AXIS Capital Holdings Limited (“AXIS Capital”) (NYSE: AXS) today reported net income available to common shareholders of $116 million, or $0.78 per diluted common share for the first quarter of 2009, compared with net income of $238 million, or $1.48 per diluted common share, for the first quarter of 2008.

Operating income for the first quarter of 2009 was $156 million, or $1.05 per diluted share, compared with $205 million, or $1.28 per diluted common share, for the first quarter of 2008. This same item excluding foreign exchange gains, net of tax, for the first quarter of 2009 was $155 million, or $1.04 per diluted common share, compared with $186 million, or $1.16 per diluted common share, for the corresponding period of 2008.

First Quarter Highlights
• Annualized return on average common shareholders’ equity of 11.6%;
• Gross premiums written of $1.3 billion, an increase of 5%;
• Net premiums earned of $665 million, an increase of 1%;
• Consolidated combined ratio of 86.6%, including 12.7 points of net favorable prior period reserve development;
• Pre-tax net investment income of $99 million, an increase of 16%;
• Strong operating cash flows of $245 million;
• Shareholders’ equity of $4.5 billion, an increase of 1% from December 31, 2008; and
• Diluted book value per common share of $26.35, an increase of 2% from December 31, 2008.

Commenting on the first quarter 2009 financial results, John Charman, Chief Executive Officer and President of AXIS Capital, stated: “I am pleased to report that we have delivered growth in book value during this first quarter of 2009. Contributing to this improved performance relative to the last few quarters of 2008 was the welcome stabilization in asset valuations for our fixed maturity portfolio and improvement in liquidity in the credit markets overall. Our combined ratio of 86.6% is a very respectable result in light of the conservatism embedded in our underwriting and reserving philosophies, especially given our belief that in 2009, we are at the bottom of the earnings cycle across all lines.

We remain broadly defensive throughout our underwriting and investment activities. Whilst we have seen the green shoots of recovery, we do not believe the risk-reward characteristics have sufficiently swung in our favor to mobilize ourselves for a full offensive. We believe that, by year-end, our market-leading diversification by product and geography, together with our strong underwriting skills and risk management framework, will be fully mobilized across both our insurance and reinsurance segments to deliver high-quality outperformance.”


Segment Highlights
Insurance Segment

Our insurance segment reported underwriting income for the quarter of $36 million, down 41%, from the first quarter of 2008. The decrease was primarily due to a lower level of favorable reserve development, which was $36 million, or 13.0 points, in the current quarter, compared to $55 million, or 18.2 ratio points, in the first quarter of 2008. The segment reported a current year loss ratio of 68.4%, an improvement of 3.0 points from the prior year quarter. The reduction was primarily due to a lower frequency and severity of property per risk losses, partially offset by increased claims activity impacting our credit and political risk line of business. The current quarter’s underwriting result also included a reduction of $10 million in the fair value of an insurance derivative contract, which is included in other insurance related income.

Our insurance segment reported gross premiums written in the quarter of $364 million, a decrease of 16% from the prior year quarter. The decrease was primarily driven by a reduction in our credit and political risk business, due to a contraction of global lending and trade activity which has resulted in fewer underwriting opportunities.

Reinsurance Segment

Our reinsurance segment reported underwriting income of $61 million, down 22% from the first quarter of 2008. The reduction was driven by an increase in the segment’s current year loss ratio from 65.6% in the first quarter of 2008 to 72.8% this quarter. The deterioration was largely related to the impact of the economic downturn on our trade credit and bond reinsurance lines of business. We also experienced higher catastrophe losses this quarter, driven by losses on European Windstorm Klaus. Net favorable prior period development was $48 million, or 12.4 points, this quarter compared with $34 million, or 9.3 points, in the first quarter of 2008.

Our reinsurance segment reported gross premiums written in the quarter of $959 million, an increase of 16% from the prior year quarter. Excluding the impact of exchange rate movements, gross premiums written increased 19% reflecting both rate increases and growth opportunities within several of our lines of business.


Investments
Net investment income increased $14 million, or 16%, to $99 million. The increase was primarily due to net investment income from our alternative investment portfolio (“other investments”) of $7 million compared to net investment losses of $36 million in the prior year quarter. The total return on other investments increased from negative 5.6% in the first quarter of 2008 to positive 1.4% this quarter. The increase mostly related to our investment in credit funds, and to a lesser extent, hedge funds. Partially offsetting the increase in net investment income from other investments, net investment income from fixed maturities and cash and cash equivalents decreased $25 million this quarter, reflecting the impact of lower short-term and intermediate interest rates.

We experienced net realized investment losses of $41 million, compared to net realized investment gains of $36 million in the prior year quarter. The current quarter included other than temporary impairment charges of $30 million.

At March 31, 2009, net unrealized losses within our investment portfolio, after foreign currency hedges, were $767 million, an increase of $59 million in the quarter. The increase primarily reflected the impact of widening spreads on the medium-term notes in our corporate bond portfolio.

At March 31, 2009, we held cash and cash equivalent balances of $1.4 billion, or 13%, of total cash and investments. Our fixed maturity investment portfolio, which represents 78% of total cash and investments, is well diversified, has a weighted average credit quality of AA+ (with 80% of securities rated AA- or better), and has a short average duration of approximately 2.4 years. At March 31, 2009, our fixed maturity investment portfolio included $3.5 billion in mortgage-backed securities. $2.5 billion, or 71%, of these securities carry the full faith and credit guarantee of the U.S. government. Of the remaining mortgage-backed securities, 96% had a credit quality of AAA. At March 31, 2009, we also held $0.4 billion in asset-backed securities, of which 85% had a credit quality of AAA.


With respect to sub-prime and Alternative-A exposures in our fixed maturity investment portfolio, this remains a negligible portion of our total cash and investments at $120 million, or less than 1.1%, with the vast majority rated AAA by major rating agencies. Our fixed maturity investment portfolio at March 31, 2009 also includes $2.3 billion of corporate debt with a weighted average credit quality of A.

We did not avail of the early adoption permitted by FASB´s recent additional guidance regarding fair valuation (FAS 157) and other than temporary impairments (FAS 115). We are presently evaluating the impact of adopting these changes, which become effective in the second quarter of 2009.

Supplementary information relating to our investment portfolio at March 31, 2009 is available in the Investor Information section of our website.


Capitalization / Shareholders’ Equity

Total capitalization at March 31, 2009 was $5.0 billion, including $0.5 billion of long-term debt and $0.5 billion of preferred equity. Common shareholders’ equity increased $32 million, or 1%, to $4.0 billion, during the quarter. At March 31, 2009, diluted book value per common share, on a treasury stock basis, was $26.35 and book value per common share was $29.01, compared to $25.79 and $29.08 respectively, as of December 31, 2008.


Conference Call
We will host a conference call on Tuesday April 28th, 2009 at 8:00 AM (Eastern) to discuss the first quarter financial results and related matters. The teleconference can be accessed by dialing (866) 843-0890 (U.S. callers) or (412) 317-9250 (international callers) and entering the pass-code 3610732 approximately ten minutes in advance of the call. A live, listen-only webcast of the call will also be available via the Investor Information section of the Company’s website at www.axiscapital.com.

A financial supplement relating to our financial results for the quarter ended March 31, 2009 is available in the Investor Information section of our website. Supplementary information relating to our investment portfolio at March 31, 2009 is available in an additional supplement.

AXIS Capital is a Bermuda-based global provider of specialty lines insurance and treaty reinsurance with shareholders’ equity at March 31, 2009 of $4.5 billion and locations in Bermuda, the United States, Europe, Singapore, Canada and Australia. Its operating subsidiaries have been assigned a rating of “A+” (“Strong”) by Standard & Poor’s and “A” (“Excellent”) by A.M. Best. AXIS Capital has been assigned a senior unsecured debt rating of A- (stable) by Standard & Poor’s and Baa1 (stable) by Moody’s Investors Service. For more information about AXIS Capital, visit our website at www.axiscapital.com.