Bermuda-based Axis Capital Holdings Ltd. yesterday reported record first-quarter earnings of $238 million, up four percent on the same three months last year.

Broken down, the earnings amounted to $1.48 per share, compared to $1.37 in 2007, and the return on shareholders' equity was 20 percent.

Axis chief executive officer John Charman said the company's conservative balance sheet and disciplined underwriting had helped it deliver solid results in a challenging quarter.

Underwriting income was up five percent to $62 million in the insurance segment and down 11 percent to $77 million in the reinsurance division.

But pre-tax net investment income fell 32 percent to $86 million for the quarter, mainly due to a $61 million reduction in returns from alternative investments, such as hedge funds and credit-related funds. "The deterioration in the fair value of these funds during the quarter reflected the ongoing technical imbalances and illiquidity proliferating throughout the credit markets resulting in a continued re-pricing of risk," Axis said in its earnings statement.

Axis also stated that about $25 million of net losses were attributable to an unusually high number of individual property risk claims.

"We are very pleased that our diversified underwriting portfolio and our continued strong operating cash flow delivered a 20-percent annualised return on average common equity for the quarter," Mr. Charman said.

"These results were achieved despite the strong negative headwinds presented by a combination of unusually high levels of world-wide risk losses, cat losses and unprecedented turbulence in the financial markets.

"We expect that the extreme competitive challenges across all product lines will continue to prevail throughout the insurance marketplace. Reinsurance business, we believe, will be much more stable in pricing, terms and conditions throughout the rest of the year.

"It is anticipated that the financial markets will remain difficult. We remain confident that quality results remain achievable with our conservative balance sheet and defensive and disciplined underwriting posture."

Operating income for the first quarter of 2008 was $205 million, or $1.28 per diluted share, compared with $227 million, or $1.37 per diluted common share, for the first quarter of 2007.

Gross premiums written dipped slightly from $1.3 billion in the first quarter of 2007 to $1.26 billion this year.

The combined ratio, the percentage of each premium dollar spent on claims and expenses, was 81.2 percent, compared to 80.7 percent in the January to March period in 2007.

Axis made full-year profits of more than $1 billion for the first time in its six-year history in 2007.