AXIS Capital Holdings Limited (“AXIS Capital”) (NYSE: AXS) today reported net income available to common shareholders for the second quarter of 2009 of $159 million, or $1.06 per diluted common share, compared with $231 million, or $1.47 per diluted common share, for the second quarter of 2008. Net income for the six months ended June 30, 2009 was $275 million, or $1.84 per diluted share, compared with $469 million, or $2.95 per diluted share, for the corresponding period in 2008.

Operating income for the second quarter of 2009 was $183 million, or $1.22 per diluted share, compared with $229 million, or $1.45 per diluted common share, for the second quarter of 2008. This same item excluding foreign exchange gains/losses, net of tax, for the second quarter of 2009 was $208 million, or $1.39 per diluted common share, compared with $236 million, or $1.50 per diluted common share, for the second quarter of 2008.

Operating income for the first six months of 2009 was $338 million, or $2.26 per diluted share, compared with $434 million, or $2.73 per diluted common share, for the first six months of 2008. This same item excluding foreign exchange gains/losses, net of tax, for the first six months of 2009 was $363 million, or $2.43 per diluted common share, compared with $421 million, or $2.65 per diluted common share, for the first six months of 2008.
Second Quarter Highlights
• Operating income of $183 million;
• Annualized operating return on average common equity of 17.4%;
• Gross premiums written of $915 million, an increase of 5%;
• Combined ratio of 80.4%, including net favorable reserve development of 13.7 percentage points;
• Underwriting income of $141 million, an increase of 2%;
• A reduction in the net unrealized losses on our available for sale investments of $239 million;
• Strong operating cash flows of $207 million;
• Shareholders’ equity of $4.9 billion, an increase of 10% from December 31, 2008; and
• Diluted book value per common share of $28.72, an increase of 9% from March 31, 2009 and 11% from December 31, 2008.

Commenting on the second quarter 2009 financial results, John Charman, Chief Executive Officer and President of AXIS Capital, stated: “We are pleased to report that we have delivered strong diluted book value growth of 9% and an annualized operating return on average common equity of 17.4% during this second quarter of 2009. Both our insurance and reinsurance segments converted the best opportunities they found against the backdrop of a mixed market. The result was an overall increase in gross premiums written and net premiums written of 5% and 2% respectively during the second quarter.

I am disappointed that the insurance market has failed to harden more broadly when it is so blindingly obvious that is the path it should and must take. The need for change is obvious, but the courage to change is lacking.

The reinsurance market continues to show strong leadership and disciplined pricing overall. A stratification is occurring in this market and we are perfectly positioned to reap the benefits.”

Segment Highlights
Insurance Segment

Our insurance segment reported underwriting income for the quarter of $16 million, down $35 million, or 69%, from the second quarter of 2008. The segment’s combined ratio was 89.8% compared with 80.3% in the prior year quarter. The increase in the combined ratio was driven by increased claims activity impacting our credit and political risk line of business, partially offset by a lower frequency and severity of property per risk losses. Net favorable prior period development was $47 million, or 15.7 points, this quarter compared with $46 million, or 15.5 points, in the second quarter of 2008. The current quarter’s underwriting result also included a reduction of $15 million in the fair value of an insurance derivative contract, which is included in other insurance related income. This compared with a $7 million reduction in the same quarter last year.

Our insurance segment reported gross premiums written in the quarter of $527 million, down 5% from the second quarter of 2008, and net premiums written of $313 million, down 14% from the second quarter of 2008. These reductions primarily emanate from our credit and political risk line of business, where we continued to see limited underwriting opportunities due to contracting global lending and trading activity. Ceded premiums were 41% of gross premiums written in the current quarter compared with 34% in the second quarter of 2008. The increase reflects the impact of business mix changes, increased costs and the expansion of our reinsurance coverage during the year.

Reinsurance Segment

Our reinsurance segment reported underwriting income for the quarter of $125 million, a 43% increase compared with the second quarter of 2008. The segment’s combined ratio was 69.5% compared with 77.3% in the prior year quarter. The improvement in the combined ratio was driven by a lower level of catastrophe and other large loss activity. Net favorable prior period development was $50 million, or 12.2 points, this quarter compared with $41 million, or 10.6 points, in the second quarter of 2008.

Our reinsurance segment reported gross premiums written in the quarter of $388 million, up 22% from the second quarter of 2008, reflecting rate increases, increased participation on certain treaties and new business opportunities. These factors were significant in the growth of our catastrophe, property and professional liability reinsurance lines of business.

Investments
Net investment income for the quarter of $112 million represented an increase of $13 million, or 13%, relative to the first quarter of this year and a decrease of $25 million, or 18%, relative to the second quarter of 2008. Net investment income from fixed maturities and cash and cash equivalents was $103 million this quarter compared with $95 million in the first quarter of this year and $116 million in the second quarter of 2008. The increase relative to the first quarter of 2009 reflects the impact of higher average invested balances as well as redeployment of cash and cash equivalents into higher yielding high-grade fixed income investments. Net investment income from cash and cash equivalents decreased over the prior year period however as a result of lower short-term and intermediate interest rates. Net investment income from our alternative investment portfolio (“other investments”) was $12 million. This represented an increase of $5 million relative to the first quarter of this year and a decrease of $8 million relative to the same period last year.

Effective April 1, 2009, we adopted the new FASB guidance for the recognition of other-than-temporary impairments (OTTI) of fixed maturity securities, resulting in a $38 million net after-tax increase to our April 1, 2009 retained earnings and accumulated other comprehensive loss. This adjustment reflects the non-credit portion of $86 million in previously recognized OTTI for fixed maturity securities held at March 31, 2009. The adoption of this new guidance had no impact to our book value per share. For the current quarter, we recorded a further $1 million in net after-tax OTTI charges through other comprehensive income.

During the quarter, we incurred net realized investment losses of $24 million compared to net realized investment gains of $2 million in the prior year quarter. Net realized investment losses for the quarter included $21 million of OTTI charges on certain mortgage-backed, corporate debt and equity securities.

At June 30, 2009, net unrealized losses within our available for sale investment portfolio were $529 million, a reduction of $239 million in the quarter. The improvement in asset valuation experienced during the quarter was primarily due to credit spread tightening on corporate debt and structured credit securities.

During the quarter, we reduced U.S. agency residential mortgage-backed securities and invested the proceeds primarily in U.S. agency debt securities and high-grade corporate debt. This shift has resulted in reduced extension risk while maintaining our investment portfolio yield levels. At June 30, 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 81% of total cash and investments, is well diversified, has a weighted average credit quality of AA+, and has an average duration of approximately 3.13 years. Our other investments represent 5% of our cash and investments portfolio at June 30, 2009.

Supplementary information relating to our investment portfolio at June 30, 2009 is available in the Investor Information section of our website.

Capitalization / Shareholders’ Equity

Total capitalization at June 30, 2009 was $5.4 billion, including $0.5 billion of long-term debt and $0.5 billion of preferred equity, compared to $5.0 billion at December 31, 2008. At June 30, 2009, diluted book value per common share, on a treasury stock basis, was $28.72 and book value per common share was $32.02, compared to $25.79 and $29.08 respectively, as of December 31, 2008.

Conference Call

We will host a conference call on Tuesday, August 4, 2009 at 8:00 AM (Eastern) to discuss the second 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 9677789 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.

In addition, a financial supplement relating to our financial results for the quarter ended June 30, 2009 is available in the Investor Information section of our website.

AXIS Capital is a Bermuda-based global provider of specialty lines insurance and treaty reinsurance with shareholders’ equity at June 30, 2009 of $4.9 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.