AXIS Capital Holdings Limited Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Achieved an annualized operating return on equity of 19%, record diluted book value per common share of $70.34 (up 18.6% y-o-y), operating earnings per share of $3.29 (all-time high), and record second quarter premiums of $2.5 billion with a combined ratio of 88.9%.
• Segment Details: Insurance segment had record premiums and strong underwriting results. Reinsurance segment maintained disciplined underwriting and selective growth. Investments in the "How We Work" program focused on modernizing the underwriting pipeline and leveraging AI/technology.
• Market Conditions: Navigated market uncertainty from trade, tariffs, and geopolitics. Insurance market was competitive, with AXIS leveraging diversified customer segmentation. Reinsurance segment was selective in professional and liability lines.

Segment Performance

• Insurance Segment: Delivered an outstanding quarter with a current accident year ex cat combined ratio of 83.2% and overall combined ratio of 85.3%. Record premium production was $1.9 billion, with 6.5% top line growth and $641 million in new premiums written. Net written premium grew 8.1%, and underwriting income was $152 million, the highest on record. North America saw premiums up 8%, with new and expanded products driving growth. Global Market division focused on selective growth. Casualty rates increased, property had flat to low single-digit growth, and Professional grew 15% with E&O contributing 50% of the growth. Cyber portfolio reshaping was ongoing.
• Reinsurance Segment: Delivered positive bottom line results with a combined ratio of 92% and underwriting income of $38 million. Specialty short-tail lines contributed 37% of book premiums. North America liability premiums were down due to underwriting discipline. Full year expected flat to low single-digit premium growth, with a combined ratio of 92% and ex cat accident year loss ratio of 67.9%.

Guidance

• Insurance: Expected new business growth to continue strong, with second half growth higher than the first half's 6%. Completing cyber remediation by end of third quarter with $20-25 million remaining.
• Reinsurance: Full year expected flat to low single-digit premium growth.

Risks

• Market Uncertainty: Trade disruption, tariffs, and geopolitical tensions leading to inflation, rising loss costs, and impediments to growth.
• Reserving and Loss Ratio: Volatility in paid-to-incurred ratios, requiring continued conservative reserving approach.
• Cyber Risk: Evolving risk landscape with AI enabling sophisticated attacks and pricing pressure from MGAs.

Question and Answer

• Q: On insurance segment written premium growth and reinsurance strategy A: Vince Tizzio states that the reinsurance strategy is agile, is comfortable with the current strategy, and will remain flexible based on the view of risk.
• Q: On reinsurance loss ratio and reserving A: Vince and Pete Vogt mention that the loss ratio is consistent with prior quarters, and there is a conservative reserving approach, with levels likely to hold around current levels.
• Q: On MGAs and reinsurance cedents A: Vince Tizzio talks about a selective MGA strategy and disciplined underwriting. Regarding reinsurance cedents, they are enhancing underwriting, and AXIS is observant, with plans to selectively grow.
• Q: On DTA amortization and tax A: Pete Vogt explains the amortization of the deferred tax asset, the effective tax rate, and the implications for cash tax payments.
• Q: On share buyback and capital position A: Pete Vogt says the share buyback is opportunistic, and the capital position is strong, with investments in business growth.
• Q: On lower middle market and AI investments A: Peter Vogt discusses growth in the lower middle market, AI investments aiding underwriting, and progress in modernizing the platform.
• Q: On property market and U.K. aviation ruling A: Vince Tizzio says AXIS is comfortable with its property business strategy, and there was no impact from the U.K. aviation ruling.
• Q: On AI investments vs competition A: Vince Tizzio talks about AXIS's AI investments, progress in underwriting efficiency, and that it is rightsized for a mid-cap specialty underwriter.
• Q: On professional liability loss trend A: Vince Tizzio mentions a low single-digit trend in professional liability lines, with public D&O being a small part of the portfolio.
• Q: On cash level A: Pete Vogt says the cash level has returned to normal after funding for the LPT.