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Rating Action:

Moody's affirms AXIS Capital ratings; Assigns ratings to shelf registration

03 Mar 2014

New York, March 03, 2014 -- Moody's Investors Service has affirmed the ratings of AXIS Capital Holdings Limited (NYSE: AXS, Baa1 senior unsecured) and its subsidiaries, including the A2 insurance financial strength rating of AXIS Capital's principal operating subsidiary. Moody's has also assigned provisional ratings to the shelf registration of AXIS Capital and various subsidiaries (see list below). The outlook for all ratings is stable.

RATINGS RATIONALE

Moody's A2 insurance financial strength rating for the group's principal operating subsidiary, AXIS Specialty Ltd. (Bermuda), is based on its broad market acceptance, comfortable risk-adjusted capitalization, good spread of risk, and generally good risk-adjusted operating returns since its inception in November 2001. The group's diverse business platforms, which include both property & casualty insurance and reinsurance, help the company manage industry cyclicality by allowing it to shift from one class of business to another as market conditions change. In Moody's opinion, because AXIS has a diverse product mix, it is less vulnerable to competition from alternative capital compared with reinsurers that are more concentrated in catastrophe reinsurance.

However, Moody's notes that AXIS Capital's diverse platforms also reflect its broad appetite for risks. Some of these risks are highly specialized or have a significant credit component that is correlated to credit markets, raising the possibility of a fortuitous clash of risks. Other credit challenges include manageable but significant exposure to natural and man-made catastrophes, low investment yields which have depressed operating results in the past five years, and reserve uncertainty in long-tail classes, though Moody's believes the company's current reserve position is reasonable.

Moody's A2 insurance financial strength ratings for the group's operating subsidiaries in the US (AXIS Reinsurance Company) and Ireland (AXIS Re SE) reflect the benefit of quota share reinsurance agreements with AXIS Specialty Ltd. (50% ceded from US subsidiaries, 75% ceded from Ireland subsidiaries) and stop-loss protection from AXIS Specialty Ltd. (100% of losses that fall within a 80-120% loss ratio corridor are ceded). Without this inter-company support, the US and Irish subsidiaries would be rated lower.

Moody's states that the Baa1 senior unsecured debt rating of AXIS Capital is based on the expectation of ample credit support and dividend capacity from the operating subsidiaries. The main source of credit support for the group's debt obligations are dividends from AXIS Specialty Ltd. (Bermuda), which represents about three-quarters of the group's net assets. The Baa1 senior debt rating of AXIS Specialty Finance LLC reflects a guarantee from the ultimate parent company.

The following factors could lead to an upgrade of AXIS' ratings: 1) adjusted debt-to-capital ratio below 20% cross cycle; 2) EBIT fixed charge coverage above 9x cross cycle; 3) return on total capital above 13% cross cycle; 4) gross underwriting leverage below 2.0x cross cycle (i.e., the sum of gross premiums plus gross loss reserves divided by total equity minus 10% of high-risk assets). Conversely the following factors could lead to a downgrade: 1) adjusted debt-to-capital above 25%; 2) EBIT fixed charge coverage below 6x in consecutive years; 3) decline in shareholders' equity (including share repurchases) by more than 10% over a rolling twelve month period; 4) material increases in loss reserve estimates for prior accident years; 5) the 1-in-250 year annual aggregate modeled loss from natural catastrophe perils (with consideration of multiple events per year), net of reinsurance, exceeds 50% of total shareholders' equity.

The following ratings have been affirmed with a stable outlook:

AXIS Capital Holdings Limited -- senior unsecured debt at Baa1; preferred stock at Baa3(hyb);

AXIS Specialty Finance LLC -- guaranteed senior unsecured at Baa1;

AXIS Specialty Limited -- insurance financial strength at A2;

AXIS Reinsurance Company -- insurance financial strength at A2;

AXIS Re SE -- insurance financial strength at A2;

AXIS Insurance Company -- insurance financial strength at A2.

The following ratings have been assigned with a stable outlook:

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

AXIS Specialty Finance LLC -- provisional guaranteed senior unsecured debt at (P)Baa1, provisional guaranteed subordinated debt at (P)Baa2, provisional guaranteed junior subordinated debt at (P)Baa2;

AXIS Specialty Finance PLC -- provisional guaranteed senior unsecured debt at (P)Baa1, provisional guaranteed subordinated debt at (P)Baa2, provisional guaranteed junior subordinated debt at (P)Baa2.

AXIS Capital is a Bermuda-based global provider of specialty lines insurance and reinsurance with consolidated shareholders' equity of $5.9 billion as of December 31, 2013.

The principal methodology used in this rating was Moody's Global Rating Methodology for Reinsurers published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Kevin Lee
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Stanislas Rouyer
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms AXIS Capital ratings; Assigns ratings to shelf registration
No Related Data.
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