Axis ekes $9m profit for 2011 despite catastrophes
Axis Capital Holdings Ltd reported a $154 million operating loss in 2011, citing “extraordinary series of costly natural disasters” affecting its bottom line.
The company also reported that its 2011 net income was $9 million, or seven cents per share, compared with $820 million for 2010, more than a 98 percent decrease. Operating income fourth quarter of 2011 was $67 million, or 53 cents per diluted common share, which beat analysts polled by Bloomberg estimates of 44 cents.
Axis suffered major catastrophe-related losses in the fourth quarter including, Thai flooding, which generated net losses (net of reinstatement premiums) of $64 million.
Axis raised its estimate for losses from major events in the first three quarters by $75 million, including $32 million for the Japanese earthquake and tsunami and $31 million in relation to the February New Zealand earthquake.
The company’s operating loss of $154 million, or $1.26 per diluted common share, compares with operating income of $611 million, or $4.49 per diluted common share for 2010.
“An extraordinary series of costly natural disasters, which are estimated to have cost our industry over $100 billion, took centre stage in 2011,” said Axis CEO John Charman.
“These occurred against the backdrop of a prolonged soft market at perhaps the weakest phase in its business cycle, when adequate pricing remained extremely difficult to obtain. Further, on the asset side, we experienced the persistence of abnormally low interest rates, which made low-risk investment income difficult to achieve.
“While we are unhappy with the adverse impact of these extraordinary events on our earnings, we are nonetheless pleased with the ability of our portfolio to absorb these losses without impairing our financial strength,” he continued.
Axis also reported their gross premiums written increased five percent in the fourth quarter to $667 million and nine percent for the year to $4.1 billion. For the full year, the company’s insurance segment’s underwriting income was $35 million compared with $210 million in 2010, while the reinsurance segment reported an underwriting loss of $362 million in 2011, compared with income of $199 million for 2010. Both decreases were attributable to the increase in the level of natural catastrophe activity during 2011.
Mr Charman predicts that the hardening of industry pricing may take a few years and happen little by little.
“The eagerly awaited cyclical upturn, however, will not occur all at once,” he said. “It is a cycle change, not an event change. Some business areas will continue to remain under pressure. I estimate the firming process, which has already started in some products, will be gradual, gaining ground risk by risk, product by product, geography by geography, and year by year. The current market turn may require a few years to regain the pricing eroded over the last five or six.”
“As a result, Axis will continue to proceed with steadfast caution. We are well positioned to rapidly scale up in a wide range of business lines and geographic regions as the opportunities fully arrive. We also have the underwriting expertise, the flexibility and the financial capacity to take advantage of these opportunities as positive momentum gathers and markets adjust upward. Importantly, all of us at AXIS recognise the necessity to return to profitability during the coming year. I can assure that our best endeavours will be devoted to that singular cause.”