AXIS Capital outlook stays negative despite pricing improvements and strategic initiatives

Bermuda-based re/insurer AXIS Capital's outlook remains negative, according to ratings agencies Moody's and Fitch, despite favorable pricing trends, reduced expenses and strategic initiatives to reposition its portfolio to reduce volatility and improve profitability.

Both Moody's and Fitch have affirmed AXIS' financial strength of A2 and A+, respectively, but have kept their outlook for the ratings negative, citing earnings volatility, among other factors.

Moody's said its rating outlook reflects its view that AXIS Capital's profitability has been weak relative to its peers, reflecting elevated catastrophe losses, including COVID-19-related losses, as well as the underperformance of certain business lines, including its Lloyd's of London business.

It noted, while the company has taken steps to reduce catastrophe exposures, its earnings have been uneven and volatile. AXIS Capital's financial leverage, while lower, also remains higher than Moody's expectations at the current rating level.

Fitch also stated that the re/insurer's strengths, including a diversified market position and strong capitalization, are tempered by its earnings volatility from catastrophe loss events and modest fixed-charge coverage.

The negative outlook continues to reflect recent results that fall outside financial performance and earnings rating sensitivities and criteria guidelines, it said.

AXIS Capital posted a nine months net loss of approximately $146 million and a combined ratio of 109.6 percent this year, reflecting 17.5 points of catastrophe and pandemic-related losses.

Although the company will likely report additional catastrophe losses during the fourth quarter, Moody's expects the firm's core profitability to benefit from the re-underwriting of its business over the past couple of years as well as higher pricing in both insurance and reinsurance.

Fitch added that AXIS Capital's five-year average (2015-2019) ROAE, combined ratio and operating ratio were 3.6 percent, 101.2 percent and 91.8 percent, respectively, which included substantial catastrophe losses in 2017/2018 and sizable net investment losses in 2018.

These results trail the company's 'A+' rated peers, are inconsistent with rating expectations of underwriting profitability and operating ratios below 90 percent, and are below Fitch's credit factor scores for AXIS Capital's current rating, it said.