AXIS Capital Holdings Limited (“AXIS Capital”) (NYSE: AXS) today reported net income available to common shareholders of $112 million, or $0.79 per diluted common share for the first quarter of 2010, compared with net income of $116 million, or $0.78 per diluted common share, for the first quarter of 2009.

Operating income for the first quarter of 2010 was $96 million, or $0.67 per diluted share, compared with $156 million, or $1.05 per diluted common share, for the first quarter of 2009.

First Quarter Highlights*

• Gross premiums written of $1.4 billion, an increase of 8%;
• Net premiums earned of $696 million, an increase of 5%;
• Total underwriting income of $28 million, down 71%;
• Combined ratio of 98.3% increased 11.7 percentage points compared with 86.6%, driven by the significant level of catastrophe activity this quarter;
• Estimated pre-tax net losses, net of related reinstatement premiums, of $100 million for the Chilean earthquake and $47 million for Australian storms, European Windstorm Xynthia and U.S. winter storms, combined;
• Net favorable prior year reserve development of $81 million, pre-tax, benefiting the combined ratio by 11.7 points, compared with $84 million, benefiting the combined ratio in the same period last year by 12.7 points;
• Net investment income increased 5% to $105 million;
• Total return on cash and investments was 1.8% (pre-tax), compared to a nil return in the prior year quarter;
• Issued 5.875% ten-year senior notes with an aggregate principal balance of $500 million;
• Net cash flows from operations of $335 million, an increase of 38%;
• Operating income of $96 million, representing an annualized operating return on average common equity** of 7.7%;
• Shareholders’ equity of $5.4 billion, a 2% reduction from December 31, 2009
• Share repurchases in the open market of $287 million in the quarter; and
• Diluted book value per common share of $34.56, an increase of 3% from December 31, 2009.

Commenting on the first quarter 2010 financial results, John Charman, Chief Executive Officer and President of AXIS Capital, stated: “We are pleased to report an increase in diluted book value per common share of nearly 3% during this first quarter of 2010. Our prudent risk management efforts have served us well as we have produced strong quarterly profitability despite the accumulated impact of an unprecedented number of worldwide catastrophes affecting underwriting profitability for a first quarter. Our underwriting results also reflect the favorable impact of recovery in the global financial markets on certain business lines. Our capital management activities this quarter included a $500 million senior notes issuance as well as continued significant share repurchases. Given current competitive market conditions, we believe these capital management activities are in the long-term best interest of shareholders.”

Segment Highlights

Insurance Segment

Our insurance segment reported underwriting income for the quarter of $33 million, down 8%, from the first quarter of 2009. The first quarter of 2010 benefited from a lower frequency and severity of property and energy risk losses, contributing to an improvement in the current accident year loss ratio from 68.4% in the first quarter of 2009 to 60.9% this quarter. However, general and administrative expenses increased due to additional costs associated with the build-out of the segment’s platform. The prior year quarter’s underwriting result included the recognition of a $10 million fair value charge related to an insurance derivative contract, which we settled in the fourth quarter of 2009. Net favorable prior period reserve development was $25 million, or 9.9 points, this quarter compared with $36 million, or 13.0 points, in the first quarter of 2009.

Our insurance segment reported gross premiums written in the quarter of $373 million, an increase of 2% from the prior year quarter. The increase was primarily driven by the select expansion of U.S middle-market property and energy lines of business.

Reinsurance Segment

Our reinsurance segment reported an underwriting loss of $5 million, compared to underwriting income of $61 million in the first quarter of 2009. The loss in the quarter was largely related to the high level of catastrophe activity, specifically estimated net pre-tax losses, net of related reinstatement premiums, of $95 million for the Chilean earthquake and $47 million for Australian storms, European Windstorm Xynthia and U.S. winter storms, combined. Catastrophe losses in the first quarter of 2009 were notably less significant and largely emanated from European Windstorm Klaus. As a result, the segment’s current accident year loss ratio increased from 72.8% in the first quarter of 2009 to 89.5% this quarter.

Our reinsurance segment reported gross premiums written in the quarter of $1.1 billion, an increase of 10% from the prior year quarter. Excluding the impact of exchange rate movements, gross premiums written increased 8%, primarily reflecting new Latin American surety business and select opportunities within motor reinsurance.

Investments

Net investment income increased $5 million, or 5%, to $105 million. The increase was primarily due to higher returns on our alternative investment portfolio (“other investments”), which resulted in income of $16 million compared to $7 million in the prior year quarter. This increase primarily reflected the strong performance of investments in hedge funds. Net investment income from fixed maturities and cash and cash equivalents was stable quarter on quarter, as the impact of lower reinvestment yields was offset by higher average invested balances.

Net realized investment gains were $16 million, compared to net realized investment losses of $41 million in the prior year quarter. The prior year quarter included other than temporary impairment charges of $30 million, compared to $6 million for the first quarter of 2010.

Our cash position at March 31, 2010 increased significantly from year-end, following the issuance of $500 million of senior notes in late March.

Supplementary information relating to our investment portfolio at March 31, 2010 is available in the Investor Information section of our website.

Capitalization / Shareholders’ Equity

On March 23, 2010, AXIS Specialty Finance LLC, an indirect wholly-owned subsidiary, issued ten-year 5.875% senior notes with a $500 million aggregate principal amount. Net proceeds, after consideration of the offering discount and underwriting expenses and commissions were $495 million. Interest on these senior notes is payable semi-annually and, unless we exercise the option for early redemption, the senior notes will mature on June 1, 2020.

Total capitalization at March 31, 2010 was $6.4 billion, including $1.0 billion of long-term debt and $0.5 billion of preferred equity. At March 31, 2010, diluted book value per common share, on a treasury stock basis, was $34.56 and book value per common share was $39.27, compared to $33.65 and $37.84, respectively, as of December 31, 2009.

During the quarter, we repurchased 9.6 million common shares in the open market at an average price of $29.81 per share, for a total cost of $287 million. Subsequent to March 31, 2010 and through April 23, 2010, we repurchased a further 1.9 million common shares at an average price of $31.43 per share, for a total cost of $60 million. As of April 23, 2010, we have approximately $194 million of remaining authorization for common share repurchases through December 2011.

Conference Call

We will host a conference call on Tuesday April 27, 2010 at 8:00 AM (Eastern) to discuss the first quarter financial results and related matters. The teleconference can be accessed by dialing (800) 860-2442 (U.S. callers) or (412) 858-4600 (international callers) 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 March 31, 2010 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 March 31, 2010 of $5.4 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 and AXIS Specialty Finance LLC have been assigned senior unsecured debt ratings 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.

*All comparisons are with the same period last year unless stated otherwise.
** Calculated using operating income divided by average common shareholders’ equity for the period. The presentation of operating income available to common shareholders is a “non-GAAP financial measure” as defined in Regulation G. The reconciliation of operating income to net income available to common shareholders (the most directly comparable GAAP financial measure) is provided on page 11 of this release. A discussion of the presentation of operating income begins on page 13 of this release.