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Rating agencies downgrade AXIS, company responds

6th May 2020 - Author: Matt Sheehan

Global financial services ratings agencies have taken actions against AXIS Capital and its subsidiaries, citing the economic impact of the coronavirus (COVID-19) pandemic and a deteriorating operating performance.

Specifically, Fitch Ratings has revised its outlook for AXIS from stable to negative, citing the economic impact of the pandemic.

axis-capital-logoAt the same time, Fitch affirmed the ‘A+’ (Strong) Insurer Financial Strength (IFS) ratings of the operating subsidiaries of AXIS Capital Holdings Ltd. (AXIS) and AXIS’s ‘A-‘ Issuer Default Rating (IDR).

In addition, A.M. Best has downgraded the credit ratings of the Bermuda-based insurer and reinsurer and its operating subsidiaries, citing a deterioration in its view of AXIS’ operating performance.

Specifically, A.M. Best has downgraded the Financial Strength Rating to A (Excellent) from A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “a+” from “aa-” of the operating subsidiaries of AXIS Capital Holdings Limited.

Furthermore, A.M. Best has downgraded the Long-Term ICR to “bbb+” from “a-” and the existing indicative Long-Term Issue Credit Ratings (Long-Term IR) of AXIS Capital Holdings Limited. The outlook of these Credit Ratings has been revised to stable from negative, explains A.M. Best.

AXIS posted a 2019 combined ratio of 102.6% and operating ratio of 92.2%, up from 99.9% and 90.7%, respectively, in 2018.

The increase was driven by a higher expense ratio in the insurance segment caused by the acquisition of Novae and a reduced benefit from favourable reserve development, partially offset by lower catastrophe losses.

Fitch also noted that the company’s 2019 trailed its ‘A+’ rated peers, fell short of rating expectations for underwriting profitability and operating ratios, and were worse than the credit factor scores for AXIS’s current rating.

Meanwhile underwriting performance is set to be further pressured in 2020 by coronavirus-related exposure, with the company announcing an estimated Q1 net claims provision of $235 million for the pandemic.

Analysts still believe that AXIS maintains a diversified market position in both insurance and reinsurance lines, but warned that the company’s competitive positioning could face challenges in the current crisis environment.

A.M. Best highlights that ultimately, AXIS’ five-year average return-on-equity and combined ratios fall short of its strong operating performance benchmarks.

AXIS recently reported a net loss of $185 million for the first-quarter of 2020 as the impacts of COVID-19 saw the re/insurer’s quarterly catastrophe loss experience swell to $300 million.

In response to the rating actions taken by A.M. Best, AXIS says that while the re/insurer has not been satisfied with its operating performance, it believes that the ratings change does not fully reflect the significant actions taken in recent years.

“Even as we’ve taken these actions to strengthen our business, our primary focus has been to deliver the same high level of underwriting support and claims service that our clients and partners in distribution have come to expect from AXIS.

“We’re also intentionally focused on driving growth in lines and markets where we have leadership and relevance, and where we see mutually beneficial opportunities between our business and that of our customers.

“We look forward to demonstrating the continued benefit of our actions to AM Best and are committed to doing all that we can to earn back the Superior rating,” says AXIS.

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