AXIS Capital Holdings Limited reported a 13 percent increase in fourth quarter net income, while net income for the year fell seven percent on losses from the third quarter hurricanes.

Net income for the fourth quarter of 2004 was $181.1 million, or $1.09 per share, compared to $160.5 million, or 0.97 cents per share for the fourth quarter of 2003. Excluding net realised gains and losses, profit totalled $177 million or $1.07 per share.

Net income for the year ended December 31, 2004 was $495 million, or $2.98 per share, compared to $532.3 million, or $3.42 per share at year-end 2003.

John Charman, CEO and President of the Bermuda-based global provider of specialty lines insurance and treaty reinsurance said: “We are particularly pleased with our results for this year, a period that has been one of the most challenging in the history of our industry.

“Our solid results have been achieved against a backdrop of regulatory uncertainty, erratic competitive behaviour and unprecedented industry losses from a series of world-wide natural disasters.”

He continued: “In spite of these substantial challenges, our staff at AXIS have been able to generate a return on average equity of 16.3 percent, which is in excess of our stated goal of 15 percent over the cycle.

“We anticipate continuing uncertainty in the industry's structural, regulatory and competitive landscapes during 2005; however, we are determined and prepared to continue to drive book value growth for shareholders.”

Net investment income for 2004, including realised gains of $13.6 million, was $165.7 million compared with $96.5 million, including realised gains of $22.6 million, for 2003. Cash flow generated from operations for the year was $1,598.4 million compared with $1,343.6 million for 2003.

Net premiums for the year rose to $2,423.7 million from $1,908.4 million for 2003. Ceded premiums were $588.6 million for 2004 compared to $365.3 million for 2003.

“The increase in ceded premiums was due to the purchase of additional reinsurance protection by the company's global insurance and US insurance segments to mitigate volatility in their growing books of business.” Net premiums earned increased to $2,028.4 million in 2004 from $1,436.2 million in 2003, reflecting an increase in net premiums written over the last twelve months.

During 2004, the company generated a combined ratio of 84.4 percent, a loss ratio of 61.4 percent and an expense ratio of 23.0 percent compared to 73.6 percent, 51.1 percent and 22.5 percent, respectively, for 2003.

The company incurred net losses and loss expenses of $266.3 million for Hurricanes Charley, Frances, Ivan and Jeanne, whereas the 2003 loss ratio reflected limited catastrophic loss activity. Mr. Charman said: “Our losses from the hurricanes are before the impact of reinstatements and tax recoveries. Our loss ratios benefited from favourable prior period development of nine percentage points and 3.9 percentage points for 2004 and 2003, respectively.”

In the fourth quarter, net premiums written rose to $474.6 million from $384.0 million for the fourth quarter of 2003. Ceded premiums increased to $176.6 million for 2004 from $95.6 million for 2003.

Net premiums earned increased to $548.9 million in 2004 from $400.7 million in 2003. The increase in net premiums earned reflects the increase in net premiums written over the last twelve months. During the fourth quarter of 2004, the Company generated a combined ratio of 79.3 percent, a loss ratio of 54.7 percent and an expense ratio of 24.6 percent compared to 72.0 percent, 51.9 percent and 20.1 percent, respectively, for the fourth quarter of 2003.

The loss ratio for the fourth quarter of 2004 includes the impact of a revision in our net loss estimate with respect to the third quarter hurricanes. Mr. Charman said: “Our net loss estimate increased by $38.9 million, or 17.1 percent. This increase was largely attributable to development on losses incurred in our global and US reinsurance segments.

“We experienced favourable prior period development of $40.4 million or 7.4 percentage points compared to $4.1 million or one percentage point for the fourth quarter of 2003.”

Shareholders' equity was $3.2 billion as at December 31, 2004. Diluted book value per share at December 31, 2004 was $19.85 compared to $17.48 at December 31, 2003.

Mr. Charman also addressed the ongoing insurance investigations. Axis Capital's US holding company previously disclosed that it had received subpoenas from the Office of the Attorney General of the State of New York seeking information regarding incentive commission agreements, bid rigging, fictitious and inflated quotes, conditioning direct insurance on the placement of reinsurance and related matters.

The company's US insurance arms have also received subpoenas and requests for information from various state insurance regulators regarding these same matters. The company said in its earnings release: “These inquiries are part of industry-wide investigations. We are co-operating fully with the Attorney General of the State of New York and the other state regulators in their investigations.”

The company expects to wrap-up its internal investigation of these matters by the end of the first quarter.

“We do not believe that we have engaged in any of these improper business activities, and to date our internal investigation has uncovered no evidence indicating that we have engaged in bid rigging, fictitious or inflated quotes, conditioning direct insurance on the placement of reinsurance or related matters,” the release explained.

“Consistent with long-standing and widespread industry practice, we have in the past entered into incentive commission agreements; however, we have ceased entering into, and have suspended making payments under, these agreements.”

Axis Capital also addressed the “two purported shareholders class action lawsuits” filed against it and some of its executive officers which relate to the practices being investigated by the Attorney General of the State of New York and other state regulators. “As we have stated previously, we believe that these lawsuits are completely without merit and we intend to vigourously defend against them,” the release concluded.