S&P Global Ratings has revised its outlook from stable to negative for AXIS Capital Holdings Ltd. and its core operating subsidiaries following the company’s underperformance in the first quarter of 2020.
AXIS reported a net loss of $185 million and a combined ratio of 119.8% in Q1 2020, as pre-tax catastrophe and weather-related losses reached $300 million, the majority of which are related to the COVID-19 pandemic.
This caused ratings agencies Fitch and AM Best to immediately downgrade their ratings for the Bermudian re/insurer.
And now, S&P has also revised its view, citing COVID-19 concerns as well as the underperformance of AXIS in comparison to its ‘A+’ rated peers,h aving posted an average five-year combined ratio of 101.9% and a return on equity of 4.0%, relative to peers’ 94.5% and 7.6%, respectively.
The company has addressed its previously weakening capitalization, which is now redundant at the ‘AAA’ confidence level as of year-end 2019, and has reduced its risk appetite for property-catastrophe, resulting in a material decline in its net exposures through reinsurance/retrocession and use of alternative capital.
During the past couple of years, AXIS has taken remediation actions to address its underwriting underperformance with improving accident year (excluding natural catastrophe losses) loss ratio trends in 2018, 2019, and in first-quarter 2020.
But COVID-19 losses will keep the full-year 2020 underwriting results around the breakeven point, which, in combination with global recessionary trends and low investment returns, is forecast to generate a combined ratio of 99% to 102% and an ROE of 2% to 4% in 2020.
Nevertheless, S&P continues to believe that AXIS has strong competitive position underpinned by a broad product offering, diverse geographic footprint, and a focus on specialty coverage, through its dual platform including insurance and reinsurance.
In 2020, its gross premiums written will likely decline by mid-single digits mostly caused by non-renewals and decreased line sizes in its reinsurance segment. However, analysts expect AXIS will resume top-line growth in mid-single digits in 2021-2022.
