security, if available; and
Hedge Funds, Direct Lending Funds, Private Equity Funds and Real Estate Funds
Impairment Losses and the Allowance for Expected Credit Losses - Fixed Maturities, Available for Sale
A fixed maturity, available for sale security is impaired if the fair value of the investment is below amortized cost. On a quarterly basis, the Company evaluates all fixed maturities, available for sale for impairment losses.
In addition, the methodologies and significant inputs used to estimate the allowance for expected credit losses are disclosed in Item 8, Note 5 (i) to the Consolidated Financial Statements 'Investments'.
Intent or Requirement to Sell
U.S. Treasury Securities and Other Highly Rated Debt Instruments
Market risk is the risk that our financial instruments may be negatively impacted by movements in financial market prices or rates such as interest rates, credit spreads, equity securities' prices, and foreign currency exchange rates (refer to Item 1 'Risk and Capital Management' for further details).
We own a substantial amount of assets whose fair values are subject to market risks.
Equity securities are reported at fair value, with changes in fair values recognized in net income (loss).
The following is a sensitivity analysis of our primary market risk exposures at December 31, 2022 and 2021.
Interest Rate and Credit Spread Risk
Potential adverse change in fair value
Securities exposed to credit spreads:
Securities exposed to credit spreads:
The above sensitivity analysis should not be construed as our prediction of future market events, but rather an illustration of the impact of such events.
Our investment in CLO-Equities is also exposed to interest rate risk, but an increase in the risk-free yield curve of 100 basis points would have an insignificant impact on its fair value.
$277 million (2021: $338 million). At December 31, 2022, the impact of a 20% decline in the overall market prices of our equity exposures would be $55 million (2021: $68 million), on a pre-tax basis.
(1)Assumes 10% appreciation in underlying currencies relative to the U.S. dollar.
Net Managed Foreign Currency Exposure
Other Net Foreign Currency Exposure
During 2022, our emerging market debt securities portfolio which was included in other net foreign currency exposure, was liquidated.
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