Executive Summary / Key Takeaways

• AXIS Capital is successfully executing its strategy to become a leading specialty underwriter, evidenced by record operating earnings per share and a strong combined ratio in Q1 2025, even amidst significant industry catastrophe losses.
• The company is actively reshaping its portfolio, shifting towards less volatile, premium-adequate short-tail lines and remediating underperforming areas like primary casualty and delegated cyber, while investing in new growth initiatives.
• Investments in technology, data, and AI, alongside the "How We Work" program, are enhancing operational efficiency, contributing to a lower G&A ratio, and empowering underwriters and claims handling.
• A favorable investment income outlook, driven by higher yields and strong operating cash flow, complements robust underwriting performance, contributing significantly to overall profitability and ROE.
• Strategic capital management includes opportunistic share repurchases, supported by a new $400 million authorization, alongside continued investment in the business to drive future profitable growth.

Setting the Stage: A Specialty Underwriter's Transformation

Founded in 2001, AXIS Capital Holdings Limited operates as a global specialty underwriter and provider of insurance and reinsurance solutions across Bermuda, the U.S., Europe, Singapore, and Canada. The company is structured around its two core global underwriting platforms: AXIS Insurance and AXIS Re. Its overarching strategy centers on achieving specialty underwriting leadership, designed to guard against volatility and consistently deliver profitable growth.

AXIS's history is marked by strategic moves aimed at shaping its portfolio and enhancing its market position. Key acquisitions, such as Novae Group plc in 2017, have expanded its capabilities, while recent investments in entities like Monarch Point Re highlight its engagement with third-party capital and alternative risk transfer mechanisms. Over the past few years, the company has undertaken deliberate portfolio reshaping, exiting or placing certain lines into run-off to reduce volatility and sharpen its focus on targeted specialty markets. This strategic evolution forms the backdrop for its current operational and financial performance.

The broader insurance and reinsurance landscape remains dynamic and complex. The industry faces challenges from the cyclical nature of pricing, the increasing frequency and severity of natural and man-made catastrophes (including severe convective storms, wildfires, and cyber-attacks), and the persistent impact of social inflation, particularly on liability lines. Geopolitical tensions and evolving trade environments introduce further uncertainty, potentially affecting economic growth and loss costs. Amidst these trends, the wholesale and Excess & Surplus (E&S) channels continue to see substantial submission growth, driven by dislocations in standard markets, creating opportunities for specialty carriers like AXIS.

In this competitive environment, AXIS positions itself as an agile specialty player, leveraging its technical expertise and global platform. While larger competitors like Chubb (CB) and AIG (AIG) benefit from greater scale and broader market presence, AXIS aims to differentiate through its focused underwriting appetite and responsiveness in niche markets. Compared to peers like The Travelers Companies (TRV) with a strong domestic focus or Arch Capital Group (ACGL) known for its specialty underwriting, AXIS seeks a balance between targeted growth and disciplined risk selection across its diverse global operations. Its strategic response to market competition involves leaning into areas where premium adequacy is strong, maintaining selective appetites in softening markets, and continuously enhancing its value proposition to distribution partners and customers.

Technological Edge and Operational Advancement

A critical component of AXIS's strategy and competitive positioning is its ongoing investment in technology and operational efficiency, primarily driven by its "How We Work" transformation program. While specific quantifiable performance metrics for its proprietary technology are not detailed, the company outlines clear strategic goals and expected benefits from these initiatives. The program aims to enhance organizational effectiveness, improve productivity, and optimize the operating model, contributing directly to financial performance through expense management and improved underwriting capabilities.

AXIS is investing in data and technology, including exploring AI capabilities, to empower its underwriters and enhance customer service. Specific initiatives include leveraging AI to enhance submission and underwriting processes and expanding partnerships with platforms like MIA (an AI-driven document and email ingestion tool) and Sixfold to augment data processing. These efforts are intended to increase agility, response time, and decision-making speed. Within its wholesale lower middle market unit, growth has been propelled by investments in talent, data, technology, and AI, demonstrating the tangible impact of these initiatives on business development.

Furthermore, the company's partnership with Elpha Secure, an InsurTech blending cyber insurance with advanced diagnostics and security software, aims to enhance risk selection for its small cyber portfolio and potentially extend capabilities more broadly. This collaboration highlights AXIS's approach to leveraging technology and external partnerships to improve underwriting precision and manage risk in complex lines. The "How We Work" program has already yielded quantifiable results, contributing to the improvement in the consolidated G&A expense ratio, demonstrating that these investments are translating into operational efficiencies. These technological advancements and operational improvements are intended to provide AXIS with a competitive edge by enhancing underwriting profitability, reducing costs, and improving responsiveness, supporting its long-term growth strategy in a competitive market.

Performance Reflecting Strategic Execution

AXIS Capital has demonstrated strong financial and operational performance, particularly highlighted by its first quarter 2025 results, which underscore the traction gained from its strategic initiatives. The company reported net income available to common shareholders of $187 million ($2.26 per diluted common share) and operating income of $261 million ($3.17 per diluted common share) for Q1 2025. This represents a significant 23% increase in operating EPS over the prior year quarter and marks the highest quarterly operating earnings per share in the company's history.

The consolidated combined ratio stood at an excellent 90.2% in Q1 2025. This performance is notable as it was achieved in a quarter characterized by significant industry natural catastrophe losses, estimated at over $55 billion, including California wildfires. AXIS's relatively low catastrophe and weather-related loss ratio of 3.7% in Q1 2025 (or $49 million, net of reinsurance) reflects the successful execution of its strategic efforts to reduce portfolio volatility. The company also reported net favorable prior year reserve development of $18 million in Q1 2025, primarily driven by better than expected loss emergence in the Insurance segment's property business from the 2023 accident year. Management continues to express confidence in its reserve position, based on consistent patterns observed since its in-depth review at the end of 2023, although they are booking loss picks with caution in reinsurance due to the uncertain environment.

Underwriting performance was complemented by a robust investment portfolio. Net investment income reached $208 million in Q1 2025, a 24% increase over the prior year quarter. This growth was primarily driven by increased yields on fixed maturities, higher returns from alternative investments (including real estate, other privately held investments, and private equity funds), and higher cash and cash equivalents balances. The outlook for investment income remains favorable, supported by strong operating cash flow and market yields exceeding the book yield.

The Insurance segment delivered an outstanding 86.7% combined ratio in Q1 2025, with underwriting income reaching an all-time high of $135 million for the segment. Gross premiums written increased by 5% to $1.66 billion, with strong contributions from new business, particularly in North America E&S lines and recently launched units like the wholesale lower middle market business, which grew 41%. While the current accident year loss ratio increased slightly, primarily due to higher catastrophe losses, the underlying ex-CAT ratio remained relatively stable, reflecting a balance between loss trends and favorable business mix changes.

The Reinsurance segment also contributed solid results, with a 92.3% combined ratio in Q1 2025. Gross premiums written increased by 5% to $1.14 billion, driven by growth in specialty lines like professional lines (including cyber) and credit and surety. Management noted increased caution in booking loss picks in reinsurance specialty lines, reflecting the current environment. The segment's performance continues to demonstrate stable and consistent profitability, aligning with the strategy to focus on less volatile treaty business.

Operational efficiency gains, stemming from the "How We Work" program, were evident in the consolidated G&A expense ratio, which improved to 11.9% in Q1 2025 from 13.0% in the prior year quarter. This improvement reflects lower dollar spend even as premium volume increased, demonstrating expense leverage. The company remains on track to achieve its target G&A ratio of below 11% by the end of 2026.

Strategic Evolution and Capital Deployment

AXIS Capital's strategic evolution is clearly impacting its portfolio composition and operational focus. The company is actively re-balancing its business towards less volatile, premium-adequate short-tail lines, which constituted 55% of total gross premiums written in Q1 2025, an increase from prior periods. This shift is a deliberate response to market conditions and risk appetite.

Significant effort has been directed towards reshaping underperforming areas. The remediation of the primary casualty business within the Insurance segment was completed in Q1 2025, involving the elimination of business that did not meet profitability targets. Similarly, the company is actively reshaping its delegated cyber portfolio, with remediation of approximately $60 million in premium expected to be completed by the end of Q3 2025. These actions, while potentially impacting short-term growth in specific lines, are aimed at improving the overall profitability and risk profile of the portfolio.

A major strategic development was the completion of the loss portfolio transfer (LPT) reinsurance agreement with Enstar (ESGR) on April 24, 2025. This transaction retroceded approximately $3.1 billion of reinsurance segment reserves predominantly related to 2021 and prior underwriting years, with a policy limit of approximately $940 million. While AXIS retains claims management responsibility, the LPT provides protection against adverse prior year reserve development on the covered business, further strengthening the balance sheet and aligning it with the go-forward strategy. The transaction will also impact the balance sheet by moving associated assets, leading to a substantial reduction in cash and cash equivalents in the second quarter.

Capital management is a key focus, balancing investment in the business with returns to shareholders. AXIS views opportunistic share repurchases as an attractive use of capital, particularly when its shares are considered undervalued. In Q1 2025, the company repurchased 5 million common shares for $465 million, including $440 million under its Board-authorized program. Following the exhaustion of the prior authorization, the Board approved a new open-ended share repurchase program for up to $400 million in February 2025, with $160 million remaining under this authorization as of March 31, 2025. This demonstrates a continued commitment to returning capital to shareholders. However, the primary priority for capital remains investing in the business to support strategic growth initiatives, such as hiring new teams and enhancing capabilities, which management believes will drive future profitable growth. The company's liquidity position, supported by operating cash flows and its investment portfolio, is deemed sufficient to cover future obligations.

Risks and Outlook

While AXIS Capital has demonstrated strong performance and strategic progress, it operates within an environment subject to various risks and challenges. The cyclical nature of the insurance and reinsurance markets, characterized by fluctuations in pricing and capacity, remains a factor. The potential for large losses from natural and man-made catastrophes, including the increasing impact of climate change and unpredictable events like cyber-attacks, poses a significant risk, although AXIS has taken steps to reduce its volatility exposure. Social inflation continues to pressure liability loss costs, and specific lines like D&O face unfavorable pricing trends relative to loss development. Geopolitical instability and trade tensions introduce uncertainty regarding economic growth and potential impacts on loss costs, particularly in property and cargo lines. Competition remains intense in several markets, including property and certain reinsurance lines, which could pressure pricing and growth.

AXIS employs several strategies to mitigate these risks. Underwriting discipline, portfolio diversification across geographies and product lines, and prudent limits management are foundational. The company utilizes reinsurance programs, including its renewed property cat XOL treaty with a $100 million attachment point and increased indemnity protection, to manage peak exposures. Its reserve philosophy emphasizes caution, particularly in long-tail lines, and is supported by regular reviews. Investments in technology and data analytics are aimed at improving risk selection and operational efficiency. The strategic shift towards less volatile lines and the remediation of underperforming portfolios are direct actions to enhance the business's resilience.

Looking ahead, AXIS Capital is executing on its commitment to advance as a specialty underwriting leader delivering consistent, profitable growth. Management believes its market positioning, diversified portfolio, specialty underwriting acumen, global platform, and claims capabilities provide a strong foundation for continued profitable growth in targeted specialty markets. The overall outlook for the property and casualty market is viewed as favorable for specialty carriers.

The company expects its full year 2025 tax rate to be in the high teens, reflecting the impact of the new Bermuda corporate income tax. Operational efficiency gains are expected to continue, with the company remaining on track to achieve a G&A ratio below 11% by 2026. While specific growth guidance for 2025 was not provided in the Q1 2025 materials, management indicated that mid- to high single-digit net written premium growth for the balance of 2025 is reasonable to expect, building on the momentum and new initiatives. The Q1 2025 ex-CAT loss ratio in insurance is expected to remain in the 52% to 53% range, and the reinsurance underlying loss ratio is seen as a decent run rate for the year. The favorable investment income outlook is also expected to persist. AXIS anticipates another strong year in 2025, building on the significant progress made in 2024.

Conclusion

AXIS Capital's recent performance, particularly the record operating earnings and strong combined ratio in Q1 2025, signals that its strategic transformation is yielding tangible results. The company is successfully repositioning itself as a focused specialty underwriter, actively managing its portfolio to reduce volatility and enhance profitability. This involves a deliberate shift towards premium-adequate short-tail lines, coupled with the remediation of underperforming businesses and investments in new growth opportunities.

The commitment to operational excellence, supported by investments in technology, data, and AI through the "How We Work" program, is contributing to improved efficiency and a lower expense base, while also enhancing underwriting and claims capabilities. Complemented by a favorable investment income outlook and a disciplined approach to capital management, including opportunistic share repurchases, AXIS appears well-positioned to continue generating strong financial results. While navigating a dynamic market with inherent risks, the company's strategic clarity and execution provide a compelling narrative for investors focused on profitable growth and increasing book value per share in the specialty insurance and reinsurance sectors. Key factors to watch include the sustained execution of the strategic initiatives, the impact of market competition on pricing and growth, and the continued realization of benefits from operational and technological investments.