Best Affirms AXIS FS, ICR Ratings

May 17, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) and the issuer credit ratings (ICR) of “a” of AXIS Specialty Limited and some of its operating affiliates.

Concurrently Best said it has assigned an ICR of “bbb” and affirmed the senior debt rating of “bbb” on $500 million 5.75 percent unsecured notes due 2014, as well as all debt securities filed under a $750 million universal shelf registration of Bermuda-based AXIS Capital Holdings Limited. All the ratings have a stable outlook.

“The ratings of AXIS reflect superior risk-based capitalization, excellent operating performance, a highly experienced management team and strong broker relationships,” said Best. ‘”AXIS continues to maintain a diversified book of business, both geographically and by line of business, which focuses on broker-sourced short- and medium-tail lines, principally specialty lines in property, marine, energy and aerospace, along with property catastrophe reinsurance coverage. The company has also selectively expanded into professional lines and increased its writings in umbrella and excess liability coverages. Casualty lines now account for approximately 30 percent of AXIS’ gross premium writings.”

Best also noted: “AXIS produced a combined ratio of 84 percent in 2004 despite incurring net hurricane losses of $266 million, while shareholders equity has grown to $3.0 billion at March 31, 2005. The company’s continued excellent performance is attributable to well-established underwriting and risk management controls, an unencumbered balance sheet, recruitment of select underwriting teams and selective acquisitions of admitted and non-admitted reinsurance companies in the United States. Furthermore, AXIS has developed a sophisticated technology platform, which enables easier customer access and reduces operating costs.

“In February 2005, AXIS announced the repurchase of $350 million of its common shares from original investors.” Best indicated that it has been “encouraged by management’s decision to return excess capital in anticipation of a softening market rather than deploy capital to unfamiliar lines of business. AXIS’ risk-based capital remains in the superior range after the share buyback with both debt-to-adjusted capital and fixed charge coverage at levels well in line with its current ratings.”

The rating agency noted the company’s short operating history in relation to its casualty business partially offsets these strengths. “Due to the long-tail nature of these lines, the consistency and sustainability of the casualty segment’s operating performance has yet to be proven,” Best continued. “Furthermore, market pressure on pricing could dampen expected returns along with exposure to low frequency, high severity property catastrophe losses.”

Best concluded that despite these concerns, it “expects AXIS to continue managing its capital base very conservatively within acceptable ranges to support its current ratings and meet the more stringent capital requirements for a recently established Bermuda entity.”

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