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Announcement:

Moody's affirms AXIS Capital; outlook stable

10 Feb 2010

New York, February 10, 2010 -- Moody's Investors Service has affirmed the Baa1 senior debt rating of AXIS Capital Holdings Limited (NYSE: AXS) and the A2 insurance financial strength ratings of its operating subsidiaries. The outlook is stable. The rating action follows the company's release of fourth quarter 2009 results, which included a loss provision on a $399 million credit insurance policy related to Blue City Investments.

According to Moody's, the Baa1 senior unsecured debt rating on AXIS Capital is based on the credit support provided by its various insurance operating subsidiaries and good borrowing capacity and financial flexibility due to comparatively moderate financial leverage (estimated 14% debt-to-capital as of 12/31/2009 assuming 50% equity credit for the preferred shares and including operating lease debt equivalents).

The A2 insurance financial strength rating of AXIS Specialty Limited, the principal operating subsidiary, is based on its broad market acceptance, robust risk-adjusted capitalization, and good underwriting profitability since its inception in November 2001. Since inception AXIS Capital has achieved an average return on average common equity of 16%, which compares favorably to most of our rated non-life (re)insurance companies, notwithstanding material investment losses in 2008 and 2009.

These credit strengths are tempered by exposure to catastrophic losses, exposure to inflation-sensitive liabilities which may impact reserve strength, and broad appetite for risk including (re)insuring exposures which are highly specialized or have a significant credit component, such as Blue City Investments. Third quarter 2009 results also included a $136 million increase in the fair value liability of a longevity risk derivative contract (which has now been settled).

In commenting on Blue City, Moody's noted that in 2006 AXIS entered into a credit insurance policy with Blue City Investments I Limited, which had raised capital to finance the development of a residential and mixed use real estate project in the Sultanate of Oman, the Blue City. The policy insures repayment of $399 million in senior notes issued by Blue City in the event that project receivables (e.g., sales of residential units) are not sufficient to repay the notes. In July 2009, Moody's downgraded the notes to Ba3 from Ba1 due to worse-than-expected project performance and left the ratings under review for further possible downgrade.

AXIS has not disclosed its exact reserve provision for Blue City. If AXIS were to incur a full loss on Blue City, the ratings would likely remain unchanged although additional losses for other transactions (more than $200 million) in the credit and political risk portfolio could alter that view given the correlation risk in that book. Accident year 2009 results for the credit and political risk insurance book have worsened to a 151% combined ratio as of 12/31/2009 (though the inception-to-date loss ratio for this line of business is 51%).

"AXIS' credit, political risk and bond portfolios will remain a key pressure point for the ratings in the near term," said Kevin Lee, a senior credit officer at Moody's. "We see no upward pressure on the ratings in the near term but believe the current ratings have some tolerance for more potential losses."

The following factors could lead to a downgrade: 1) ratio of adjusted debt-to-capital rises above 25%; 2) erosion of shareholders' equity by more than 10% over a rolling 12-month period due to operating losses or share buybacks; 3) losses of more than $200 million in the credit/political risk/bond portfolio beyond the Blue City transaction, which may suggest more losses to come given the correlation risk in that book. In the near term, Moody's sees little upward pressure on the ratings due to the macroeconomic environment's impact on AXIS' credit-related business. However, if the macroeconomic environment settles, and ultimate losses on the credit business become clearer, maintenance of ample borrowing capacity (less than 20% debt-to-capital) and outperformance relative to peers could place upgrade pressure on the ratings.

The following ratings have been affirmed with a stable outlook:

AXIS Capital Holdings Limited -- senior unsecured debt at Baa1; preferred stock at Baa3; provisional ratings for senior debt at (P)Baa1, subordinated debt (P)Baa2 and preferred stock (P)Baa3;

AXIS Capital Trusts I, II, III -- shelf registration for prospective capital securities at (P)Baa2;

AXIS Specialty Limited -- insurance financial strength at A2;

AXIS Reinsurance Company -- insurance financial strength at A2;

AXIS Re Limited -- insurance financial strength at A2;

AXIS Insurance Company -- insurance financial strength at A2.

AXIS Capital Holdings Ltd. (NYSE: AXS) is a Bermuda holding company that provides specialty insurance and property/casualty reinsurance worldwide. For full year 2009, the company reported gross premiums written of $3,587 million, net income to common shareholders of $461 million, and shareholders' equity of $5,500 million as of 12/31/2009.

The last rating action on AXIS Capital was on October 11, 2007, when Moody's affirmed the ratings with a stable outlook.

The principal methodology used in rating AXIS was Moody's Global Rating Methodology for Reinsurers, published in July 2008 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Moody's insurance financial strength ratings are opinions about the ability of insurance companies to punctually pay senior policyholder claims and obligations.

For more information, please visit our website at www.moodys.com.

New York
Kevin Lee
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Stanislas Rouyer
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms AXIS Capital; outlook stable
No Related Data.
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