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Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
OR
☐        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-31721
AXIS CAPITAL HOLDINGS LIMITED
(Exact name of registrant as specified in its charter)

Bermuda
(State or other jurisdiction of incorporation or organization)
98-0395986
(I.R.S. Employer Identification No.)
92 Pitts Bay Road, Pembroke, Bermuda HM 08
(Address of principal executive offices and zip code)
(441) 496-2600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common shares, par value $0.0125 per shareAXSNew York Stock Exchange
Depositary shares, each representing a 1/100th interest in a 5.50% Series E preferred shareAXS PRENew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒    No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒  No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
    Accelerated filer
☐
Non-accelerated filer☐
 Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐  No  ☒
At April 21, 2023, there were 85,199,909 common shares outstanding, $0.0125 par value per share, of the registrant.

Table of Contents


AXIS CAPITAL HOLDINGS LIMITED
INDEX TO FORM 10-Q


 
Page
 PART I 
Item 1.
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.


2
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PART I     FINANCIAL INFORMATION

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts included in this report, including statements regarding our estimates, beliefs, expectations, intentions, strategies or projections are forward-looking statements. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the United States ("U.S.") federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as "may", "should", "could", "anticipate", "estimate", "expect", "plan", "believe", "predict", "potential", "intend" or similar expressions. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond management's control.
Forward-looking statements contained in this report may include, but are not limited to, information regarding our estimates for catastrophes and other weather-related losses including losses related to the COVID-19 pandemic, measurements of potential losses in the fair market value of our investment portfolio and derivative contracts, our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, the outcome of our strategic initiatives including our exit from catastrophe and property reinsurance lines of business, our expectations regarding pricing, and other market and economic conditions including the liquidity of financial markets, inflation, our growth prospects, and valuations of the potential impact of movements in interest rates, credit spreads, equity securities' prices, and foreign currency exchange rates.
Forward-looking statements only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Accordingly, there are or will be important factors that could cause actual events or results to differ materially from those indicated in such statements.
We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
In this Form 10-Q, references to "AXIS Capital" refer to AXIS Capital Holdings Limited and references to "we", "us", "our", "AXIS", the "Group" or the "Company" refer to AXIS Capital Holdings Limited and its direct and indirect subsidiaries and branches.
Summary of Risk Factors
Investing in our common stock involves substantial risks, and our ability to successfully operate our business is subject to numerous risks, including those that are generally associated with operating in the insurance/reinsurance industry. Some of the more significant material challenges and risks include the following:

Insurance Risk
•the cyclical nature of the insurance and reinsurance business leading to periods with excess underwriting capacity and unfavorable premium rates;
•the occurrence and magnitude of natural and man-made disasters, including the potential increase of our exposure to natural catastrophe losses due to climate change and the potential for inherently unpredictable losses from man-made catastrophes, such as cyber-attacks;
•the effects of emerging claims, systemic risks, and coverage and regulatory issues, including increasing litigation and uncertainty related to coverage definitions, limits, terms and conditions;
•actual claims exceeding reserves for losses and loss expenses;
•the adverse impact of inflation;
•the failure of any of the loss limitation methods we employ;
•the failure of our cedants to adequately evaluate risks;

Strategic Risk
•losses from war including losses related to the Russian invasion of Ukraine, terrorism and political unrest, or other unanticipated losses;
•changes in the political environment of certain countries in which we operate or underwrite business, including the United Kingdom's withdrawal from the European Union;

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•the loss of business provided to us by major brokers;
•a decline in our ratings with rating agencies;
•the loss of one or more of our key executives;
•difficulties with technology and/or data security;
•increasing scrutiny and evolving expectations from investors, customers, regulators, policymakers and other stakeholders regarding environmental, social and governance matters;

COVID-19
•the adverse impact of the ongoing COVID-19 pandemic on our business, results of operations, financial condition, and liquidity;

Credit and Market Risk
•the inability to purchase reinsurance or collect amounts due to us from reinsurance we have purchased;
•the failure of our policyholders or intermediaries to pay premiums;
•general economic, capital and credit market conditions, including banking sector instability, financial market illiquidity and fluctuations in interest rates, credit spreads, equity securities' prices, and/or foreign currency exchange rates;
•breaches by third parties in our program business of their obligations to us;

Liquidity Risk
•the inability to access sufficient cash to meet our obligations when they are due;

Operational Risk
•changes in accounting policies or practices;
•the use of industry models and changes to these models;
•difficulties with technology and/or data security;

Regulatory Risk
•changes in governmental regulations and potential government intervention in our industry;
•inadvertent failure to comply with certain laws and regulations relating to sanctions, foreign corrupt practices, data protection and privacy; and

Risks Related to Taxation
•changes in tax laws.

Readers should carefully consider the risks noted above together with other factors including but not limited to those described under Item 1A, 'Risk Factors' in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC"), as those factors may be updated from time to time in our periodic and other filings with the SEC, which are accessible on the SEC's website at www.sec.gov.

Website and Social Media Disclosure

We use our website (www.axiscapital.com) and our corporate LinkedIn (AXIS Capital) and Twitter (@AXIS_Capital) accounts as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, e-mail alerts and other information about AXIS Capital may be received by those enrolled in our "E-mail Alerts" program, which can be found in the Investor Information section of our website (www.axiscapital.com). The contents of our website and social media channels are not part of this Quarterly Report on Form 10-Q.

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ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS

 Page 
Consolidated Balance Sheets at March 31, 2023 (Unaudited) and December 31, 2022
Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (Unaudited)
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022 (Unaudited)
Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2023 and 2022 (Unaudited)
Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation and Significant Accounting Policies
Note 2 - Segment Information
Note 3 - Investments
Note 4 - Fair Value Measurements
Note 5 - Derivative Instruments
Note 6 - Reserve for Losses and Loss Expenses
Note 7 - Earnings Per Common Share
Note 8 - Share-Based Compensation
Note 9 - Shareholders' Equity
Note 10 - Debt and Financing Arrangements
Note 11 - Federal Home Loan Bank Advances
Note 12 - Commitments and Contingencies
Note 13 - Other Comprehensive Income (Loss)
Note 14 - Related Party Transactions























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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2023 (UNAUDITED) AND DECEMBER 31, 2022  
20232022
 (in thousands)
Assets
Investments:
Fixed maturities, available for sale, at fair value
    (Amortized cost 2023: $12,264,498; 2022: $12,176,473
    Allowance for expected credit losses 2023: $12,645; 2022: $11,733)
$11,627,555 $11,326,894 
Fixed maturities, held to maturity, at amortized cost
    (Fair value 2023: $696,775; 2022: $674,743
    Allowance for expected credit losses 2023: $nil; 2022: $nil)
716,768 698,351 
Equity securities, at fair value
    (Cost 2023: $559,293; 2022: $494,356)
573,916 485,253 
 Mortgage loans, held for investment, at fair value
     (Allowance for expected credit losses 2023: $1,900; 2022: $nil)
634,470 627,437 
Other investments, at fair value1,008,887 996,751 
Equity method investments146,083 148,288 
Short-term investments, at fair value70,416 70,310 
Total investments14,778,095 14,353,284 
Cash and cash equivalents816,917 751,415 
Restricted cash and cash equivalents362,378 423,238 
Accrued interest receivable97,983 94,418 
Insurance and reinsurance premium balances receivable
     (Allowance for expected credit losses 2023: $9,528; 2022: $9,521)
3,119,158 2,733,464 
Reinsurance recoverable on unpaid losses and loss expenses
     (Allowance for expected credit losses 2023: $32,347; 2022: $30,715)
5,823,417 5,831,172 
Reinsurance recoverable on paid losses and loss expenses593,013 539,676 
Deferred acquisition costs560,173 473,569 
Prepaid reinsurance premiums1,632,513 1,550,370 
Receivable for investments sold7,079 16,052 
Goodwill100,801 100,801 
Intangible assets195,071 197,800 
Operating lease right-of-use assets88,155 92,214 
Other assets390,224 438,338 
Total assets$28,564,977 $27,595,811 
Liabilities
Reserve for losses and loss expenses$15,314,644 $15,168,863 
Unearned premiums4,821,775 4,361,447 
Insurance and reinsurance balances payable1,574,608 1,522,764 
Debt1,312,658 1,312,314 
Federal Home Loan Bank advances85,790 81,388 
Payable for investments purchased78,711 19,693 
Operating lease liabilities99,130 102,577 
Other liabilities317,432 386,855 
Total liabilities23,604,748 22,955,901 
Shareholders’ equity
Preferred shares 550,000 550,000 
Common shares (shares issued 2023: 176,580; 2022: 176,580
    shares outstanding 2023: 85,183; 2022: 84,668)
2,206 2,206 
Additional paid-in capital2,347,637 2,366,253 
Accumulated other comprehensive income (loss)(571,896)(760,300)
Retained earnings6,381,201 6,247,022 
Treasury shares, at cost (2023: 91,397; 2022: 91,912)
(3,748,919)(3,765,271)
Total shareholders’ equity 4,960,229 4,639,910 
Total liabilities and shareholders’ equity$28,564,977 $27,595,811 

See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

 Three months ended March 31,
20232022
 (in thousands, except per share amounts)
Revenues
Net premiums earned$1,230,199 $1,258,246 
Net investment income133,771 91,355 
Other insurance related income577 6,693 
Net investment losses:
(Increase) decrease in allowance for expected credit losses
(2,811)(70)
Impairment losses— (109)
Other realized and unrealized investment losses(17,379)(94,329)
Total net investment losses(20,190)(94,508)
Total revenues1,344,357 1,261,786 
Expenses
Net losses and loss expenses720,642 732,699 
Acquisition costs230,373 248,352 
General and administrative expenses166,811 169,041 
Foreign exchange losses (gains)8,710 (44,273)
Interest expense and financing costs16,894 15,564 
    Amortization of intangible assets2,729 2,729 
Total expenses1,146,159 1,124,112 
Income before income taxes and interest in income (loss) of equity method investments198,198 137,674 
Income tax expense(15,896)(24)
Interest in income (loss) of equity method investments(2,205)11,550 
Net income180,097 149,200 
Preferred share dividends7,563 7,563 
Net income available to common shareholders$172,534 $141,637 
Per share data
Earnings per common share:
Earnings per common share$2.03 $1.67 
Earnings per diluted common share$2.01 $1.65 
Weighted average common shares outstanding84,864 84,961 
Weighted average diluted common shares outstanding85,853 85,808 


See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

 
 Three months ended March 31,
 20232022
 (in thousands)
Net income$180,097 $149,200 
Other comprehensive income (loss), net of tax:
Available for sale investments:
Unrealized gains (losses) arising during the period for which an allowance for expected credit losses has not been recognized134,567 (442,722)
Unrealized gains (losses) arising during the period for which an allowance for expected credit losses has been recognized13,622 (232)
Adjustment for reclassification of net realized (gains) losses and impairment losses recognized in net income (loss)40,750 45,343 
Unrealized gains (losses) arising during the period, net of reclassification adjustment188,939 (397,611)
Foreign currency translation adjustment(535)2,775 
Total other comprehensive income (loss), net of tax188,404 (394,836)
Comprehensive income (loss)$368,501 $(245,636)


See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

Three months ended March 31,
20232022
 (in thousands)
Preferred shares
Balance at beginning and end of period$550,000 $550,000 
Common shares (par value)
Balance at beginning and end of period2,206 2,206 
Additional paid-in capital
Balance at beginning of period2,366,253 2,346,179 
Treasury shares reissued(30,593)(29,378)
Share-based compensation expense11,977 12,185 
Balance at end of period2,347,637 2,328,986 
Accumulated other comprehensive income (loss)
Balance at beginning of period(760,300)56,536 
Unrealized gains (losses) on available for sale investments, net of tax:
Balance at beginning of period(743,695)62,155 
Unrealized gains (losses) arising during the period, net of reclassification adjustment188,939 (397,611)
Balance at end of period(554,756)(335,456)
Cumulative foreign currency translation adjustments, net of tax:
Balance at beginning of period(16,605)(5,619)
Foreign currency translation adjustment(535)2,775 
Balance at end of period(17,140)(2,844)
Balance at end of period(571,896)(338,300)
Retained earnings
Balance at beginning of period6,247,022 6,204,745 
Net income180,097 149,200 
Preferred share dividends (1)
(7,563)(7,563)
Common share dividends (1)
(38,355)(37,670)
Balance at end of period6,381,201 6,308,712 
Treasury shares, at cost
Balance at beginning of period(3,765,271)(3,749,010)
Shares repurchased(15,945)(12,977)
Shares reissued32,297 30,923 
Balance at end of period(3,748,919)(3,731,064)
Total shareholders’ equity $4,960,229 $5,120,540 

(1) Refer to Note 9 'Shareholders' Equity' for details on dividends declared and paid related to the Company's common and preferred shares.



See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Three months ended March 31,
20232022
 (in thousands)
Cash flows from operating activities:
Net income$180,097 $149,200 
Adjustments to reconcile net income to net cash provided by operating activities:
Net investment losses20,190 94,508 
Net realized and unrealized gains on other investments(486)(25,643)
Amortization of fixed maturities(2,425)10,896 
Interest in income (loss) of equity method investments2,205 (11,550)
Other amortization and depreciation14,971 15,714 
Share-based compensation expense, net of cash payments8,935 7,661 
Changes in:
Accrued interest receivable(3,826)(654)
Reinsurance recoverable on unpaid losses and loss expenses6,675 60,605 
Reinsurance recoverable on paid losses and loss expenses(53,728)30,441 
Deferred acquisition costs(88,700)(111,635)
Prepaid reinsurance premiums(80,592)(176,010)
Reserve for losses and loss expenses150,410 (182,720)
Unearned premiums462,751 736,045 
Insurance and reinsurance balances, net(337,675)(345,837)
Other items(56,368)(117,710)
Net cash provided by operating activities222,434 133,311 
Cash flows from investing activities:
Purchases of:
Fixed maturities, available for sale(1,614,005)(2,287,937)
Fixed maturities, held to maturity(20,001)(50,992)
Equity securities(77,560)(2,218)
Mortgage loans(14,030)(42,802)
Other investments(26,308)(37,311)
Short-term investments(54,895)(50,896)
Proceeds from the sale of:
Fixed maturities, available for sale1,330,744 2,255,915 
Equity securities13,162 50,097 
Other investments14,825 57,300 
Short-term investments44,949 6,042 
Proceeds from redemption of fixed maturities, available for sale221,094 416,838 
Proceeds from redemption of fixed maturities, held to maturity1,596 3,500 
Proceeds from redemption of short-term investments10,520 5,530 
Proceeds from the repayment of mortgage loans5,206 9,982 
Proceeds from the sale (purchase) of other assets, net5,299 (10,431)
Net cash provided by (used in) investing activities(159,404)322,617 
Cash flows from financing activities:
Taxes paid on withholding shares(15,945)(12,977)
Dividends paid - common shares(40,323)(39,743)
Dividends paid - preferred shares(7,563)(7,563)
Federal Home Loan Bank advances, net5,250 — 
Net cash used in financing activities(58,581)(60,283)
Effect of exchange rate changes on foreign currency cash, cash equivalents and restricted cash193 (6,624)
Increase in cash, cash equivalents and restricted cash4,642 389,021 
Cash, cash equivalents and restricted cash - beginning of period1,174,653 1,317,690 
Cash, cash equivalents and restricted cash - end of period$1,179,295 $1,706,711 
Supplemental disclosures of cash flow information:
Income taxes paid (refund)$(2,403)$346 
Interest paid$17,110 $16,263 


See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.    BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES


Basis of Presentation

These unaudited consolidated financial statements (the "financial statements") have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the U.S. Securities and Exchange Commission's ("SEC") instructions to Form 10-Q and Article 10 of Regulation S-X and include AXIS Capital Holdings Limited ("AXIS Capital") and its subsidiaries (the "Company"). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. This Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and related notes included in AXIS Capital's Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC.

In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company's financial position and results of operations for the periods presented.

The results of operations for any interim period are not necessarily indicative of the results for a full year. All inter-company accounts and transactions have been eliminated.
Tabular dollar and share amounts are in thousands, with the exception of per share amounts. All amounts are reported in U.S. dollars.

Significant Accounting Policies

There were no notable changes to the Company's significant accounting policies subsequent to its Annual Report on Form 10-K for the year ended December 31, 2022.


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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2.    SEGMENT INFORMATION
The Company's underwriting operations are organized around its global underwriting platforms, AXIS Insurance and AXIS Re. The Company has determined that it has two reportable segments, insurance and reinsurance. The Company does not allocate its assets by segment, with the exception of goodwill and intangible assets.

Insurance

The Company's insurance segment offers specialty insurance products to a variety of niche markets on a worldwide basis. The product lines in this segment are professional lines, property, liability, cyber, marine and aviation, accident and health, and credit and political risk.

Reinsurance

The Company's reinsurance segment provides treaty reinsurance to insurance companies on a worldwide basis. The product lines in this segment are liability, accident and health, professional lines, credit and surety, motor, agriculture, marine and aviation, catastrophe, property and engineering.

The following tables present the underwriting results of the Company's reportable segments, as well as the carrying amounts of allocated goodwill and intangible assets:












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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2.    SEGMENT INFORMATION (CONTINUED)
  20232022
Three months ended and at March 31,InsuranceReinsuranceTotalInsuranceReinsuranceTotal
Gross premiums written$1,415,612$966,364$2,381,976$1,327,264$1,307,344$2,634,608
Net premiums written882,576725,7801,608,356843,912968,9601,812,872
Net premiums earned816,456413,7431,230,199752,816505,4301,258,246
Other insurance related income54523577826,6116,693
Net losses and loss expenses(449,467)(271,175)(720,642)(405,745)(326,954)(732,699)
Acquisition costs(147,058)(83,315)(230,373)(138,812)(109,540)(248,352)
Underwriting-related general and administrative expenses(116,630)(23,765)(140,395)(113,950)(31,146)(145,096)
Underwriting income$103,355$36,011139,366$94,391$44,401138,792
Net investment income133,77191,355
Net investment losses(20,190)(94,508)
Corporate expenses(26,416)(23,945)
Foreign exchange (losses) gains(8,710)44,273
Interest expense and financing costs(16,894)(15,564)
Amortization of intangible assets(2,729)(2,729)
Income before income taxes and interest in income (loss) of equity method investments198,198137,674
Income tax expense(15,896)(24)
Interest in income (loss) of equity method investments(2,205)11,550
Net income180,097149,200
Preferred share dividends7,5637,563
Net income available to common shareholders$172,534$141,637
Net losses and loss expenses ratio55.1 %65.5 %58.6 %53.9 %64.7 %58.2 %
Acquisition cost ratio18.0 %20.1 %18.7 %18.4 %21.7 %19.7 %
General and administrative expense ratio14.2 %5.8 %13.6 %15.2 %6.1 %13.5 %
Combined ratio87.3 %91.4 %90.9 %87.5 %92.5 %91.4 %
Goodwill and intangible assets$295,872$—$295,872$306,789$—$306,789














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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.    INVESTMENTS
a)     Fixed Maturities, Available for Sale

The following table provides the amortized cost and fair values of the Company's fixed maturities classified as available for sale:
Amortized
cost
Allowance for expected credit lossesGross
unrealized
gains
Gross
unrealized
losses
Fair
value
At March 31, 2023
Available for sale
U.S. government and agency$2,956,074 $— $15,733 $(70,495)$2,901,312 
Non-U.S. government587,923 (28)3,511 (33,329)558,077 
Corporate debt4,619,198 (12,436)12,264 (321,814)4,297,212 
Agency RMBS(1)
1,344,187 — 9,111 (81,137)1,272,161 
CMBS(2)
996,699 — 165 (73,361)923,503 
Non-agency RMBS145,288 (98)134 (15,839)129,485 
ABS(3)
1,454,488 (36)828 (57,897)1,397,383 
Municipals(4)
160,641 (47)317 (12,489)148,422 
Total fixed maturities, available for sale$12,264,498 $(12,645)$42,063 $(666,361)$11,627,555 
At December 31, 2022    
Available for sale
U.S. government and agency$2,731,733 $— $5,386 $(97,789)$2,639,330 
Non-U.S. government612,546 — 2,395 (52,912)562,029 
Corporate debt4,680,798 (11,521)5,269 (418,990)4,255,556 
Agency RMBS(1)
1,297,423 — 4,663 (99,301)1,202,785 
CMBS(2)
1,029,863 — 60 (82,145)947,778 
Non-agency RMBS151,907 (123)275 (18,525)133,534 
ABS(3)
1,499,728 (35)555 (70,721)1,429,527 
Municipals(4)
172,475 (54)139 (16,205)156,355 
Total fixed maturities, available for sale$12,176,473 $(11,733)$18,742 $(856,588)$11,326,894 
(1)Residential mortgage-backed securities ("RMBS") originated by U.S. government-sponsored agencies.
(2)Commercial mortgage-backed securities ("CMBS").
(3)Asset-backed securities ("ABS") include debt tranched securities collateralized primarily by auto loans, student loans, credit card receivables and collateralized loan obligations ("CLOs").
(4)Municipals include bonds issued by states, municipalities and political subdivisions.




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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.    INVESTMENTS (CONTINUED)
Contractual Maturities

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The table below provides the contractual maturities of fixed maturities classified as available for sale:
Amortized
cost
Fair
value
% of Total
fair value
At March 31, 2023
Maturity
Due in one year or less$576,989 $563,123 4.9 %
Due after one year through five years5,400,687 5,204,250 44.8 %
Due after five years through ten years2,171,234 1,974,369 17.0 %
Due after ten years174,926 163,281 1.4 %
 8,323,836 7,905,023 68.1 %
Agency RMBS1,344,187 1,272,161 10.9 %
CMBS996,699 923,503 7.9 %
Non-agency RMBS145,288 129,485 1.1 %
ABS1,454,488 1,397,383 12.0 %
Total$12,264,498 $11,627,555 100.0 %
At December 31, 2022
Maturity
Due in one year or less$422,039 $409,972 3.7 %
Due after one year through five years5,349,123 5,078,273 44.8 %
Due after five years through ten years2,192,344 1,919,450 16.9 %
Due after ten years234,046 205,575 1.8 %
 8,197,552 7,613,270 67.2 %
Agency RMBS1,297,423 1,202,785 10.6 %
CMBS1,029,863 947,778 8.4 %
Non-agency RMBS151,907 133,534 1.2 %
ABS1,499,728 1,429,527 12.6 %
Total$12,176,473 $11,326,894 100.0 %



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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.    INVESTMENTS (CONTINUED)
Gross Unrealized Losses

The following table summarizes fixed maturities, available for sale in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
  12 months or greaterLess than 12 monthsTotal
  
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
At March 31, 2023
Fixed maturities, available for sale
U.S. government and agency$808,593 $(51,696)$738,852 $(18,799)$1,547,445 $(70,495)
Non-U.S. government263,740 (31,114)109,543 (2,215)373,283 (33,329)
Corporate debt2,499,437 (287,339)1,166,503 (34,475)3,665,940 (321,814)
Agency RMBS533,145 (64,620)433,607 (16,517)966,752 (81,137)
CMBS764,365 (66,063)140,843 (7,298)905,208 (73,361)
Non-agency RMBS99,758 (15,383)23,591 (456)123,349 (15,839)
ABS1,179,697 (56,118)134,693 (1,779)1,314,390 (57,897)
Municipals105,115 (11,526)31,816 (963)136,931 (12,489)
Total fixed maturities, available for sale$6,253,850 $(583,859)$2,779,448 $(82,502)$9,033,298 $(666,361)
At December 31, 2022      
Fixed maturities, available for sale
U.S. government and agency$467,032 $(41,365)$1,414,181 $(56,424)$1,881,213 $(97,789)
Non-U.S. government207,637 (33,027)298,048 (19,885)505,685 (52,912)
Corporate debt1,562,355 (268,289)2,350,504 (150,701)3,912,859 (418,990)
Agency RMBS220,595 (40,469)771,191 (58,832)991,786 (99,301)
CMBS343,494 (40,888)599,877 (41,257)943,371 (82,145)
Non-agency RMBS75,137 (14,691)53,484 (3,834)128,621 (18,525)
ABS685,990 (48,913)686,190 (21,808)1,372,180 (70,721)
Municipals52,994 (10,120)96,003 (6,085)148,997 (16,205)
Total fixed maturities, available for sale$3,615,234 $(497,762)$6,269,478 $(358,826)$9,884,712 $(856,588)

At March 31, 2023, 4,372 fixed maturities (2022: 4,525) were in an unrealized loss position of $666 million (2022: $857 million), of which $47 million (2022: $64 million) was related to securities below investment grade or not rated.

At March 31, 2023, 3,154 fixed maturities (2022: 1,842) had been in a continuous unrealized loss position for twelve months or greater and had a fair value of $6,254 million (2022: $3,615 million).

The unrealized losses of $666 million (2022: $857 million) were due to non-credit factors and were expected to be recovered as the related securities approach maturity.

At March 31, 2023, the Company did not intend to sell the securities in an unrealized loss position and it is more likely than not that the Company will not be required to sell these securities before the anticipated recovery of their amortized costs.


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3.    INVESTMENTS (CONTINUED)
b)     Fixed Maturities, Held to Maturity
The following table provides the amortized cost and fair values of the Company's fixed maturities classified as held to maturity:
Amortized
cost
Allowance for expected credit lossesNet carrying valueGross
unrealized
gains
Gross
unrealized
losses
Fair
value
At March 31, 2023
Held to maturity
Corporate debt$85,200 $— $85,200 $— $(9,535)$75,665 
ABS(1)
631,568 — 631,568 — (10,458)621,110 
Total fixed maturities, held to maturity$716,768 $— $716,768 $— $(19,993)$696,775 
At December 31, 2022    
Held to maturity
Corporate debt$85,200 $— $85,200 $— $(11,428)$73,772 
ABS(1)
613,151 — 613,151 — (12,180)600,971 
Total fixed maturities, held to maturity$698,351 $— $698,351 $— $(23,608)$674,743 
(1)Asset-backed securities ("ABS") include debt tranched securities collateralized primarily by collateralized loan obligations ("CLOs").

At March 31, 2023, fixed maturities, held to maturity of $717 million (2022: $698 million) were presented net of an allowance for expected credit losses of $nil (2022: $nil).

The Company's ABS, held to maturity consist of CLO debt tranched securities. The Company uses a scenario-based approach to review its CLO debt portfolio and reviews subordination levels of these securities to determine their ability to absorb credit losses of the underlying collateral. If losses are forecast to be below the subordination level for a tranche held by the Company, the security is determined not to have a credit loss. At March 31, 2023, the allowance for credit losses expected to be recognized over the life of the Company's ABS, held to maturity was $nil.

To estimate expected credit losses for corporate debt securities, held to maturity, the Company's projected cash flows are primarily driven by assumptions regarding the severity of loss, which is a function of the probability of default and projected recovery rates. The Company's default and recovery rates are based on credit ratings, credit analysis and macroeconomic forecasts. At March 31, 2023, the allowance for credit losses expected to be recognized over the life of the Company's corporate debt, held to maturity was $nil.
Contractual Maturities
ABS classified as held to maturity with a net carrying value of $632 million (2022: $613 million) do not have a single maturity date and cannot be allocated over several maturity groupings.

Corporate debt classified as held to maturity with a net carrying value of $81 million (2022: $81 million) is due between 3 years and 10 years and corporate debt classified as held to maturity with a net carrying value of $4 million (2022: $4 million) is due after ten years.


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3.    INVESTMENTS (CONTINUED)
c)     Equity Securities
The following table provides the cost and fair values of the Company's equity securities:
Cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
At March 31, 2023
Equity securities
Common stocks$3,130 $321 $(437)$3,014 
Preferred stocks115 — (113)2 
Exchange-traded funds199,212 83,523 (3,016)279,719 
Bond mutual funds356,836 50 (65,705)291,181 
Total equity securities$559,293 $83,894 $(69,271)$573,916 
At December 31, 2022   
Equity securities
Common stocks$7,279 $636 $(442)$7,473 
Preferred stocks115 — (43)72 
Exchange-traded funds207,505 68,058 (5,757)269,806 
Bond mutual funds279,457 — (71,555)207,902 
Total equity securities$494,356 $68,694 $(77,797)$485,253 


d)     Mortgage Loans

The following table provides details of the Company's mortgage loans, held for investment:
  
March 31, 2023December 31, 2022
  
Carrying value% of TotalCarrying value% of Total
Mortgage loans, held for investment:
Commercial$636,370 100 %$627,437 100 %
Allowance for expected credit losses (1,900)— %— — %
Total mortgage loans, held for investment$634,470 100 %$627,437 100 %

The primary credit quality indicators for commercial mortgage loans are the debt service coverage ratio which compares a property’s net operating income to amounts needed to service the principal and interest due under the loan, (generally, the lower the debt service coverage ratio, the higher the risk of experiencing a credit loss) and the loan-to-value ratio which compares the unpaid principal balance of the loan to the estimated fair value of the underlying collateral (generally, the higher the loan-to-value ratio, the higher the risk of experiencing a credit loss). The debt service coverage ratio and loan-to-value ratio, as well as the values utilized in calculating these ratios, are updated quarterly.

The Company has a high quality mortgage loan portfolio with a weighted average debt service coverage ratio of 2.2x (2022: 2.3x) and a weighted average loan-to-value ratio of 60% (2022: 60%). At March 31, 2023, and 2022 there were no past due amounts associated with the commercial mortgage loans held by the Company.

On a quarterly basis, collateral dependent mortgage loans (e.g, when the borrower is experiencing financial difficulty, including when foreclosure is reasonably possible or probable) are evaluated individually for credit losses. The allowance for expected credit losses for a collateral dependent loan is established as the excess of amortized cost over the estimated fair value of the loan's underlying collateral, less selling cost when foreclosure is probable. Accordingly, the change in the estimated fair value of collateral dependent

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3.    INVESTMENTS (CONTINUED)
loans, which are evaluated individually for credit losses, is recognized as a change in the allowance for expected credit losses which is recorded in net investment gains (losses).

At March 31, 2023, there is one collateral dependent loan with a loan-to-value ratio in excess of 100%, resulting in an allowance for expected credit loss of $2 million.

e)     Other Investments

The following table provides a summary of the Company's other investments, together with additional information relating to the liquidity of each category:
Fair value% of Total
Redemption frequency
(if currently eligible)
  Redemption  
  notice period  
At March 31, 2023    
Multi-strategy funds$30,721 3 %Quarterly
60-90 days
Direct lending funds258,183 26 %
Quarterly(1)
90 days
Private equity funds273,859 27 %n/an/a
Real estate funds300,152 30 %
Quarterly(2), Annually(3)
45-90 days
CLO-Equities5,019 — %n/an/a
Other privately held investments140,953 14 %n/an/a
Total other investments$1,008,887 100 % 
  
At December 31, 2022    
Multi-strategy funds$32,616 3 %Quarterly
60-90 days
Direct lending funds258,626 26 %
Quarterly(1)
90 days
Private equity funds265,836 27 %n/an/a
Real estate funds298,499 30 %
Quarterly(2), Annually(3)
45-90 days
CLO-Equities5,016 — %n/an/a
Other privately held investments136,158 14 %n/an/a
Total other investments$996,751 100 %  
     
n/a - not applicable
(1) Applies to one fund with a fair value of $35 million (2022: $39 million).
(2) Applies to one fund with a fair value of $72 million (2022: $73 million).
(3) Applies to one fund with a fair value of $25 million (2022: $27 million).

Two common redemption restrictions which may impact the Company's ability to redeem hedge funds are gates and lockups. A gate is a suspension of redemptions which may be implemented by the general partner or investment manager of the fund in order to defer, in whole or in part, the redemption request in the event the aggregate amount of redemption requests exceeds a predetermined percentage of the fund's net assets which may otherwise hinder the general partner or investment manager's ability to liquidate holdings in an orderly fashion in order to generate the cash necessary to fund extraordinarily large redemption payouts. A lockup period is the initial amount of time an investor is contractually required to hold the security before having the ability to redeem. During the three months ended March 31, 2023 and 2022, neither of these restrictions impacted the Company's redemption requests. At March 31, 2023, there were no hedge fund holdings (2022: $nil) where the Company is still within the lockup period. 

At March 31, 2023, the Company had $26 million (2022: $26 million) of unfunded commitments as a limited partner in multi-strategy hedge funds. Once the full amount of committed capital has been called by the General Partner of each of these funds, the assets will not be fully returned until after the completion of the funds' investment term. These funds have investment terms ranging from two years to the dissolution of the underlying fund.

At March 31, 2023, the Company had $197 million (2022: $183 million) of unfunded commitments as a limited partner in direct lending funds. Once the full amount of committed capital has been called by the General Partner of each of these funds, the assets will

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3.    INVESTMENTS (CONTINUED)
not be fully returned until the completion of the fund's investment term. These funds have investment terms ranging from four to twelve years and the General Partners of certain funds have the option to extend the term by up to three years.
At March 31, 2023, the Company had $166 million (2022: $158 million) of unfunded commitments as a limited partner in private equity funds. The life of the funds is subject to the dissolution of the underlying funds. The Company expects the overall holding period to be over five years.
At March 31, 2023, the Company had $136 million (2022: $141 million) of unfunded commitments as a limited partner in real estate funds. These funds include an open-ended fund and funds with investment terms ranging from two years to the dissolution of the underlying fund.
f)     Equity Method Investments

During 2016, the Company paid $108 million including direct transaction costs to acquire 19% of the common equity of Harrington Reinsurance Holdings Limited ("Harrington"), the parent company of Harrington Re Ltd. ("Harrington Re"), an independent reinsurance company jointly sponsored by the Company and The Blackstone Group L.P. ("Blackstone"). Through long-term service agreements, the Company will serve as Harrington Re's reinsurance underwriting manager and Blackstone will serve as exclusive investment management service provider. As an investor, the Company expects to benefit from underwriting profit generated by Harrington Re and the income and capital appreciation Blackstone seeks to deliver through its investment management services. In addition, the Company has entered into an arrangement with Blackstone under which underwriting and investment related fees will be shared equally. Harrington is not a Variable Interest Entities ("VIE") that is required to be included in the Company's consolidated financial statements. The Company accounts for its ownership interest in Harrington under the equity method of accounting. The Company's proportionate share of the underlying equity in net assets resulted in a basis difference of $5 million which represents initial transactions costs.

g)     Variable Interest Entities

In the normal course of investing activities, the Company actively manages allocations to non-controlling tranches of structured securities which are variable interests issued by Variable Interest Entities ("VIEs"). These structured securities include RMBS, CMBS and ABS.

The Company also invests in limited partnerships which represent 71% of the Company's other investments. The investments in limited partnerships include hedge funds, direct lending funds, private equity funds and real estate funds and CLO equity tranched securities, which are variable interests issued by VIEs (refer to Note 3(c) 'Other Investments').

The Company does not have the power to direct the activities that are most significant to the economic performance of these VIEs therefore the Company is not the primary beneficiary of these VIEs. The maximum exposure to loss on these interests is limited to the amount of commitment made by the Company. The Company has not provided financial or other support to these structured securities other than the original investment.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.    INVESTMENTS (CONTINUED)
h)     Net Investment Income

Net investment income was derived from the following sources:
  
Three months ended March 31,
  
20232022
Fixed maturities$118,262 $64,809 
Other investments486 26,050 
Equity securities2,455 2,172 
Mortgage loans8,386 4,163 
Cash and cash equivalents10,012 1,118 
Short-term investments1,660 166 
Gross investment income
141,261 98,478 
Investment expenses(7,490)(7,123)
Net investment income$133,771 $91,355 

i)     Net Investment Gains (Losses)

The following table provides an analysis of net investment gains (losses):
  Three months ended March 31,
  20232022
Gross realized investment gains
Fixed maturities and short-term investments$12,370 $10,422 
Equity securities1,517 — 
Gross realized investment gains13,887 10,422 
Gross realized investment losses
Fixed maturities and short-term investments(53,649)(63,146)
Equity securities(396)(225)
Gross realized investment losses(54,045)(63,371)
(Increase) decrease in allowance for expected credit losses, fixed maturities, available for sale(911)(70)
(Increase) decrease in allowance for expected credit losses, mortgage loans(1,900)— 
Impairment losses(1)
— (109)
Change in fair value of investment derivatives(2)
(947)2,242 
Net unrealized gains (losses) on equity securities23,726 (43,622)
Net investment losses$(20,190)$(94,508)
(1) Related to instances where the Company intends to sell securities or it is more likely than not that the Company will be required to sell securities before their anticipated recovery.
(2) Refer to Note 5 'Derivative Instruments'.

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3.    INVESTMENTS (CONTINUED)
The following table provides a reconciliation of the beginning and ending balances of the allowance for expected credit losses on fixed maturities classified as available for sale:
  Three months ended March 31,
  20232022
Balance at beginning of period$11,733 $313 
Expected credit losses on securities where credit losses were not previously recognized
613 9 
Additions (reductions) for expected credit losses on securities where credit losses were previously recognized
919 78 
Impairments of securities which the Company intends to sell or more likely than not will be required to sell— — 
Securities sold/redeemed/matured(620)(17)
Balance at end of period$12,645 $383 

j)     Reverse Repurchase Agreements

At March 31, 2023, the Company held $45 million (2022: $nil) of reverse repurchase agreements. These loans are fully collateralized, are generally outstanding for a short period of time and are presented on a gross basis as part of cash and cash equivalents in the Company's consolidated balance sheets. The required collateral for these loans is either cash or U.S. Treasuries at a minimum rate of 102% of the loan principal. Upon maturity, the Company receives principal and interest income. The Company monitors the estimated fair value of the securities loaned and borrowed on a daily basis with additional collateral obtained as necessary throughout the duration of the transaction.


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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.    FAIR VALUE MEASUREMENTS
Fair Value Hierarchy

Fair value is defined as the price to sell an asset or transfer a liability (i.e., the "exit price") in an orderly transaction between market participants. U.S. GAAP prescribes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement. The hierarchy is broken down into three levels as follows:

•Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

•Level 2 - Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

•Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect the Company's judgments about assumptions that market participants might use.

The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment.

Accordingly, the degree of judgment exercised by management in determining fair value is greatest for financial instruments categorized as Level 3. In periods of market dislocation, the observability of prices and inputs may be reduced for many financial instruments. This may lead the Company to change the selection of valuation technique (from market to cash flow approach) or may cause the Company to use multiple valuation techniques to estimate the fair value of a financial instrument. This circumstance could cause an instrument to be reclassified between levels within the fair value hierarchy.

Valuation Techniques

The valuation techniques, including significant inputs and assumptions generally used to determine the fair values of the Company's financial instruments as well as the classification of the fair values of its financial instruments in the fair value hierarchy are described in detail below.

Fixed Maturities

At each valuation date, the Company uses the market approach valuation technique to estimate the fair value of its fixed maturities portfolio, where possible. The market approach includes, but is not limited to, prices obtained from third-party pricing services for identical or comparable securities and the use of "pricing matrix models" using observable market inputs such as yield curves, credit risks and spreads, measures of volatility, and prepayment speeds. Pricing from third-party pricing services is sourced from multiple vendors, where available, and the Company maintains a vendor hierarchy by asset type based on historical pricing experience and vendor expertise. Where prices are unavailable from pricing services, the Company obtains non-binding quotes from broker-dealers who are active in the corresponding markets. The valuation techniques including significant inputs and assumptions generally used to determine the fair values of the Company's fixed maturities by asset class as well as the classifications of the fair values of these securities in the fair value hierarchy are described in detail below.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.    FAIR VALUE MEASUREMENTS (CONTINUED)
U.S. Government and Agency

U.S. government and agency securities consist primarily of bonds issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. As the fair values of U.S. Treasury securities are based on unadjusted quoted market prices in active markets, the fair values of these securities are classified as Level 1. The fair values of U.S. government agency securities are determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads are observable market inputs, the fair values of U.S. government agency securities are classified as Level 2.

Non-U.S. Government

Non-U.S. government securities include bonds issued by non-U.S. governments and their agencies along with supranational organizations (collectively also known as sovereign debt securities). The fair values of these securities are based on prices obtained from international indices or valuation models that include inputs such as interest rate yield curves, cross-currency basis index spreads, and country credit spreads for structures similar to the sovereign bond in terms of issuer, maturity and seniority. As the significant inputs used to price these securities are observable market inputs, the fair values of non-U.S. government securities are classified as Level 2.

Corporate Debt

Corporate debt securities consist primarily of investment grade debt of a wide variety of corporate issuers and industries. The fair values of these securities are generally determined using the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and broker-dealer quotes. As the yields for the risk-free yield curve and the spreads are observable market inputs, the fair values of corporate debt securities are generally classified as Level 2. Where pricing is unavailable from pricing services, the Company obtains non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, the fair values of these securities are classified as Level 3.

Agency RMBS

Agency RMBS consist of bonds issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. The fair values of these securities are priced using a mortgage pool specific model which uses daily inputs from the active to be announced market and the spread associated with each mortgage pool based on vintage. As the significant inputs used to price these securities are observable market inputs, the fair values of Agency RMBS are classified as Level 2.

CMBS

CMBS mainly include investment grade bonds originated by non-agencies. The fair values of these securities are determined using a pricing model which uses dealer quotes and other available trade information along with security level characteristics to determine deal specific spreads. As the significant inputs used to price these securities are observable market inputs, the fair values of CMBS are generally classified as Level 2. Where pricing is unavailable from pricing services, the Company obtains non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, the fair values of these securities are classified as Level 3.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.    FAIR VALUE MEASUREMENTS (CONTINUED)
Non-agency RMBS

Non-agency RMBS mainly include investment grade bonds originated by non-agencies. The fair values of these securities are determined using an option adjusted spread model or other relevant models, which use inputs including available trade information or broker quotes, prepayment and default projections based on historical statistics of the underlying collateral and current market data. As the significant inputs used to price these securities are observable market inputs, the fair values of non-agency RMBS are generally classified as Level 2. Where pricing is unavailable from pricing services, the Company obtains non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, the fair values of these securities are classified as Level 3.

ABS

ABS mainly include investment grade bonds backed by pools of loans with a variety of underlying collateral, including auto loans, student loans, credit card receivables and collateralized loan obligations ("CLOs"), originated by a variety of financial institutions. The fair values of these securities are determined using a model which uses prepayment speeds and spreads sourced primarily from the new issue market. As the significant inputs used to price these securities are observable market inputs, the fair values of ABS are generally classified as Level 2. Where pricing is unavailable from pricing services, the Company obtains non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, the fair values of these securities are classified as Level 3.

Municipals

Municipals comprise revenue bonds and general obligation bonds issued by U.S. domiciled state and municipal entities. The fair values of these securities are determined using spreads obtained from the new issue market, trade prices and broker-dealers quotes. As the significant inputs used to price these securities are observable market inputs, the fair values of municipals are classified as Level 2.

Equity Securities

Equity securities include common stocks, preferred stocks, exchange-traded funds and bond mutual funds. As the fair values of common stocks, preferred stocks and exchange-traded funds are based on unadjusted quoted market prices in active markets, the fair values of these securities are classified as Level 1. As bond mutual funds have daily liquidity, the fair values of these securities are classified as Level 2.

Other Investments

The fair value of an indirect investment in CLO-Equities is estimated using an income approach valuation technique, specifically an externally developed discounted cash flow model due to the lack of observable and relevant trades in secondary markets. As the significant inputs used to price this security are unobservable, the fair value of the indirect investment in CLO-Equities is classified as Level 3.

Other privately held investments include convertible preferred shares, preferred shares, common shares, convertible notes, investments in limited partnerships and a variable yield security. These investments are initially valued at cost, which approximates fair value. In subsequent measurement periods, the fair values of these investments are derived from one or a combination of valuation methodologies which consider factors including recent capital raises by the investee companies, comparable precedent transaction multiples, comparable publicly traded multiples, third-party valuations, discounted cash-flow models, and other techniques that consider the industry and development stage of each investee company. The fair value of the variable yield security is determined using an externally developed discounted cash flow model. In order to assess the reasonableness of the information received from investee companies, the Company maintains an understanding of current market conditions, historical results, and emerging trends that may impact the results of operations, financial condition or liquidity of these companies. In addition, the Company engages in regular communication with management at investee companies. As the significant inputs used to price these investments are unobservable, the fair values of other privately held investments are classified as Level 3.

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4.    FAIR VALUE MEASUREMENTS (CONTINUED)
Short-term Investments

Short-term investments primarily comprise highly liquid securities with maturities greater than three months but less than one year from the date of purchase. These securities are typically not actively traded due to their approaching maturity, therefore their amortized cost approximates fair value. The fair values of short-term investments are classified as Level 2.

Derivative Instruments

Derivative instruments include foreign exchange forward contracts that are customized to the Company's economic hedging strategies and trade in the over-the-counter derivative market. The fair values of these derivatives are determined using a market approach valuation technique based on significant observable market inputs from third-party pricing vendors, non-binding broker-dealer quotes and/or recent trading activity. As the significant inputs used to price these derivatives are observable market inputs, the fair values of these derivatives are classified as Level 2.

Other underwriting-related derivatives include insurance and reinsurance contracts that are accounted for as derivatives. These derivative contracts are initially valued at cost which approximates fair value. In subsequent measurement periods, the fair values of these derivatives are determined using internally developed discounted cash flow models. As the significant inputs used to price these derivatives are unobservable, the fair values of these contracts are classified as Level 3.

Cash-Settled Awards

Cash-settled awards comprise restricted stock units that form part of the Company's compensation program. Although the fair values of these awards are determined using observable quoted market prices in active markets, the restricted stock units are not actively traded. As the significant inputs used to price these securities are observable market inputs, the fair values of these liabilities are classified as Level 2.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.    FAIR VALUE MEASUREMENTS (CONTINUED)
The tables below present the financial instruments measured at fair value on a recurring basis for the periods indicated:
Quoted prices in active markets for identical assets (Level 1)Significant other observable inputs (Level 2)Significant unobservable inputs (Level 3)Fair value based on NAV practical expedientTotal fair value
At March 31, 2023
Assets
Fixed maturities, available for sale
U.S. government and agency$2,862,087 $39,225 $— $— $2,901,312 
Non-U.S. government— 558,077 — — 558,077 
Corporate debt— 4,166,785 130,427 — 4,297,212 
Agency RMBS— 1,272,161 — — 1,272,161 
CMBS— 923,503 — — 923,503 
Non-agency RMBS— 129,485 — — 129,485 
ABS— 1,397,383 — — 1,397,383 
Municipals— 148,422 — — 148,422 
 2,862,087 8,635,041 130,427 — 11,627,555 
Equity securities
Common stocks3,014 — — — 3,014 
Preferred stocks2 — — — 2 
Exchange-traded funds279,719 — — — 279,719 
Bond mutual funds— 291,181 — — 291,181 
 282,735 291,181 — — 573,916 
Other investments
Multi-strategy funds— — — 30,721 30,721 
Direct lending funds— — — 258,183 258,183 
Private equity funds— — — 273,859 273,859 
Real estate funds— — — 300,152 300,152 
CLO-Equities— — 5,019 — 5,019 
Other privately held investments— — 140,953 — 140,953 
— — 145,972 862,915 1,008,887 
Short-term investments— 70,416 — — 70,416 
Other assets
Derivative instruments (refer to Note 5)— 7,752 — — 7,752 
Total Assets$3,144,822 $9,004,390 $276,399 $862,915 $13,288,526 
Liabilities
Derivative instruments (refer to Note 5)$— $2,789 $— $— $2,789 
Cash-settled awards (refer to Note 8)— — — — — 
 Total Liabilities$— $2,789 $— $— $2,789 




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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.    FAIR VALUE MEASUREMENTS (CONTINUED)

Quoted prices in active markets for identical assets (Level 1)Significant other observable inputs (Level 2)Significant unobservable inputs (Level 3)Fair value based on NAV practical expedientTotal fair value
At December 31, 2022
Assets
Fixed maturities, available for sale
U.S. government and agency$2,600,636 $38,694 $— $— $2,639,330 
Non-U.S. government— 562,029 — — 562,029 
Corporate debt— 4,136,452 119,104 — 4,255,556 
Agency RMBS— 1,202,785 — — 1,202,785 
CMBS— 947,778 — — 947,778 
Non-agency RMBS— 133,534 — — 133,534 
ABS— 1,429,527 — — 1,429,527 
Municipals— 156,355 — — 156,355 
 2,600,636 8,607,154 119,104 — 11,326,894 
Equity securities
Common stocks7,473 — — — 7,473 
Preferred stocks72 — — — 72 
Exchange-traded funds269,806 — — — 269,806 
Bond mutual funds— 207,902 — — 207,902 
 277,351 207,902 — — 485,253 
Other investments
Multi-strategy funds— — — 32,616 32,616 
Direct lending funds— — — 258,626 258,626 
Private equity funds— — — 265,836 265,836 
Real estate funds— — — 298,499 298,499 
CLO-Equities— — 5,016 — 5,016 
Other privately held investments— — 136,158 — 136,158 
— — 141,174 855,577 996,751 
Short-term investments— 70,310 — — 70,310 
Other assets
Derivative instruments (refer to Note 5)— 37,682 — — 37,682 
Total Assets$2,877,987 $8,923,048 $260,278 $855,577 $12,916,890 
Liabilities
Derivative instruments (refer to Note 5)$— $703 $— $— $703 
Cash-settled awards (refer to Note 8)— 4,792 — — 4,792 
Total Liabilities$— $5,495 $— $— $5,495 



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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.    FAIR VALUE MEASUREMENTS (CONTINUED)
The following table quantifies the significant unobservable inputs used in estimating fair values at March 31, 2023 of investments classified as Level 3 in the fair value hierarchy:
Asset fair valueValuation techniqueUnobservable inputAmount / Range
Weighted
average
Other investments - CLO-Equities$5,019 Discounted cash flowDefault rate4.5%4.5%
  Loss severity rate50.0%50.0%
  Collateral spread3.0%3.0%
Estimated maturity date5 years5 years
Other investments - Other privately held investments
$17,522 Discounted cash flowDiscount rate6.6%6.6%
Default rate0.5%0.5%
Loss absorption yield1.0%1.0%
Estimated maturity date
1-3 years
2 years
Note: Fixed maturities of $130 million that are classified as Level 3 are excluded from the above table as these securities are priced using broker-dealer quotes. In addition, other privately held investments of $123 million that are classified as Level 3 are excluded from the above table as these investments are priced using capital statements received from investee companies.

Other Investments - CLO-Equities

The CLO-Equities market continues to be relatively inactive with only a small number of transactions being observed, particularly related to transactions involving CLO-Equities held by the Company. Accordingly, the fair value of the Company's indirect investment in CLO-Equities is determined using a discounted cash flow model prepared by an external investment manager.

The default and loss severity rates are the most judgmental unobservable market inputs to the discounted cash flow model to which the valuation of the Company's indirect investment in CLO-Equities is most sensitive. A significant increase (decrease) in either of these significant inputs in isolation would result in a lower (higher) fair value estimate for the investment in CLO-Equities and, in general, a change in default rate assumptions would be accompanied by a directionally similar change in loss severity rate assumptions. Collateral spreads and estimated maturity dates are less judgmental inputs as they are based on the historical average of actual spreads and the weighted average life of the current underlying portfolios, respectively. A significant increase (decrease) in either of these significant inputs in isolation would result in a higher (lower) fair value estimate for the investment in CLO-Equities. In general, these inputs have no significant interrelationship with each other or with default and loss severity rates.

On a quarterly basis, the Company's valuation process for its indirect investment in CLO-Equities includes a review of the underlying cash flows and key assumptions used in the discounted cash flow model. The above significant unobservable inputs are reviewed and updated based on information obtained from secondary markets, including information received from the managers of the Company's CLO-Equities investment. In order to assess the reasonableness of the inputs the Company uses in the discounted cash flow model, the Company maintains an understanding of current market conditions, historical results, and emerging trends that may impact future cash flows. In addition, the assumptions the Company uses in its models are updated through regular communication with industry participants and ongoing monitoring of the deals in which the Company participates.

Other Investments - Other Privately Held Securities

Other privately held securities are initially valued at cost which approximates fair value. In subsequent measurement periods, the fair value of the variable yield security was determined using an externally developed discounted cash flow model. This model includes inputs that are specific to that investment. The inputs used in the fair value measurement include an appropriate discount rate, default rate, loss absorption rate and estimated maturity date. The selection of an appropriate discount rate is judgmental and is the most significant unobservable input used in the valuation of this investment. A significant increase (decrease) in this input in isolation could result in significantly lower (higher) fair value measurement for this investment. In order to assess the reasonableness of the inputs the Company uses in the discounted cash flow model, the Company maintains an understanding of current market conditions, historical results, as well as investee specific information that may impact future cash flows.


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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.    FAIR VALUE MEASUREMENTS (CONTINUED)
The following table presents changes in Level 3 for financial instruments measured at fair value on a recurring basis:
Opening
balance
Transfers
into
Level 3
Transfers
out of
Level 3
Included 
in net income(1)
Included
in OCI (2)
PurchasesSales
Settlements/
distributions
Closing
balance
Change in
unrealized
gains/(losses) (3)
Three months ended March 31, 2023
Fixed maturities, available for sale         
Corporate debt$119,104 $— $— $(7)$1,183 $18,910 $— $(8,763)$130,427 $— 
 119,104 — — (7)1,183 18,910 — (8,763)130,427 — 
Other investments
CLO-Equities5,016 — — 411 — — — (408)5,019 411 
Other privately held investments
136,158 — — 336 — 4,459 — — 140,953 336 
 141,174 — — 747 — 4,459 — (408)145,972 747 
Total assets$260,278 $— $— $740 $1,183 $23,369 $— $(9,171)$276,399 $747 
Other liabilities
Derivative instruments$— $— $— $— $— $— $— $— $— $— 
Total liabilities$— $— $— $— $— $— $— $— $— $— 
Three months ended March 31, 2022
Fixed maturities, available for sale         
Corporate debt$42,894 $— $— $— $(2,794)$21,462 $— $(672)$60,890 $— 
 42,894 — — — (2,794)21,462 — (672)60,890 — 
Other investments
CLO-Equities5,910 — — 872 — — — (1,901)4,881 872 
Other privately held investments
104,521 — — 1,618 — 9,335 — — 115,474 1,618 
 110,431 — — 2,490 — 9,335 — (1,901)120,355 2,490 
Total assets$153,325 $— $— $2,490 $(2,794)$30,797 $— $(2,573)$181,245 $2,490 
Other liabilities
Derivative instruments$5,630 $— $— $(556)$— $— $— $— $5,074 $(556)
Total liabilities$5,630 $— $— $(556)$— $— $— $— $5,074 $(556)
(1) Realized gains (losses) on fixed maturities and realized and unrealized gains (losses) on other assets and other liabilities included in net income are included in net investment gains (losses). Realized and unrealized gains (losses) on other investments included in net income are included in net investment income.
(2) Unrealized gains (losses) on fixed maturities are included in other comprehensive income ("OCI").
(3) Change in unrealized gains (losses) relating to assets and liabilities held at the reporting date.
















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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.    FAIR VALUE MEASUREMENTS (CONTINUED)
Transfers into Level 3 from Level 2

There were no transfers into Level 3 from Level 2 during the three months ended March 31, 2023 and 2022.

Transfers out of Level 3 into Level 2

There were no transfers out of Level 3 into Level 2 during the three months ended March 31, 2023 and 2022.

Measuring the Fair Value of Other Investments Using Net Asset Valuations

The fair values of hedge funds, direct lending funds, private equity funds and real estate funds are estimated using net asset valuations ("NAVs") as advised by external fund managers or third-party administrators. For these funds, NAVs are based on the manager's or administrator's valuation of the underlying holdings in accordance with the fund's governing documents and in accordance with U.S. GAAP.

For hedge funds, direct lending funds, private equity funds and real estate funds, valuation statements are typically released on a reporting lag, therefore, the Company estimates the fair value of these funds by starting with the most recent fund valuations and adjusting for capital calls, redemptions, drawdowns and distributions. Return estimates are not available from the relevant fund managers for these funds, therefore the Company typically has a reporting lag in its fair value measurements of these funds. At March 31, 2023 and December 31, 2022 all funds measured at fair value using NAVs are reported generally on a one quarter lag.

The Company often does not have access to financial information relating to the underlying securities held within the funds, therefore, management is unable to corroborate the fair values placed on the securities underlying the asset valuations provided by fund managers or fund administrators. In order to assess the reasonableness of the NAVs, the Company performs a number of monitoring procedures on a quarterly basis, to assess the quality of the information provided by fund managers and fund administrators. These procedures include, but are not limited to, regular review and discussion of each fund's performance with its manager, regular evaluation of fund performance against applicable benchmarks and the backtesting of the Company's fair value estimates against subsequently received NAVs. Backtesting involves comparing the Company's previously reported fair values for each fund against NAVs per audited financial statements (for year-end values) and final NAVs from fund managers and fund administrators (for interim values).

The fair values of hedge funds, direct lending funds, private equity funds and real estate funds are measured using the NAV practical expedient, therefore the fair values of these funds have not been categorized within the fair value hierarchy.


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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.    FAIR VALUE MEASUREMENTS (CONTINUED)
Financial Instruments Disclosed, But Not Carried, at Fair Value

The fair value of financial instruments accounting guidance also applies to financial instruments disclosed, but not carried, at fair value, except for certain financial instruments, including insurance contracts.
At March 31, 2023, the carrying values of cash and cash equivalents including restricted amounts, accrued investment income, receivable for investments sold, certain other assets, payable for investments purchased and certain other liabilities approximated fair values due to their short maturities. As these financial instruments are not actively traded, their fair values are classified as Level 2.

At March 31, 2023, the Company's fixed maturities, held to maturity, were recorded at amortized cost with a carrying value of $717 million (2022: $698 million) and a fair value of $697 million (2022: $675 million). The fair values of these securities are determined using a model which uses prepayment speeds and spreads sourced primarily from the new issue market. As the significant inputs used to price these securities are observable market inputs, their fair values are classified as Level 2.

At March 31, 2023, the carrying value of mortgage loans, held for investment, approximated fair value. The fair values of mortgage loans are primarily determined by estimating expected future cash flows and discounting them using current interest rates for similar mortgage loans with similar credit risk or are determined from pricing for similar loans. As mortgage loans are not actively traded, their fair values are classified as Level 3.

At March 31, 2023, the Company's debt was recorded at amortized cost with a carrying value of $1,313 million (2022: $1,312 million) and a fair value of $1,188 million (2022: $1,160 million). The fair value of the Company's debt is based on prices obtained from a third-party pricing service and is determined using the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and broker-dealer quotes. As the yields for the risk-free yield curve and the spreads are observable market inputs, the fair value of this debt is classified as Level 2.

At March 31, 2023, Federal Home Loan Bank advances were recorded at amortized cost with a carrying value of $86 million (2022: $81 million) and a fair value of $86 million (2022: $81 million). As these advances are not actively traded, their fair values are classified as Level 2.
5.    DERIVATIVE INSTRUMENTS

The following table provides the balance sheet classifications of derivatives recorded at fair value:
  March 31, 2023December 31, 2022
  
Derivative
notional
amount
Derivative
asset
fair
value(1)
Derivative
liability
fair
value(1)
Derivative
notional
amount
Derivative
asset
fair
value(1)
Derivative
liability
fair
value(1)
Relating to investment portfolio:
Foreign exchange forward contracts$51,959 $— $1,244 $54,076 $81 $559 
Relating to underwriting portfolio:
Foreign exchange forward contracts1,318,403 7,752 1,545 1,441,273 37,601 144 
Total derivatives$7,752 $2,789 $37,682 $703 
(1)Derivative assets and derivative liabilities are classified within other assets and other liabilities in the consolidated balance sheets.

The notional amounts of derivative contracts represent the basis on which amounts paid or received are calculated and are presented in the above table to quantify the volume of the Company's derivative activities. Notional amounts are not reflective of credit risk.

None of the Company's derivative instruments are designated as hedges.



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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5.    DERIVATIVE INSTRUMENTS (CONTINUED)
Offsetting Assets and Liabilities

The Company's derivative instruments are generally traded under International Swaps and Derivatives Association master netting agreements which establish terms that apply to all transactions. In the event of a bankruptcy or other stipulated event, master netting agreements provide that individual positions be replaced with a new amount, usually referred to as the termination amount, determined by taking into account market prices and converting into a single currency. Effectively, this contractual close-out netting reduces credit exposure from gross to net exposure.

The following table provides a reconciliation of gross derivative assets and liabilities to the net amounts presented in the consolidated balance sheets, with the difference being attributable to the impact of master netting agreements:
March 31, 2023December 31, 2022
Gross amountsGross amounts offset
Net
amounts(1)
Gross amountsGross amounts offset
Net
amounts(1)
Derivative assets$11,632 $(3,880)$7,752 $41,762 $(4,080)$37,682 
Derivative liabilities$6,669 $(3,880)$2,789 $4,783 $(4,080)$703 
(1)Net asset and liability derivatives are classified within other assets and other liabilities in the consolidated balance sheets.

Refer to Note 3 'Investments' for information on reverse repurchase agreements.

a) Relating to Investment Portfolio

Foreign Currency Risk

The Company's investment portfolio is exposed to foreign currency risk therefore the fair values of its investments are partially influenced by changes in foreign exchange rates. The Company may enter into foreign exchange forward contracts to manage the effect of this foreign currency risk. These foreign currency hedging activities are not designated as specific hedges for financial reporting purposes.

b) Relating to Underwriting Portfolio

Foreign Currency Risk

The Company's insurance and reinsurance subsidiaries and branches operate in various countries. Some of its business is written in currencies other than the U.S. dollar, therefore the underwriting portfolio is exposed to significant foreign currency risk. The Company manages foreign currency risk by seeking to match its foreign-denominated net liabilities under insurance and reinsurance contracts with cash and investments that are denominated in the same currencies. The Company uses derivative instruments, specifically, forward contracts to economically hedge foreign currency exposures.

Other Underwriting-related Risks

The Company enters into insurance and reinsurance contracts that are accounted for as derivatives. These insurance or reinsurance contracts provide indemnification to an insured or cedant as a result of a change in a variable as opposed to an identifiable insurable event. The Company considers these contracts to be part of its underwriting operations.



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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5.    DERIVATIVE INSTRUMENTS (CONTINUED)
The following table provides the total unrealized and realized gains (losses) recognized in net income (loss) for derivatives not designated as hedges:
  Consolidated statement of operations line item that includes gain (loss) recognized in net income (loss)Three months ended March 31,
  20232022
Relating to investment portfolio:
Foreign exchange forward contractsNet investment gains (losses)$(947)$2,242 
Relating to underwriting portfolio:
Foreign exchange forward contractsForeign exchange (losses) gains11,250 (27,976)
Other underwriting-related contractsOther insurance related income (loss)— 555 
Total$10,303 $(25,179)


6.    RESERVE FOR LOSSES AND LOSS EXPENSES
Reserve Roll-Forward

The following table presents a reconciliation of the Company's beginning and ending gross reserve for losses and loss expenses and net reserve for unpaid losses and loss expenses:
Three months ended March 31,
20232022
Gross reserve for losses and loss expenses, beginning of period$15,168,863 $14,653,094 
Less reinsurance recoverable on unpaid losses and loss expenses, beginning of period(5,831,172)(5,017,611)
Net reserve for unpaid losses and loss expenses, beginning of period9,337,691 9,635,483 
Net incurred losses and loss expenses related to:
Current year724,680 741,655 
Prior years(4,038)(8,956)
 720,642 732,699 
Net paid losses and loss expenses related to:
Current year(38,662)(32,477)
Prior years(574,538)(750,969)
 (613,200)(783,446)
Foreign exchange and other46,094 (71,661)
Net reserve for unpaid losses and loss expenses, end of period9,491,227 9,513,075 
Reinsurance recoverable on unpaid losses and loss expenses, end of period5,823,417 4,957,080 
Gross reserve for losses and loss expenses, end of period$15,314,644 $14,470,155 


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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6.    RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED)
The Company writes business with loss experience generally characterized as low frequency and high severity in nature, which can result in volatility in its financial results. During the three months ended March 31, 2023, the Company recognized catastrophe and weather-related losses, net of reinstatement premiums, of $38 million (2022: $60 million).

Estimates for Significant Catastrophe Events

At March 31, 2023, net reserves for losses and loss expenses included estimated amounts for numerous catastrophe events. The magnitude and complexity of losses arising from certain of these events inherently increase the level of uncertainty and, therefore, the level of management judgment involved in arriving at estimated net reserves for losses and loss expenses. These events include New Zealand floods and Cyclone Gabrielle in 2023, Hurricane Ian, Winter Storm Elliot, June European Convective Storms, the Russia-Ukraine war and COVID-19 in 2022, Hurricane Ida, U.S. Winter Storms Uri and Viola and July European Floods in 2021, and the COVID-19 pandemic, Hurricanes Laura, Sally, Zeta and Delta, the Midwest derecho and wildfires across the West Coast of the United States in 2020. As a result, actual losses for these events may ultimately differ materially from current estimates.

Prior Year Reserve Development

The Company's net favorable prior year reserve development arises from changes to estimates of losses and loss expenses related to loss events that occurred in previous calendar years. The following table presents net prior year reserve development by segment:
  Net Favorable Prior Year Reserve Development
InsuranceReinsuranceTotal
Three months ended March 31, 2023$1,041 $2,997 $4,038 
Three months ended March 31, 2022$7,062 $1,894 $8,956 

The following sections provide further details on net prior year reserve development by segment, line of business and accident year:

Insurance Segment:

The following table maps the Company's lines of business to expected claim tails:
Insurance segment
Expected claims tail
ShortMediumLong
Lines of business
PropertyX
Accident and healthX
Marine and aviationX
CyberX
Professional linesX
Credit and political riskX
LiabilityX

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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6.    RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED)
Prior year reserve development by line of business was as follows:
  Three months ended March 31,
  20232022
Favorable (Adverse)Favorable (Adverse)
Property$5,900 $8,060 
Accident and health(304)3,632 
Marine and aviation13,221 14,647 
Cyber8,452 (687)
Professional lines(12,594)(5,936)
Credit and political risk4,519 895 
Liability(18,153)(13,549)
Total$1,041 $7,062 

For the three months ended March 31, 2023, the Company recognized $1 million of net favorable prior year reserve development, the principal components of which were: 
•$13 million of net favorable prior year reserve development on marine and aviation business primarily due to better than expected loss emergence mainly related to 2021 and 2022 accident years.
•$8 million of net favorable prior year reserve development on cyber business primarily due to better than expected loss emergence mainly related to 2019 and older accident years.
•$6 million of net favorable prior year reserve development on property business primarily due to better than expected loss emergence attributable to 2018 and older accident years, partially offset by reserve strengthening related to the 2021 accident year.
•$5 million of net favorable prior year reserve development on credit and political risk business primarily due to a decrease in the loss estimate attributable to a specific large claim related to the 2020 accident year and better than expected loss emergence attributable to the Lloyds book of business related to several accident years.
•$18 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the U.S. primary casualty book of business mainly related to the 2015, 2018 and 2021 accident years.
•$13 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the U.S. commercial management solutions book of business mainly related to several accident years and U.S. financial institutions book of business mainly related to the 2018 accident year.
For the three months ended March 31, 2022, the Company recognized $7 million of net favorable prior year reserve development, the principal components of which were: 
•$15 million of net favorable prior year reserve development on marine and aviation business primarily due to better than expected loss emergence attributable to the marine cargo and marine offshore energy books of business mainly related to the 2018 and 2021 accident years.
•$8 million of net favorable prior year reserve development on property business primarily due to decreases in loss estimates attributable to specific large claims related to the 2017 accident year, and better than expected loss emergence attributable to 2018 catastrophe events.
•$14 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the program book of business mainly related to the 2016 and 2018 accident years and an increase in the loss estimate attributable to a specific large claim related to the 2017 accident year.

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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6.    RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED)
•$6 million of net adverse prior year reserve development on professional lines business primarily due to increases in loss estimates attributable to specific large claims related to the 2015 and 2017 accident years, and reserve strengthening within runoff lines of business mainly related to the 2016 and 2018 accident years.
Reinsurance Segment:
The following table maps the Company's lines of business to expected claim tails:
Reinsurance segment
Expected claims tail
ShortMediumLong
Lines of business
Accident and healthX
AgricultureX
Marine and aviationX
Professional linesX
Credit and suretyX
MotorX
LiabilityX
Run-off lines
CatastropheX
PropertyX
EngineeringX

Prior year reserve development by line of business was as follows:
  Three months ended March 31,
  20232022
Favorable
(Adverse)		Favorable
(Adverse)
Accident and health$6,988 $(499)
Agriculture11,891 1,231 
Marine and aviation(250)497 
Professional lines(3,225)(24,522)
Credit and surety(546)7,465 
Motor(17,122)(1,730)
Liability(32,853)(4,105)
Run-off lines
Catastrophe31,058 (246)
Property6,883 22,539 
Engineering173 1,264 
Total run-off lines38,114 23,557 
Total$2,997 $1,894 



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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6.    RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED)
For the three months ended March 31, 2023, the Company recognized $3 million of net favorable prior year reserve development, the principal components of which were:
•$12 million of net favorable development on agriculture business primarily due to better than expected loss emergence mainly related to the 2022 accident year.
•$7 million of net favorable development on accident and health business primarily due to better than expected loss emergence mainly related to the 2022 accident year.
•$33 million of net adverse development on liability business primarily due to reserve strengthening to reflect increased estimates of future loss trend due to inflation, increases in loss estimates attributable to one large claim within the European book of business related to the 2021 accident year and reserve strengthening within the U.S. proportional book of business related to 2019 and older accident years.
•$17 million of net adverse development on motor business primarily due to reserve strengthening to reflect increased estimates of future loss trend due to inflation.
Run-off lines
•$31 million of net favorable development on catastrophe business primarily due to better than expected loss emergence mainly related to the 2022 accident year.
•$7 million of net favorable development on property business primarily due to better than expected loss emergence attributable to 2022 catastrophe events.
For the three months ended March 31, 2022, the Company recognized $2 million of net favorable prior year reserve development, the principal components of which were:
•$7 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence related to recent accidents years.
•$25 million of net adverse prior year development on professional lines business primarily due to an increase in loss estimates attributable to one cedant related to the 2016 to 2018 accident years and a specific large claim related to the 2017 accident year.
•$4 million of net adverse prior year development on liability business primarily due to an increase in loss estimates attributable to a specific large claim related to the 2018 accident year.
Run-off lines
•$23 million of net favorable prior year development on property business primarily due to better than expected loss emergence attributable to 2018, 2019 and 2021 catastrophe events, and an aggregate excess of loss treaty.


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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7.    EARNINGS PER COMMON SHARE
The following table presents a comparison of earnings per common share and earnings per diluted common share:
Three months ended March 31,
  20232022
Earnings per common share
Net income$180,097 $149,200 
Less: Preferred share dividends7,563 7,563 
Net income available to common shareholders$172,534 $141,637 
Weighted average common shares outstanding84,864 84,961 
Earnings per common share$2.03 $1.67 
Earnings per diluted common share
Net income available to common shareholders$172,534 $141,637 
Weighted average common shares outstanding 84,864 84,961 
    Share-based compensation plans989 847 
Weighted average diluted common shares outstanding85,853 85,808 
Earnings per diluted common share$2.01 $1.65 
Weighted average anti-dilutive shares excluded from the dilutive computation805 989 
    
8.    SHARE-BASED COMPENSATION

Performance Restricted Stock Units

Performance Restricted Stock Units granted in 2023

Share-settled performance restricted stock units granted in 2023 include a market condition which is the Company’s total shareholder return relative to its peer group ("Relative TSR") over the performance period. Relative TSR is calculated in accordance with the terms of the applicable award agreement. If performance goals are achieved, these awards will cliff vest at the end of a three-year performance period within a range of 0% to 200% of target.

Performance Restricted Stock Units granted in 2023 granted in relation to senior leadership transition

Share-settled performance restricted stock units granted in 2023 to one senior leader include a market condition which is the Company’s total shareholder return relative to its peer group ("Relative TSR") over the performance period. Relative TSR is calculated in accordance with the terms of the applicable award agreement. If performance goals are achieved, fifty percent of these awards will vest at the end of a one-year performance period, and the remaining fifty percent of these awards will vest at the end of a three-year vest period within a range of 0% to 200% of target.

Valuation assumptions

The fair value of performance restricted stock units granted in 2023 was measured on the grant date using a Monte Carlo simulation model.



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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

8.    SHARE-BASED COMPENSATION (CONTINUED)
The following table provides details of the significant inputs used in the Monte Carlo simulation model:
Three months ended March 31,
2023 (1)
2023 (2)
2022
Expected volatility 36.24%29.30%33.44%
Expected term (in years)3.01.03.0
Expected dividend yieldn/an/an/a
Risk-free interest rate3.79%4.61%1.26%
(1) Performance restricted stock units granted in the ordinary course of business
(2) Performance restricted stock units granted in relation to senior leadership transition

Beginning share price: The beginning share price was based on the average closing share price over the 10 trading days preceding and including the start of the performance period.

Ending share price: The ending share price was based on the average projected closing share price over the 10 trading days preceding and including the end of the performance period.

Expected volatility: The expected volatility is estimated based on the Company's historical share price volatility.

Expected term: Performance for awards granted in 2023 is generally measured from January 1, 2023 to December 31, 2025, with performance for awards granted to one senior leader in relation to the senior leadership transition being measured from January 1, 2023 to December 31, 2023. Performance for awards granted in 2022 is measured from January 1, 2022 to December 31, 2024.

Expected dividend yield: The expected dividend yield is not applicable to the performance restricted stock units as dividends are paid at the end of the vesting period and do not affect the value of the performance restricted stock units.

Risk-free interest rate: The risk-free rate is estimated based on the yield on a U.S. treasury zero-coupon bond issued with a remaining term equal to the vesting period of the performance restricted stock units.

Compensation expense associated with performance restricted stock units granted in 2023 and 2022 is determined on the grant date based on the fair value calculated by the Monte Carlo simulation model, and is recognized on a straight-line basis over the requisite service period. During the three months ended March 31, 2023, the transition in our senior leadership resulted in a modification of the previously existing vesting terms of the outstanding restricted stock units and performance restricted stock units granted in 2022 and earlier of one senior leader, and a modification of the performance period of that leader's performance restricted stock units granted in 2022. The modifications did not result in an incremental compensation expense.

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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

8.    SHARE-BASED COMPENSATION (CONTINUED)
Share-Settled Awards

The following table provides an activity summary of the Company's share-settled restricted stock units for the three months ended March 31, 2023:
Share-Settled Performance
Restricted Stock Units		Share-Settled Service
Restricted Stock Units
Number of
restricted
stock units
Weighted 
average
grant date
fair value
Number of
restricted
stock units
Weighted  average
grant date
fair value
Non-vested restricted stock units - beginning of period330 $60.01 2,117 $53.16 
     Granted91 72.14 750 58.05 
     Vested(72)62.26 (705)54.02 
     Forfeited— — (33)53.67 
Non-vested restricted stock units - end of period349 $62.73 2,129 $54.59 

Cash-Settled awards

The following table provides an activity summary of the Company's cash-settled restricted stock units for the three months ended March 31, 2023:
Cash-Settled Service
Restricted Stock Units
Number of
restricted stock units
Non-vested restricted stock units - beginning of period60 
     Granted— 
     Vested(59)
     Forfeited(1)
Non-vested restricted stock units - end of period— 

The following table provides additional information related to share-based compensation:
Three months ended March 31,20232022
Share-based compensation expense(1)
$12,526 $15,011 
Tax benefits associated with share-based compensation expense
$2,647 $2,426 
Liability for cash-settled restricted stock units(2)
$— $3,023 
Fair value of restricted stock units vested(3)
$50,714 $46,970 
Unrecognized share-based compensation expense$108,882 $125,964 
Expected weighted average period associated with the recognition of unrecognized share-based compensation expense2.8 years2.9 years
(1) Related to share-settled restricted stock units and cash-settled restricted stock units.
(2) Included in other liabilities in the consolidated balance sheets.
(3) Fair value is based on the closing price of the Company's common shares on the vest date.

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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9.    SHAREHOLDERS' EQUITY
The following table presents changes in common shares issued and outstanding:
  Three months ended March 31,
  20232022
Shares issued, balance at beginning of period176,580 176,580 
Shares issued— — 
Total shares issued at end of period176,580 176,580 
Treasury shares, balance at beginning of period(91,912)(91,806)
Shares repurchased(262)(245)
Shares reissued 777 747 
Total treasury shares at end of period(91,397)(91,304)
Total shares outstanding85,183 85,276 
Treasury Shares
The following table presents common shares repurchased from shares held in Treasury:
  Three months ended March 31,
  20232022
In the open market:
Total shares— — 
Total cost$— $— 
Average price per share(1)
$— $— 
From employees:(2)
Total shares262 245 
Total cost$15,945 $12,977 
Average price per share(1)
$60.82 $52.93 
Total shares repurchased:
Total shares262 245 
Total cost$15,945 $12,977 
Average price per share(1)
$60.82 $52.93 
(1) Calculated using whole numbers.
(2)  Shares are repurchased from employees to facilitate the satisfaction of their personal withholding tax liabilities that arise on the vesting of share-settled restricted stock units.
Dividends
The following table presents dividends declared and paid related to the Company's common and preferred shares:
Per share data
Dividends declaredDividends paid in period of declarationDividends paid in period following declaration
Three months ended March 31, 2023
   Common shares$0.44 $— $0.44 
   Series E preferred shares$34.38 $— $34.38 
Three months ended March 31, 2022
   Common shares$0.43 $— $0.43 
   Series E preferred shares$34.38 $— $34.38 


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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

10.    DEBT AND FINANCING ARRANGEMENTS
Letter of Credit Facility

On March 31, 2023, the $150 million secured letter of credit facility expired. The terms and conditions of the $500 million secured letter of credit facility remain unchanged.

11.     FEDERAL HOME LOAN BANK ADVANCES

The Company's subsidiaries, AXIS Insurance Company and AXIS Surplus Insurance Company are members of the Federal Home Loan Bank of Chicago ("FHLB").

At March 31, 2023, the companies had admitted assets of approximately $3 billion which provides borrowing capacity of up to approximately $750 million.

At March 31, 2023, the Company had $86 million of borrowings under the FHLB program, with maturities in 2023 and 2024 and interest payable at interest rates between 4.2% and 5.5%. The Company incurred interest expense of $1.0 million for the three months ended March 31, 2023. The borrowings under the FHLB program are secured by investments with a fair value of $106 million.

12.    COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company is subject to routine legal proceedings, including arbitrations, arising in the ordinary course of business. These legal proceedings generally relate to claims asserted by or against the Company in the ordinary course of its insurance or reinsurance operations. Estimated amounts payable related to these proceedings are included in the reserve for losses and loss expenses in the Company's financial statements.

The Company is not party to any material legal proceedings arising outside the ordinary course of business.

Investments

Refer to Note 3 - 'Investments' for information on the Company's unfunded investment commitments related to the Company's other investment portfolio.


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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
13.    OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the tax effects allocated to each component of other comprehensive income (loss):
20232022
Before tax amountIncome tax (expense) benefitNet of tax amountBefore tax amountIncome tax (expense) benefitNet of Tax Amount
Three months ended March 31,
Available for sale investments:
Unrealized gains (losses) arising during the period for which an allowance for expected credit losses has not been recognized $153,851 $(19,284)$134,567 $(507,969)$65,247 $(442,722)
Unrealized gains (losses) arising during the period for which an allowance for expected credit losses has been recognized 14,950 (1,328)13,622 (232)— (232)
Adjustment for reclassification of net realized (gains) losses and impairment losses recognized in net income (loss)
44,121 (3,371)40,750 52,916 (7,573)45,343 
Unrealized gains (losses) arising during the period, net of reclassification adjustment
212,922 (23,983)188,939 (455,285)57,674 (397,611)
Foreign currency translation adjustment(535)— (535)2,775 — 2,775 
Total comprehensive income (loss), net of tax$212,387 $(23,983)$188,404 $(452,510)$57,674 $(394,836)

The following table presents details of amounts reclassified from accumulated other comprehensive income ("AOCI") to net income (loss):
Amount reclassified from AOCI(1)
AOCI ComponentsConsolidated statement of operations line item that includes reclassification adjustmentThree months ended March 31,
20232022
Unrealized gains (losses) on available for sale investments
Other realized gains (losses)
$(44,121)$(52,807)
Impairment losses— (109)
Total before tax(44,121)(52,916)
Income tax (expense) benefit3,371 7,573 
Net of tax$(40,750)$(45,343)
(1)     Amounts in parentheses are charges to net income (loss).


14.    RELATED PARTY TRANSACTIONS

At March 31, 2023, the Company has invested $7 million in a loan to Eagle Point Credit Management LLC, which is majority-owned by Trident IX L.P., a Stone Point private equity fund.

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ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our results of operations for the three months ended March 31, 2023 and 2022 and our financial condition at March 31, 2023 and December 31, 2022. This should be read in conjunction with Item 1 'Consolidated Financial Statements' of this report and our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022. Unless otherwise noted, tabular dollars are in thousands, except per share amounts. Amounts in tables may not reconcile due to rounding differences.
 
 Page  
First Quarter 2023 Financial Highlights
Overview
Consolidated Results of Operations
Results by Segment:
i) Insurance Segment
ii) Reinsurance Segment
Net Investment Income and Net Investment Gains (Losses)
Other Expenses (Revenues), Net
Financial Measures
Non-GAAP Financial Measures Reconciliation
Cash and Investments
Liquidity and Capital Resources
Critical Accounting Estimates
Recent Accounting Pronouncements


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FIRST QUARTER 2023 FINANCIAL HIGHLIGHTS

First Quarter 2023 Consolidated Results of Operations
 
•Net income attributable to common shareholders of $173 million, or $2.03 per common share, and $2.01 per diluted common share
•Operating income(1) of $200 million, or $2.33 per diluted common share(1)
•Gross premiums written of $2.4 billion
•Net premiums written of $1.6 billion
•Net premiums earned of $1.2 billion
•Pre-tax catastrophe and weather-related losses, net of reinsurance, of $38 million ($32 million, after-tax), (Insurance: $24 million; Reinsurance: $13 million), or 3.1 points on the current accident year loss ratio, primarily attributable to New Zealand floods, Cyclone Gabrielle, and other weather-related events.
•Net favorable prior year reserve development of $4 million
•Underwriting income(2) of $139 million and combined ratio of 90.9%
•Net investment income of $134 million
•Net investment losses of $20 million
•Foreign exchange losses of $9 million
First Quarter 2023 Consolidated Financial Condition 
•Total cash and investments of $16.0 billion; fixed maturities, short-term investments, and cash and cash equivalents comprise 85% of total cash and investments and have an average credit rating of AA-
•Total assets of $28.6 billion
•Reserve for losses and loss expenses of $15.3 billion and reinsurance recoverable on unpaid and paid losses and loss expenses of $6.4 billion
•Debt of $1.3 billion and debt to total capital ratio(3) of 20.9%
•Common shares repurchased were 262,000 common shares for a total of $16 million
•Common shareholders’ equity of $4.4 billion; book value per diluted common share of $50.31


(1)Operating income (loss) and operating income (loss) per diluted common share are non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. The reconciliations to the most comparable GAAP financial measures, net income (loss) available (attributable) to common shareholders and earnings (loss) per diluted common share, respectively, and a discussion of the rationale for the presentation of these items are provided in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures Reconciliation'.
(2)Consolidated underwriting income (loss) is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to, the most comparable GAAP financial measure, net income (loss), is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Results of Operations', and a discussion of the rationale for its presentation is provided in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures Reconciliation'.    
(3)The debt to total capital ratio is calculated by dividing debt by total capital. Total capital represents the sum of total shareholders’ equity and debt.

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OVERVIEW

Business Overview
AXIS Capital, through its operating subsidiaries, is a global specialty underwriter and provider of insurance and reinsurance solutions with operations in Bermuda, the U.S., Europe, Singapore and Canada. Our underwriting operations are organized around our global underwriting platforms, AXIS Insurance and AXIS Re.
We provide our clients and distribution partners with a broad range of risk transfer products and services, and strong capacity, backed by excellent financial strength. We manage our portfolio holistically, aiming to construct the optimum portfolio of risks, consistent with our risk appetite and the development of our franchise. We nurture an ethical, entrepreneurial, disciplined and diverse culture that promotes outstanding client service, intelligent risk taking, operating efficiency, corporate citizenship and the achievement of superior risk-adjusted returns for our shareholders. We believe that the achievement of our objectives will position us as a global leader in specialty risks. The execution of our business strategy for the first three months of 2023 included the following:

•increasing our relevance in a select number of attractive specialty lines insurance and treaty reinsurance markets including U.S. excess and surplus lines, North America professional lines and Lloyd's specialty insurance business;

•re-balancing our portfolio towards less volatile lines of business that carry attractive returns while deploying capital within risk limits, diversification and risk management;

•investing in attractive growth markets and advancing capabilities to address more transactional specialist business (small to mid-sized customers) with our key distribution partners;

•continuing the implementation of a more focused distribution strategy while building mutually beneficial relationships with clients and partners;

•improving the effectiveness and efficiency of our operating platforms and processes;

•investing in data and technology capabilities, and tools to empower our underwriters and enhance the service that we provide to our customers;

•utilizing reinsurance markets and third-party capital relationships;

•fostering a positive workplace environment that enables us to attract, retain and develop top talent; and

•growing our corporate citizenship program to give back to our communities and help contribute to a more sustainable future.










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Outlook

We are committed to leadership in specialty insurance and reinsurance, where we have depth of talent and expertise. We believe our market positioning, specialty underwriting acumen, best-in-class claims management capabilities and strong relationships with our distributors and clients, supported by a conservative and well performing investment portfolio, will provide opportunities for increased profitability, with differences among our lines of business driven by our tactical response to market conditions.

The industry is observing rising loss cost trends and, across most lines, we expect rate improvement to continue as carriers assess the impact of heightened catastrophe loss activity, financial and social inflation, and geopolitical uncertainty, among other factors. In this market environment, we continue to focus on growth in attractive lines of business and market segments that are adequately priced.

Rates, terms and conditions across the majority of insurance lines continued to be favorable as pricing generally continues to rise, albeit at varying levels based on market dynamics relative to the individual lines. Market dislocations continue to drive more risks into the Wholesale channel, and we anticipate this to sustain throughout 2023 with the strongest market opportunities occurring in Specialty and E&S lines. For AXIS, we are continuing to pursue a highly targeted and disciplined underwriting strategy across every line we write and all our channels of distribution.

The reinsurance market is experiencing improvements in rates, and terms and conditions. Reinsurance carriers continue to prioritize reducing net volatility and increasing profitability. We are focused on underwriting discipline and driving targeted profitable growth among the specialty and casualty reinsurance lines that we offer.

We are encouraged by the pricing improvements we are seeing across most markets, which we expect will carry through 2023, and that rate will continue to keep pace with loss cost trends. Where prices deliver adequate profitability, we will look to grow within our risk and volatility guidelines. With a strengthened book of business, and a growing footprint in the specialty markets that are seeing the most favorable conditions, we believe AXIS is well positioned to drive profitable growth within the current environment.

Recent Developments

Following the recent disruption in the banking sector, we established a working group to review existing underwriting and investment exposures and to assess potential vulnerabilities. In addition, stress tests were undertaken to assess broader potential underwriting and credit impacts. Based on our review, we have determined that potential exposures are within our risk appetite for an event of this nature. We are continuing to closely monitor banking and associated sectoral impacts.

We note that underwriting exposures emanated from areas where we affirmatively accepted these risks which are within our risk management guidelines.

We believe the losses and loss expenses that have been incurred at March 31, 2023, based on current facts and circumstances, are contained within our expected loss ratios. We will continue to monitor the appropriateness of our assumptions as new information comes to light and will adjust our estimates, as appropriate.

Response to Russia-Ukraine War

Following the Russian invasion of Ukraine and the triggering of sanctions against the countries involved, organizations and named individuals, we established a task-force to coordinate our response to this situation.

The Russia-Ukraine war, and its related impacts, are an evolving risk to which we are exposed from an underwriting and reserving perspective.

Our team continues to track the situation closely, to perform stress and scenario testing on underwriting exposures and to consider a range of economic impacts and external pressures across individual product lines.

Underwriting

We continue to monitor international sanctions which impact our global operations that were effective since March 27, 2022. The impact on gross premiums written for the three months ended March 31, 2023 of the cancellation of policies with exposures to the Russia-Ukraine war was immaterial. We continue to evaluate opportunities to write business in the region, not including Russia or Ukraine risks.

We are also continuing to closely monitor cash due from our customers and reinsurers, giving due consideration to the Russia-Ukraine war and associated international sanctions. At March 31, 2023, we considered the potential financial impact of the Russia-Ukraine war

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when determining allowances for expected credit losses for insurance and reinsurance premium balances receivable and reinsurance recoverable balances on unpaid losses and loss expenses. Based on facts and circumstances at that time, we did not adjust allowances for expected credit losses at March 31, 2023. We will continue to monitor the appropriateness of allowances for expected credit losses as new information comes to light. Adjustments to allowances for expected credit losses in subsequent periods could be material.

Reserving

At March 31, 2023, estimated pre-tax net losses attributable to the Russia-Ukraine war were $45 million.

The estimate of net reserves for losses and loss expenses related to the Russia-Ukraine war is subject to significant uncertainty. This uncertainty is driven by the difficulty in performing on-site evaluations, and by the inherent difficulty in making assumptions due to the lack of comparable events, the ongoing nature of the event, and its far-reaching impacts.

While we believe the overall estimate of net reserves for losses and loss expenses is adequate for losses and loss expenses that have been incurred at March 31, 2023, based on current facts and circumstances, we will continue to monitor the appropriateness of our assumptions as new information comes to light and will adjust the estimate of net reserves for losses and loss expenses, as appropriate.

Actual losses for this event may ultimately differ materially from current estimates.

Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results by Segment' for further information

Investments

At March 31, 2023, we had no direct exposures to Russia or Ukraine within our investments portfolio.

Refer to Item 1A, 'Risk Factors' in our most recent Annual Report on Form 10-K for further information.


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CONSOLIDATED RESULTS OF OPERATIONS

  Three months ended March 31,
  2023% Change2022
Underwriting revenues:
Gross premiums written$2,381,976 (10%)$2,634,608 
Net premiums written1,608,356 (11%)1,812,872 
Net premiums earned1,230,199 (2%)1,258,246 
Other insurance related income577 (91%)6,693 
Underwriting expenses:
Net losses and loss expenses(720,642)(2%)(732,699)
Acquisition costs(230,373)(7%)(248,352)
Underwriting-related general and administrative expenses(1)
(140,395)(3%)(145,096)
Underwriting income(2)
139,366 138,792 
Net investment income133,771 46%91,355 
Net investment losses(20,190)(79%)(94,508)
Corporate expenses(1)
(26,416)10%(23,945)
Foreign exchange (losses) gains(8,710)nm44,273 
Interest expense and financing costs(16,894)9%(15,564)
Amortization of intangible assets(2,729)—%(2,729)
Income before income taxes and interest in income (loss) of equity method investments198,198 137,674 
Income tax expense(15,896)nm(24)
Interest in income (loss) of equity method investments(2,205)nm11,550 
Net income180,097 149,200 
Preferred share dividends(7,563)—%(7,563)
Net income available to common shareholders$172,534 $141,637 
nm – not meaningful is defined as a variance greater than +/-100%
(1)Underwriting-related general and administrative expenses is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to general and administrative expenses, the most comparable GAAP financial measure, also included corporate expenses of $26,416 and $23,945 for the three months ended March 31, 2023 and 2022, respectively. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Expenses (Revenues), Net' for further details on corporate expenses. Refer also to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures Reconciliation' for further details.
(2)Consolidated underwriting income (loss) is a non-GAAP financial measure as defined in in Item 10(e) of SEC Regulation S-K. The reconciliation to net income (loss), the most comparable GAAP financial measure, is presented in the table above. Refer also to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures Reconciliation' for further details.





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Underwriting Revenues

Underwriting revenues by segment were as follows:
  Three months ended March 31,
  2023% Change2022
Gross premiums written:
Insurance$1,415,6127%$1,327,264
Reinsurance966,364(26%)1,307,344
Total gross premiums written$2,381,976(10%)$2,634,608
Percent of gross premiums written ceded
Insurance38 %2 pts36 %
Reinsurance25 %(1 pt)26 %
Total percent of gross premiums written ceded33 %2 pts31 %
Net premiums written:
Insurance$882,5765%$843,912
Reinsurance725,780(25%)968,960
Total net premiums written$1,608,356(11%)$1,812,872
Net premiums earned:
Insurance$816,4568%$752,816
Reinsurance413,743(18%)505,430
Total net premiums earned$1,230,199(2%)$1,258,246

Refer to 'Management's Discussion and Analysis of Financial Condition and Results of Operations – Results by Segment' for further details on underwriting revenues.

Combined Ratio

The components of the combined ratio were as follows:
  Three months ended March 31,
  2023
% Point
Change
2022
Current accident year loss ratio, excluding catastrophe and weather-related losses55.8 %1.654.2 %
Catastrophe and weather-related losses ratio3.1 %(1.6)4.7 %
Current accident year loss ratio58.9 %—58.9 %
Prior year reserve development ratio(0.3 %)0.4(0.7 %)
Net losses and loss expenses ratio58.6 %0.458.2 %
Acquisition cost ratio18.7 %(1.0)19.7 %
General and administrative expense ratio(1)
13.6 %0.113.5 %
Combined ratio90.9 %(0.5)91.4 %
(1) The general and administrative expense ratio included corporate expenses not allocated to underwriting segments of 2.1% and 1.9% for the three months ended March 31, 2023 and 2022, respectively. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Expenses (Revenues), Net' for further details.

Refer to 'Management's Discussion and Analysis of Financial Condition and Results of Operations – Results by Segment' for further details on underwriting expenses.

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RESULTS BY SEGMENT

Insurance Segment

Results for the insurance segment were as follows:
  Three months ended March 31,
  2023% Change2022
Revenues:
Gross premiums written$1,415,6127%$1,327,264
Net premiums written882,5765%843,912
Net premiums earned816,4568%752,816
Other insurance related income54(34%)82
Expenses:
Current accident year net losses and loss expenses(450,508)(412,807)
Prior year reserve development1,0417,062
Acquisition costs(147,058)(138,812)
Underwriting-related general and administrative expenses(116,630)(113,950)
Underwriting income$103,355$94,391
Ratios:
% Point
Change
Current accident year loss ratio, excluding catastrophe and weather-related losses52.2 %1.750.5 %
Catastrophe and weather-related losses ratio3.0 %(1.3)4.3 %
Current accident year loss ratio55.2 %0.454.8 %
Prior year reserve development ratio(0.1 %)0.8(0.9 %)
Net losses and loss expenses ratio55.1 %1.253.9 %
Acquisition cost ratio18.0 %(0.4)18.4 %
Underwriting-related general and administrative expense ratio14.2 %(1.0)15.2 %
Combined ratio87.3 %(0.2)87.5 %


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Gross Premiums Written

Gross premiums written by line of business were as follows:
  Three months ended March 31,
  20232022% Change
Professional lines$221,615 16 %$304,415 23 %(27%)
Property381,339 27 %307,919 23 %24%
Liability284,026 20 %253,162 19 %12%
Cyber152,788 11 %131,451 10 %16%
Marine and aviation233,424 16 %224,517 17 %4%
Accident and health79,384 6 %58,301 4 %36%
Credit and political risk63,036 4 %47,499 4 %33%
Total$1,415,612 100 %$1,327,264 100 %7%

Gross premiums written for the three months ended March 31, 2023 increased by $88 million, or 7%, compared to the three months ended March 31, 2022. The increase was attributable to property, liability, cyber, accident and health, credit and political risk, and marine and aviation lines, partially offset by a decrease in professional lines.

The increases in property, liability, cyber, credit and political risk, and marine and aviation lines were due to favorable rate changes and new business. The increase in accident and health lines was due to new business.

The decrease in professional lines was due to reduced business opportunities associated with challenging market conditions.

Ceded Premiums Written

Ceded premiums written for the three months ended March 31, 2023 was $533 million, or 38%, of gross premiums written, compared to $483 million, or 36%, of gross premiums written for the three months ended March 31, 2022.

The increase in ceded premiums written of $50 million, or 10%, was primarily driven by increases in liability and property lines, partially offset by a decrease in professional lines.

The increases in liability and property lines reflected the increase in gross premiums written for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The increase in property lines was also attributable to the restructuring of two significant existing quota share treaties.

The decrease in professional lines reflected the decrease in gross premiums written for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The decrease in professional lines was also due to the restructuring of a significant existing quota share treaty.












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Net Premiums Earned

Net premiums earned by line of business were as follows:
  Three months ended March 31,
  20232022
%
Change
Professional lines$188,953 23 %$214,323 28 %(12%)
Property197,268 25 %180,153 24 %10%
Liability124,854 15 %105,177 14 %19%
Cyber81,820 10 %68,516 9 %19%
Marine and aviation125,330 15 %117,691 16 %6%
Credit and political risk33,688 4 %25,421 3 %33%
Accident and health64,543 8 %41,535 6 %55%
Total$816,456 100 %$752,816 100 %8%

Net premiums earned for the three months ended March 31, 2023 increased by $64 million, or 8%, ($70 million, or 9%, on a constant currency basis(1)), compared to the three months ended March 31, 2022. The increase was primarily driven by increases in gross premiums earned in liability, property, accident and health, and cyber lines. These increases were partially offset by increases in ceded premiums earned in liability and property lines and a decrease in gross premiums earned in professional lines.

Loss Ratio

The components of the loss ratio were as follows:
  Three months ended March 31,
2023
% Point
Change
2022
Current accident year loss ratio55.2 %0.454.8 %
Prior year reserve development ratio(0.1 %)0.8(0.9 %)
Loss ratio55.1 %1.253.9 %

Current Accident Year Loss Ratio

The current accident year loss ratio increased to 55.2% for the three months ended March 31, 2023, from 54.8% for the three months ended March 31, 2022.

During the three months ended March 31, 2023, catastrophe and weather-related losses, were $24 million, or 3.0 points, primarily attributable to New Zealand floods, Cyclone Gabrielle, and other weather-related events.

Comparatively, during the three months ended March 31, 2022, catastrophe and weather-related losses, were $33 million, or 4.3 points, including natural catastrophe and weather-related losses of $17 million primarily attributable to Eastern Australia floods, and other weather-related events. The remaining losses of $16 million were attributable to the Russia-Ukraine war.

After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio increased to 52.2% for the three months ended March 31, 2023, from 50.5% for the three months ended March 31, 2022. The increase in the current accident year loss ratio, after adjusting for the impact of the catastrophe and weather-related losses was principally due to heightened loss trends in liability lines consistent with changes in loss assumptions reflected in recent periods.




(1) Amounts presented on a constant currency basis are non-GAAP financial measures as defined in Item 10 (e) of SEC Regulation S-K. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance.


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Prior Year Reserve Development

Refer to Item 1, Note 6 to the Consolidated Financial Statements 'Reserve for losses and loss expenses' for details on the lines of business, the expected claims tails and prior year development.

Acquisition Cost Ratio

The acquisition cost ratio decreased to 18.0% for the three months ended March 31, 2023, from 18.4% for the three months ended March 31, 2022, principally related to a decrease in variable acquisition costs associated with property lines.

Underwriting-Related General and Administrative Expense Ratio

The underwriting-related general and administrative expense ratio decreased to 14.2% for the three months ended March 31, 2023, from 15.2% for the three months ended March 31, 2022, mainly driven by an increase in net premiums earned, partially offset by an increase in personnel and travel costs.



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Reinsurance Segment

Results from the reinsurance segment were as follows:
  Three months ended March 31,
  2023% Change2022
Revenues:
Gross premiums written$966,364(26%)$1,307,344
Net premiums written725,780(25%)968,960
Net premiums earned413,743(18%)505,430
Other insurance related income523(92%)6,611
Expenses:
Current accident year net losses and loss expenses(274,172)(328,848)
Prior year reserve development2,9971,894
Acquisition costs(83,315)(109,540)
Underwriting-related general and administrative expenses(23,765)(31,146)
Underwriting income$36,011$44,401
Ratios:
% Point
Change
Current accident year loss ratio, excluding catastrophe and weather-related losses63.0 %3.359.7 %
Catastrophe and weather-related losses ratio3.3 %(2.1)5.4 %
Current accident year loss ratio66.3 %1.265.1 %
Prior year reserve development ratio(0.8 %)(0.4)(0.4 %)
Net losses and loss expenses ratio65.5 %0.864.7 %
Acquisition cost ratio20.1 %(1.6)21.7 %
Underwriting-related general and administrative expense ratio5.8 %(0.3)6.1 %
Combined ratio91.4 %(1.1)92.5 %

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Gross Premiums Written

Gross premiums written by line of business were as follows:
  Three months ended March 31,
  20232022
% 
Change
Liability$198,861 21 %$284,348 22 %(30%)
Accident and health295,985 31 %330,732 25 %(11%)
Professional lines136,201 14 %133,579 10 %2%
Credit and surety115,237 12 %103,876 8 %11%
Motor140,115 14 %151,714 12 %(8%)
Agriculture22,399 2 %27,826 2 %(20%)
Marine and aviation30,531 3 %50,485 4 %(40%)
Run-off lines
Catastrophe16,301 2 %138,396 10 %(88%)
Property9,605 1 %76,323 6 %(87%)
Engineering1,129 — %10,065 1 %(89%)
Total run-off lines27,035 3 %224,784 17 %(88%)
Total$966,364 100 %$1,307,344 100 %(26%)

Gross premiums written for the three months ended March 31, 2023, decreased by $341 million, or 26% ($309 million, or 24%, on a constant currency basis), compared to the three months ended March 31, 2022. The decrease was attributable to catastrophe, liability, property, accident and health, marine and aviation, motor, engineering, and agriculture lines, partially offset by increases in credit and surety, and professional lines.

The decreases in catastrophe and property lines were due to the exit from these lines of business in June 2022.

The decrease in liability lines was primarily related to non-renewals of U.S. regional multi-line business following the exit from catastrophe and property lines of business in June 2022.

The decrease in accident and health lines was due to non-renewals and decreased line sizes of several contracts, the timing of renewals of two significant contracts, and negative premium adjustments in the three months ended March 31, 2023, compared to positive premium adjustments in the three months ended March 31, 2022.

The decrease in marine and aviation lines was attributable to non-renewals of marine business and the exit from the aviation business effective January 1, 2023.

The decrease in motor lines was largely driven by non-renewals and decreased line sizes associated with repositioning the portfolio together with the impact of foreign exchange rate movements, partially offset by new business and the timing of the renewal of a significant contract.

The decrease in engineering lines was due to positive premium adjustments related to a significant contract in three months ended March 31, 2022.

The decrease in agriculture lines was attributable to non renewals and a lower level of positive premium adjustments in the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The increase in credit and surety lines was driven by new business, including mortgage business, and the timing of renewals of several contracts.

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The increase in professional lines was due to new business and favorable markets conditions, partially offset by non-renewals and decreased line sizes on several contracts and a lower level of premium adjustments associated with favorable market conditions in the three months ended March 31, 2023, compared to three months ended March 31, 2022.

Ceded Premiums Written

Ceded premiums written for the three months ended March 31, 2023, was $241 million, or 25%, of gross premiums written, compared to $338 million, or 26%, of gross premiums written for the three months ended March 31, 2022. The decrease in ceded premiums written of $98 million, or 29%, was primarily driven by decreases in catastrophe, liability, and credit and surety lines, partially offset by an increase in accident and health lines.

The decrease in catastrophe lines reflected the decrease in gross premiums written in the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The decrease in liability lines was due to a decrease in premiums ceded to an existing quota share retrocessional treaty with a strategic capital partner and the restructuring of a significant quota share retrocessional treaty.

The decrease in credit and surety lines was associated with the restructuring of a significant quota share retrocessional treaty and the non-renewal of a fronting arrangement.

The increase in accident and health lines was attributable to the restructuring of a significant quota share retrocessional treaty.

Net Premiums Earned

Net premiums earned by line of business were as follows:
  Three months ended March 31,
  2023  2022  % Change
Liability$102,441 25 %$109,771 22 %(7%)
Accident and health83,184 20 %95,564 19 %(13%)
Professional lines57,011 14 %56,369 11 %1%
Credit and surety54,013 13 %44,449 9 %22%
Motor38,835 9 %50,017 10 %(22%)
Agriculture25,632 6 %22,129 4 %16%
Marine and aviation16,273 4 %18,103 4 %(10%)
Run-off lines
Catastrophe13,361 4 %55,108 10 %(76%)
Property18,609 4 %39,906 8 %(53%)
Engineering4,384 1 %14,014 3 %(69%)
Total run-off lines36,354 9 %109,028 21 %(67%)
Total$413,743 100 %$505,430 100 %(18%)

Net premiums earned for the three months ended March 31, 2023, decreased by $92 million, or 18% ($75 million, or 15%, on a constant currency basis), compared to the three months ended March 31, 2022. The decrease was primarily driven by decreases in gross premiums earned in catastrophe, property, accident and health, liability, engineering, and motor lines. These decreases were partially offset by a decrease in ceded premiums earned in catastrophe lines and an increase in gross premiums earned in credit and surety lines.

Other Insurance Related Income (Loss)

Other insurance related income decreased by $6 million, to $1 million for the three months ended March 31, 2023, compared to other insurance related income of $7 million for the three months ended March 31, 2022, primarily associated with a decrease in fees related to arrangements with strategic capital partners.

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Loss Ratio

The components of the loss ratio were as follows:
  Three months ended March 31,
  2023% Point
Change		2022
Current accident year loss ratio66.3 %1.265.1 %
Prior year reserve development ratio(0.8 %)(0.4)(0.4 %)
Loss ratio65.5 %0.864.7 %

Current Accident Year Loss Ratio

The current accident year loss ratio increased to 66.3% for the three months ended March 31, 2023 from 65.1% for the three months ended March 31, 2022.

During the three months ended March 31, 2023, catastrophe and weather-related losses, were $13 million, or 3.3 points, primarily attributable to New Zealand floods, and other weather-related events.

Comparatively, during the three months ended March 31, 2022, catastrophe and weather-related losses, were $27 million, or 5.4 points, including weather-related losses of $13 million. The remaining losses of $14 million were attributable to the Russia-Ukraine war.

After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio increased to 63.0% for the three months ended March 31, 2023, from 59.7% for the three months ended March 31, 2022. The increase in the current accident year loss ratio after adjusting for the impact of catastrophe and weather-related losses was principally due to the exit from catastrophe and property lines of business, partially offset by improved loss experience in marine and aviation lines and changes in business mix due to the increase in credit and surety lines of business written in the period which carry a lower loss ratio.

Prior Year Reserve Development

Refer to Item 1, Note 6 to the Consolidated Financial Statements 'Reserve for losses and loss expenses' for details on the lines of business, the expected claims tails and prior year development.

Acquisition Cost Ratio

The acquisition cost ratio decreased to 20.1% for the three months ended March 31, 2023, from 21.7% for the three months ended March 31, 2022, principally related to the impact of retrocessional contracts on professional lines, liability, credit and surety, and motor lines, and a lower level of adjustments attributable to loss-sensitive features mainly in motor lines, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, partially offset by changes in business mix driven by the decrease in catastrophe and property lines of business written in recent periods and the increase in liability, professional lines, and credit and surety lines of business written in recent periods.

Underwriting-Related General and Administrative Expense Ratio

The underwriting-related general and administrative expense decreased to 5.8% for the three months ended March 31, 2023, from 6.1% for the three months ended March 31, 2022, mainly driven by a decrease in personnel costs associated with the exit from catastrophe and property lines of business, partially offset by a decrease in net premiums earned and a decrease in fees related to arrangements with strategic capital partners.

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NET INVESTMENT INCOME AND NET INVESTMENT GAINS (LOSSES)

Net Investment Income

Net investment income from our cash and investment portfolio by major asset class was as follows:
  Three months ended March 31,
  2023% Change2022
Fixed maturities$118,26282%$64,809
Other investments486(98%)26,050
Equity securities2,45513%2,172
Mortgage loans8,386nm4,163
Cash and cash equivalents10,012nm1,118
Short-term investments1,660nm166
Gross investment income141,26143%98,478
Investment expense(7,490)5%(7,123)
Net investment income$133,77146%$91,355
Pre-tax yield:(1)
Fixed maturities3.7 %2.1 %
nm - not meaningful
(1) Pre-tax yield is calculated by dividing annualized net investment income by the average month-end amortized cost balances.

Fixed Maturities

Net investment income attributable to fixed maturities for the three months ended March 31, 2023, was $118 million, compared to net investment income of $65 million for the three months ended March 31, 2022. The increase for the three months ended March 31, 2023, compared to the same period in 2022, was due to an increase in yields.

Other Investments
Net investment income (loss) from other investments was as follows:
  Three months ended March 31,
  20232022
Hedge, direct lending, private equity and real estate funds$(448)$22,803
Other privately held investments5002,025
CLO-Equities4341,222
Total net investment income from other investments$486$26,050
Pre-tax return on other investments(1)
— %2.8 %
(1)The pre-tax return on other investments is calculated by dividing total net investment income from other investments (non-annualized) by the average month-end fair value balances held for the periods indicated.


Net investment income attributable to other investments for the three months ended March 31, 2023, was $0.5 million, compared to net investment income of $26 million, for the three months ended March 31, 2022. The decrease for the three months ended March 31, 2023, compared to the same period in 2022, was primarily related to lower returns from real estate and private equity funds.


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Net Investment Gains (Losses)

Net investment gains (losses) were as follows:
  Three months ended March 31,
  20232022
On sale of investments:
Fixed maturities and short-term investments$(41,279)$(52,724)
Equity securities1,121 (225)
 (40,158)(52,949)
(Increase) decrease in allowance for expected credit losses, fixed maturities, available for sale
(911)(70)
(Increase) decrease in allowance for expected credit losses, mortgage loans
(1,900)— 
Impairment losses (1)
— (109)
Change in fair value of investment derivatives
(947)2,242 
Net unrealized gains (losses) on equity securities23,726 (43,622)
Net investment losses$(20,190)$(94,508)
(1)Related to instances where we intend to sell securities, or it is more likely than not that we will be required to sell securities before their anticipated recovery.

On Sale of Investments and Net Unrealized Gains (Losses) on Equity Securities

Generally, sales of individual securities occur when there are changes in the relative value, credit quality or duration of a particular issue. We may also sell securities to re-balance our investment portfolio in order to change exposure to particular asset classes or sectors.

Net investment losses for the three months ended March 31, 2023 were $20 million, compared to net investment losses of $95 million for the three months ended March 31, 2022.

For the three months ended March 31, 2023, the net investment losses were primarily due to net realized losses on the sale of corporate debt and Non-U.S. government securities, partially offset by net unrealized gains on equity securities.

For the three months ended March 31, 2022, the net investment losses were primarily due to net realized losses on the sale of U.S government, Agency RMBS and corporate debt securities and net unrealized losses on equity securities.

(Increase) decrease in allowance for expected credit losses, fixed maturities, mortgage loans

For the three months ended March 31, 2023, the allowance for expected credit losses increased by $3 million primarily related to one collateral dependent mortgage loan. Refer to Note 3(d) to the Consolidated Financial Statements 'Investments'.

Change in Fair Value of Investment Derivatives

We economically hedge foreign exchange exposure with derivative contracts.

For the three months ended March 31, 2023, foreign exchange hedges resulted in $1 million of net losses primarily attributable to securities denominated in pound sterling and euro.

For the three months ended March 31, 2022, foreign exchange hedges resulted in $2 million of net gains primarily attributable to securities denominated in pound sterling and euro.



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Total Return
Total return on cash and investments was as follows:
  Three months ended March 31,
  20232022
Net investment income$133,771$91,355
Net investments losses(20,190)(94,508)
Change in net unrealized gains (losses) on fixed maturities (1)
212,922(455,285)
Interest in income (loss) of equity method investments(2,205)11,550
Total$324,298$(446,888)
Average cash and investments(2)
$15,832,861$16,258,477
Total return on average cash and investments, pre-tax:
Including investment related foreign exchange movements2.0 %(2.7 %)
Excluding investment related foreign exchange movements(3)
1.9 %(2.6 %)
(1)Change in net unrealized gains (losses) on fixed maturities is calculated by taking net unrealized gains (losses) at period end less net unrealized gains (losses) at the prior period end.
(2)The average cash and investments balance is calculated by taking the average of the period end fair value balances.
(3)Pre-tax total return on cash and investments excluding foreign exchange movements is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to pre-tax total return on cash and investments, the most comparable GAAP financial measure, included foreign exchange (losses) gains of $19 million and $(28) million for the three months ended March 31, 2023 and 2022, respectively.



OTHER EXPENSES (REVENUES), NET

The following table provides a summary of other expenses (revenues), net:
  Three months ended March 31,
  2023% Change2022
Corporate expenses$26,416 10%$23,945 
Foreign exchange losses (gains)8,710 nm(44,273)
Interest expense and financing costs16,894 9%15,564 
Income tax expense15,896 nm24 
Total$67,916 $(4,740)
nm – not meaningful

Corporate Expenses

Corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As a percentage of net premiums earned, corporate expenses were 2.1% for the three months ended March 31, 2023, compared to 1.9% for the three months ended March 31, 2022.

The increase in corporate expenses in 2023 was mainly driven by an increase in performance-related compensation costs and professional fees, partially offset by a decrease in information technology costs and personnel costs.


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Foreign Exchange Losses (Gains)

Some of our business is written in currencies other than the U.S. dollar.

Foreign exchange losses of $9 million for the three months ended March 31, 2023 were mainly driven by the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in euro, partially offset by the strengthening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in Turkish lira.

Foreign exchange gains of $44 million for the three months ended March 31, 2022 were mainly driven by the impact of the strengthening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in pound sterling and euro.

Interest Expense and Financing Costs

Interest expense and financing costs are related to interest due on the 5.150% senior unsecured notes ("5.150% Senior Notes") issued in 2014, the 4.000% senior unsecured notes ("4.000% Senior Notes") issued in 2017, the 3.900% senior unsecured notes ("3.900% Senior Notes"), the 4.900% fixed-rate reset junior subordinated notes ("Junior Subordinated Notes") issued in 2019, and the Federal Home Loan advances ("FHLB advances") received in the 2022 and 2023.

Interest expense and financing costs were $17 million and $16 million for the three months ended March 31, 2023 and 2022, respectively.

Income Tax Expense (Benefit)

Income tax expense (benefit) primarily results from income (loss) generated by our foreign operations in the U.S. and Europe. Our effective tax rate which is calculated as income tax expense (benefit) divided by income (loss) before tax including interest in income (loss) of equity method investments was 8.1% and —% for the three months ended March 31, 2023 and 2022, respectively. This effective rate can vary between periods depending on the distribution of net income (loss) among tax jurisdictions, as well as other factors.

The tax expense of $16 million for the three months ended March 31, 2023 was principally due to the generation of pre-tax income in our U.S., U.K and European operations, partially offset by a decrease in the valuation allowance on deferred tax assets in Europe.

The tax expense of $nil for the three months ended March 31, 2022 was principally due to the generation of pre-tax income in our U.S. operations, offset by the generation of pre-tax losses in our U.K. and European operations.


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FINANCIAL MEASURES

We believe the following financial indicators are important in evaluating performance and measuring the overall growth in value generated for common shareholders:
  Three months ended March 31,
  20232022
Annualized return on average common equity(1)
16.2 %12.0 %
Annualized operating return on average common equity(2)
18.8 %15.3 %
Book value per diluted common share(3)
$50.31$51.97
Cash dividends declared per common share$0.44$0.43
Increase (decrease) in book value per diluted common share adjusted for dividends$3.80$(3.38)
(1)Annualized return on average common equity ("ROACE") is calculated by dividing annualized net income (loss) available (attributable) to common shareholders for the period by the average common shareholders' equity determined using the common shareholders' equity balances at the beginning and end of the period.
(2)Annualized operating return on average common equity ("operating ROACE") is a non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to the most comparable GAAP financial measure, annualized ROACE, and a discussion of the rationale for its presentation is provided in 'Management's Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures Reconciliation'.
(3)Book value per diluted common share represents total common shareholders’ equity divided by the number of diluted common share outstanding, determined using the treasury stock method. Cash-settled restricted stock units are excluded.

Return on Average Common Equity

Our objective is to generate superior returns on capital that appropriately reward common shareholders for the risks we assume and to grow revenue only when we expect the returns will meet or exceed our requirements. We recognize that the nature of underwriting cycles and the frequency or severity of large loss events in any one year may challenge the ability to achieve a profitability target in any specific period.

ROACE reflects the impact of net income (loss) available (attributable) to common shareholders including net investment gains (losses), foreign exchange losses (gains) and interest in income (loss) of equity method investments.

The increase in ROACE for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was primarily driven by a decrease in net investment losses, an increase in net investment income, and a decrease in average common shareholder's equity, partially offset by foreign exchange losses, an increase in income tax expense and interest in loss of equity method investments.

Operating ROACE excludes the impact of net investment gains (losses), foreign exchange losses (gains) and interest in income (loss) of equity method investments.

The increase in operating ROACE for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was primarily driven by an increase in net investment income and a decrease in average common shareholder's equity, partially offset by an increase in income tax expense.



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Book Value per Diluted Common Share

We consider book value per diluted common share to be an appropriate measure of returns to common shareholders, as we believe growth in book value on a diluted basis will ultimately translate into appreciation of our stock price.

During the three months ended March 31, 2023, book value per diluted common share increased by 7% due to a decrease in net unrealized investment losses reported in other comprehensive income (loss), and net income in the period, partially offset by common dividends declared.

During the three months ended March 31, 2022, book value per diluted common share decreased by 7% due to net unrealized investment losses reported in other comprehensive income (loss) and common dividends declared, partially offset by net income in the period.

Cash Dividends Declared per Common Share

We believe in returning excess capital to shareholders by way of dividends and share repurchases. Accordingly, dividend policy is an integral part of the value we create for shareholders. Our cumulative strong earnings have permitted our Board of Directors to approve nineteen successive annual increases in quarterly common share dividends.

Book Value per Diluted Common Share Adjusted for Dividends

Taken together, we believe that growth in book value per diluted common share and common share dividends declared represent the total value created for common shareholders. As companies in the insurance industry have differing dividend payout policies, we believe investors use the book value per diluted common share adjusted for dividends metric to measure comparable performance across the industry.

During the three months ended March 31, 2023, the increase in total value of $3.80, or 8%, was driven by a decrease in net unrealized investment losses recognized in other comprehensive income (loss), and net income in the period.

During the three months ended March 31, 2022, the decrease in total value of $3.38, or 6%, was driven by net unrealized investment losses recognized in other comprehensive income (loss), partially offset by net income in the period.



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NON-GAAP FINANCIAL MEASURES RECONCILIATION

Three months ended March 31,
20232022
Net income available to common shareholders$172,534$141,637
Net investment (gains) losses(1)
20,19094,508
Foreign exchange loss (gains)(2)
8,710(44,273)
Interest in (income) loss of equity method investments(3)
2,205(11,550)
Income tax benefit(3,585)(497)
Operating income$200,054$179,825
Earnings per diluted common share$2.01$1.65
Net investment (gains) losses0.241.10
Foreign exchange (losses) gains0.10(0.52)
Interest in (income) loss of equity method investments0.03(0.13)
Income tax expense benefit(0.05)(0.01)
Operating income per diluted common share$2.33$2.09
Weighted average diluted common shares outstanding(4)
85,85385,808
Average common shareholders' equity$4,250,070$4,715,599
Annualized return on average common equity16.2 %12.0 %
Annualized operating return on average common equity(5)
18.8 %15.3 %
(1)Tax expense (benefit) of ($1,528) and ($13,313) for the three months ended March 31, 2023 and 2022, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the ability to utilize capital losses.
(2)Tax expense (benefit) of ($2,057) and $12,816 for the three months ended March 31, 2023 and 2022, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the tax status of specific foreign exchange transactions.
(3)Tax expense (benefit) of $nil for the three and three months ended March 31, 2023 and 2022, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions.
(4)Refer to Item 1, Note 7 to our Consolidated Financial Statements 'Earnings per Common Share' for further details.
(5)Annualized operating ROACE is a non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to the most comparable GAAP financial measure, annualized ROACE, is presented in the table above, and a discussion of the rationale for its presentation is provided below.

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Rationale for the Use of Non-GAAP Financial Measures

We present our results of operations in a way we believe will be meaningful and useful to investors, analysts, rating agencies and others who use our financial information to evaluate our performance. Some of the measurements we use are considered non-GAAP financial measures under SEC rules and regulations. In this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), we present underwriting-related general and administrative expenses, consolidated underwriting income (loss), operating income (loss) (in total and on a per share basis), annualized operating return on average common equity ("operating ROACE"), amounts presented on a constant currency basis and pre-tax total return on cash and investments excluding foreign exchange movements which are non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. We believe that these non-GAAP financial measures, which may be defined and calculated differently by other companies, help explain and enhance the understanding of our results of operations. However, these measures should not be viewed as a substitute for those determined in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").

Underwriting-Related General and Administrative Expenses

Underwriting-related general and administrative expenses include those general and administrative expenses that are incremental and/or directly attributable to our underwriting operations. While this measure is presented in Item 1, Note 2 to the Consolidated Financial Statements 'Segment Information', it is considered a non-GAAP financial measure when presented elsewhere on a consolidated basis.

Corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As these costs are not incremental and/or directly attributable to our underwriting operations, these costs are excluded from underwriting-related general and administrative expenses, and therefore, consolidated underwriting income (loss). General and administrative expenses, the most comparable GAAP financial measure to underwriting-related general and administrative expenses, also includes corporate expenses.

The reconciliation of underwriting-related general and administrative expenses to general and administrative expenses, the most comparable GAAP financial measure, is presented in 'Management's Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Results of Operations'.

Consolidated Underwriting Income (Loss)

Consolidated underwriting income (loss) is a pre-tax measure of underwriting profitability that takes into account net premiums earned and other insurance related income (loss) as revenues and net losses and loss expenses, acquisition costs and underwriting-related general and administrative expenses as expenses. While this measure is presented in Item 1, Note 2 to the Consolidated Financial Statements 'Segment Information', it is considered a non-GAAP financial measure when presented elsewhere on a consolidated basis.

We evaluate our underwriting results separately from the performance of our investment portfolio. As a result, we believe it is appropriate to exclude net investment income and net investment gains (losses) from our underwriting profitability measure.

Foreign exchange losses (gains) in our consolidated statements of operations primarily relate to the impact of foreign exchange rate movements on our net insurance-related liabilities. However, we manage our investment portfolio in such a way that unrealized and realized foreign exchange losses (gains) on our investment portfolio, including unrealized foreign exchange losses (gains) on our equity securities, and foreign exchange losses (gains) realized on the sale of our available for sale investments and equity securities recognized in net investment gains (losses), and unrealized foreign exchange losses (gains) on our available for sale investments recognized in other comprehensive income (loss), generally offset a large portion of the foreign exchange losses (gains) arising from our underwriting portfolio, thereby minimizing the impact of foreign exchange rate movements on total shareholders' equity. As a result, we believe that foreign exchange losses (gains) in our consolidated statements of operations in isolation are not a meaningful contributor to our underwriting performance. Therefore, foreign exchange losses (gains) are excluded from consolidated underwriting income (loss).

Interest expense and financing costs primarily relate to interest payable on our debt. As these expenses are not incremental and/or directly attributable to our underwriting operations, these expenses are excluded from underwriting-related general and administrative expenses and, therefore, consolidated underwriting income (loss).




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Amortization of intangible assets arose from business decisions, the nature and timing of which are not related to the underwriting process. Therefore, these expenses are excluded from consolidated underwriting income (loss).

We believe that the presentation of underwriting-related general and administrative expenses and consolidated underwriting income (loss) provides investors with an enhanced understanding of our results of operations, by highlighting the underlying pre-tax profitability of our underwriting activities. The reconciliation of consolidated underwriting income (loss) to net income (loss), the most comparable GAAP financial measure, is presented in 'Management's Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Results of Operations'.

Operating Income (Loss)

Operating income (loss) represents after-tax operational results exclusive of net investment gains (losses), foreign exchange losses (gains) and interest in income (loss) of equity method investments.

Although the investment of premiums to generate income and investment gains (losses) is an integral part of our operations, the determination to realize investment gains (losses) is independent of the underwriting process and is heavily influenced by the availability of market opportunities. Furthermore, many users believe that the timing of the realization of investment gains (losses) is somewhat opportunistic for many companies.

Foreign exchange losses (gains) in our consolidated statements of operations primarily relate to the impact of foreign exchange rate movements on net insurance-related liabilities. However, we manage our investment portfolio in such a way that unrealized and realized foreign exchange losses (gains) on our investment portfolio, including unrealized foreign exchange losses (gains) on our equity securities and foreign exchange losses (gains) realized on the sale of our available for sale investments and equity securities recognized in net investment gains (losses) and unrealized foreign exchange losses (gains) on our available for sale investments in other comprehensive income (loss), generally offset a large portion of the foreign exchange losses (gains) arising from our underwriting portfolio, thereby minimizing the impact of foreign exchange rate movements on total shareholders' equity. As a result, we believe that foreign exchange losses (gains) in our consolidated statements of operations in isolation are not a meaningful contributor to the performance of our business. Therefore, foreign exchange losses (gains) are excluded from operating income (loss).

Interest in income (loss) of equity method investments is primarily driven by business decisions, the nature and timing of which are not related to the underwriting process. Therefore, this income (loss) is excluded from operating income (loss).

Certain users of our financial statements evaluate performance exclusive of after-tax net investment gains (losses), foreign exchange losses (gains) and interest in income (loss) of equity method investments in order to understand the profitability of recurring sources of income.

We believe that showing net income (loss) available (attributable) to common shareholders exclusive of after-tax net investment gains (losses), foreign exchange losses (gains) and interest in income (loss) of equity method investments reflects the underlying fundamentals of our business. In addition, we believe that this presentation enables investors and other users of our financial information to analyze performance in a manner similar to how our management analyzes the underlying business performance. We also believe this measure follows industry practice and, therefore, facilitates comparison of our performance with our peer group. We believe that equity analysts and certain rating agencies that follow us, and the insurance industry as a whole, generally exclude these items from their analyses for the same reasons. The reconciliation of operating income (loss) to net income (loss) available (attributable) to common shareholders, the most comparable GAAP financial measure, is presented above.

We also present operating income (loss) per diluted common share and annualized operating ROACE, which are derived from the operating income (loss) measure and are reconciled above to the most comparable GAAP financial measures, earnings (loss) per diluted common share and annualized return on average common equity ("ROACE"), respectively.


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Constant Currency Basis

We present gross premiums written, net premiums written and net premiums earned on a constant currency basis in this MD&A. The amounts presented on a constant currency basis are calculated by applying the average foreign exchange rate from the current year to the prior year amounts. We believe this presentation enables investors and other users of our financial information to analyze growth in gross premiums written, net premiums written and net premiums earned on a constant basis. The reconciliation to gross premiums written, net premiums written and net premiums earned on a GAAP basis is presented in 'Management's Discussion and Analysis of Financial Condition and Results of Operations – Results by Segment'.

Pre-Tax Total Return on Cash and Investments excluding Foreign Exchange Movements

Pre-tax total return on cash and investments excluding foreign exchange movements measures net investment income (loss), net investments gains (losses), interest in income (loss) of equity method investments, and change in unrealized gains (losses) generated by average cash and investment balances. We believe this presentation enables investors and other users of our financial information to analyze the performance of our investment portfolio. The reconciliation of pre-tax total return on cash and investments excluding foreign exchange movements to pre-tax total return on cash and investments, the most comparable GAAP financial measure, is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Net Investment Income and Net Investment Gains (Losses)'.


CASH AND INVESTMENTS

Details of cash and investments are as follows:
  March 31, 2023December 31, 2022
  Fair ValueFair Value
Fixed maturities, available for sale$11,627,555 $11,326,894 
Fixed maturities, held to maturity(1)
696,775 674,743 
Equity securities573,916 485,253 
Mortgage loans634,470 627,437 
Other investments1,008,887 996,751 
Equity method investments146,083 148,288 
Short-term investments70,416 70,310 
Total investments$14,758,102 $14,329,676 
Cash and cash equivalents(2)
$1,179,295 $1,174,653 
(1)Presented at net carrying value of $717 million (2022: $698 million) in the consolidated balance sheets.
(2)Includes restricted cash and cash equivalents of $362 million and $423 million at March 31, 2023 and at December 31, 2022, respectively.




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Overview

The fair value of total investments increased by $428 million in the three months ended March 31, 2023, driven by the increase in market value of fixed maturities due to the decline in yields.

An analysis of our investment portfolio by asset class is detailed below:

Fixed Maturities

Details of our fixed maturities portfolio are as follows:
  March 31, 2023December 31, 2022
  Fair Value% of TotalFair Value% of Total
Fixed maturities:
U.S. government and agency$2,901,312 24 %$2,639,330 22 %
Non-U.S. government558,077 5 %562,029 5 %
Corporate debt4,372,877 36 %4,329,328 36 %
Agency RMBS1,272,161 10 %1,202,785 10 %
CMBS923,503 7 %947,778 8 %
Non-agency RMBS129,485 1 %133,534 1 %
ABS2,018,493 16 %2,030,498 17 %
Municipals(1)
148,422 1 %156,355 1 %
Total$12,324,330 100 %$12,001,637 100 %
Credit ratings:
U.S. government and agency$2,901,312 24 %$2,639,330 22 %
AAA(2)
4,223,886 34 %4,189,661 36 %
AA865,033 7 %871,966 7 %
A1,830,773 15 %1,835,746 15 %
BBB1,396,112 11 %1,377,638 11 %
Below BBB(3)
1,107,214 9 %1,087,296 9 %
Total$12,324,330 100 %$12,001,637 100 %
(1)Includes bonds issued by states, municipalities, and political subdivisions.
(2)Includes U.S. government-sponsored agencies, residential mortgage-backed securities ("RMBS") and commercial mortgage-backed securities ("CMBS").
(3)Non-investment grade and non-rated securities.

At March 31, 2023, fixed maturities had a weighted average credit rating of AA- (2022: AA-), a book yield of 3.7% (2022: 3.5%) and an average duration of 3.0 years (2022: 3.0 years). At March 31, 2023, fixed maturities together with short-term investments, and cash and cash equivalents (i.e. total investments of $13.6 billion), had an average credit rating of AA- (2022: AA-) and an average duration of 2.8 years (2022: 2.8 years).

At March 31, 2023, net unrealized losses on fixed maturities were $637 million, compared to net unrealized losses of $850 million at December 31, 2022, a decrease of $213 million due to the decline in yields.

Equity Securities

At March 31, 2023, net unrealized gains on equity securities were $15 million, compared to net unrealized losses of $9 million at December 31, 2022, an increase of $24 million driven by the improvement in global equity markets and the increase in market value of bond mutual funds.

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Mortgage Loans

At March 31, 2023, our investment in commercial mortgage loans was $634 million, compared to $627 million at December 31, 2022, an increase of $7 million. The commercial mortgage loans are high quality, first lien and are collateralized by a variety of commercial properties which are diversified geographically throughout the U.S. and by property type to reduce the risk of concentration. At March 31, 2023, there is one collateral dependent loan with a loan-to-value ratio in excess of 100%, resulting in an allowance for credit losses of $2 million.

Other Investments

Details of our other investments portfolio are as follows:
March 31, 2023December 31, 2022
  Fair Value% of TotalFair Value% of Total
Hedge funds
Multi-strategy funds30,721 3 %32,616 3 %
Total hedge funds30,721 3 %32,616 3 %
Direct lending funds258,183 26 %258,626 26 %
Private equity funds273,859 27 %265,836 27 %
Real estate funds300,152 30 %298,499 30 %
Total hedge, direct lending, private equity and real estate funds862,915 86 %855,577 86 %
CLO-Equities5,019 — %5,016 — %
Other privately held investments140,953 14 %136,158 14 %
Total other investments$1,008,887 100 %$996,751 100 %

Refer to Note 3(e) to the Consolidated Financial Statements 'Investments'.

Equity Method Investments

Our ownership interest in Harrington is reported in interest in income (loss) of equity method investments.

Interest in income (loss) of equity method investments of $(2) million, for the three months ended March 31, 2023, compared to $12 million for the three months ended March 31, 2022, was attributable to lower investment gains realized by Harrington.


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LIQUIDITY AND CAPITAL RESOURCES

Refer to the ‘Liquidity and Capital Resources’ section included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022 for a general discussion of liquidity and capital resources.

The following table summarizes consolidated capital:
March 31, 2023December 31, 2022
Debt$1,312,658 $1,312,314 
Preferred shares550,000 550,000 
Common equity4,410,229 4,089,910 
Shareholders’ equity4,960,229 4,639,910 
Total capital$6,272,887 $5,952,224 
Ratio of debt to total capital20.9 %22.0 %

We finance operations with a combination of debt and equity capital. The debt to total capital ratio provides an indication of our capital structure, along with some insight into our financial strength. While the impact of unrealized investment losses recognized in other comprehensive income (loss), following a decrease in market value of our fixed maturities in 2022, has reduced common shareholders' equity, we believe that our financial flexibility remains strong and adjustments are made, if there are developments that differ from previous expectations.
Federal Home Loan Bank Advances

The Company's subsidiaries, AXIS Insurance Company and AXIS Surplus Insurance Company are members of the Federal Home Loan Bank of Chicago ("FHLB").

At March 31, 2023, the Company had $86 million of borrowings under the FHLB program, with maturities in 2023 and 2024 and interest payable at interest rates between 4.2% and 5.5%. The Company incurred interest expense of $1 million for the three months ended March 31, 2023. The borrowings under the FHLB program are secured by investments with a fair value of $106 million.

Line of credit

On March 31, 2023, the $150 million secured letter of credit facility expired as we determined that the $500 million secured letter of credit facility would be sufficient to meet future obligations.
Common Equity
During the three months ended March 31, 2023, common equity increased by $320 million. The following table reconciles opening and closing common equity positions:

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Three months ended March 31,2023
Common equity - opening$4,089,910 
Share-based compensation expense11,977 
Change in unrealized gains (losses) on available for sale investments, net of tax188,939 
Foreign currency translation adjustment(535)
Net income (loss)180,097 
Preferred share dividends(7,563)
Common share dividends(38,355)
Treasury shares repurchased(15,945)
Treasury shares reissued1,704 
Common equity - closing$4,410,229 

During the three months ended March 31, 2023, we repurchased 262,000 common shares from employees to facilitate the satisfaction of their personal withholding tax liabilities that arise on the vesting of share-settled restricted stock units granted under our 2017 Long-Term Equity Compensation Plans for a total cost of $16 million.
At April 26, 2023, we had $100 million of remaining authorization under our Board-authorized share repurchase program for common share repurchases through December 31, 2023 (refer to Part II, Item 2 'Unregistered Sales of Equity Securities and Use of Proceeds' for further details).
We expect cash flows generated from operations, combined with liquidity provided by our investment portfolio, will be sufficient to cover cash outflows and other contractual commitments through the foreseeable future.


CRITICAL ACCOUNTING ESTIMATES

The consolidated financial statements include certain amounts that are inherently uncertain and judgmental in nature. As a result, we are required to make assumptions and best estimates in order to determine the reported values. We consider an accounting estimate to be critical if: (1) it requires that significant assumptions be made in order to deal with uncertainties and (2) changes in the estimate could have a material impact on our results of operations, financial condition or liquidity.

We believe the material items requiring such subjective and complex estimates are:

•reserves for losses and loss expenses;

•reinsurance recoverable on unpaid losses and loss expenses, including the allowance for expected credit losses;

•gross premiums written and net premiums earned;

•fair value measurements of financial assets and liabilities; and

•the allowance for expected credit losses associated with fixed maturities, available for sale.

We believe that the critical accounting estimates discussion in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, continues to describe the significant estimates and judgments included in the preparation of the consolidated financial statements.

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RECENT ACCOUNTING PRONOUNCEMENTS

At March 31, 2023, there were no recently issued accounting pronouncements that we have not yet adopted that we expect could have a material impact on our results of operations, financial condition or liquidity.


ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to Item 7A included in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes to this item since December 31, 2022, with the exception of the changes in exposure to foreign currency risk presented below.

Foreign Currency Risk
The table below provides a sensitivity analysis of total net foreign currency exposures:
AUDCADEURGBPJPYOtherTotal
At March 31, 2023
Net managed assets (liabilities), excluding derivatives
$1,132 $362,175 $(427,638)$(272,746)$(79,578)$68,383 $(348,272)
Foreign currency derivatives, net
(18,423)(349,405)460,978 238,330 36,115 (87,156)280,439 
Net managed foreign currency exposure
(17,291)12,770 33,340 (34,416)(43,463)(18,773)(67,833)
Other net foreign currency exposure— 137 (817)(453)— 995 (138)
Total net foreign currency exposure$(17,291)$12,907 $32,523 $(34,869)$(43,463)$(17,778)$(67,971)
Net foreign currency exposure as a percentage of total shareholders’ equity
(0.3 %)0.3 %0.7 %(0.7 %)(0.9 %)(0.4 %)(1.4 %)
Pre-tax impact of net foreign currency exposure on shareholders’ equity given a hypothetical 10% rate movement(1)
$(1,729)$1,291 $3,252 $(3,487)$(4,346)$(1,778)$(6,797)
(1)Assumes 10% appreciation in underlying currencies relative to the U.S. dollar.

Total Net Foreign Currency Exposure

At March 31, 2023, total net foreign currency liabilities were $68 million primarily driven by exposures to the japanese yen, pound sterling, australian dollar, and other non-core currencies. During the three months ended March 31, 2023, the change in total net foreign currency liabilities was primarily due to new business written in the period.



ITEM 4.     CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management has performed an evaluation, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and

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15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act")) at March 31, 2023. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, at March 31, 2023, the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

The Company’s management has performed an evaluation, with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of changes in the Company’s internal control over financial reporting that occurred during the three months ended March 31, 2023.

Based upon that evaluation, there were no changes in the Company's internal control over financial reporting that occurred during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


PART II     OTHER INFORMATION


ITEM 1.     LEGAL PROCEEDINGS

From time to time, we are subject to routine legal proceedings, including arbitrations, arising in the ordinary course of business. These legal proceedings generally relate to claims asserted by or against us in the ordinary course of insurance or reinsurance operations. Estimated amounts payable related to these proceedings are included in the reserve for losses and loss expenses in the Company's financial statements.

We are not party to any material legal proceedings arising outside the ordinary course of business.


ITEM 1A.     RISK FACTORS

There were no material changes from the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

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ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table shows information regarding the number of common shares repurchased in the quarter ended March 31, 2023:
Period
Total number
of shares
purchased (a) (b)
Average
price paid
per share
Total number of shares purchased as part of
publicly announced
programs (a)
Maximum number (or approximate
dollar value) of shares that may yet be
purchased under the announced programs (c)
January 1-31, 20231 $54.49 —$100 million
February 1-28, 20236 $61.54 — $100 million
March 1-31, 2023255 $60.84 — $100 million
Total  
262  — $100 million
(a) In thousands.
(b) Includes shares repurchased from employees to facilitate the satisfaction of their personal withholding tax liabilities that arise on the vesting of share-settled restricted stock units.
(c) On December 8, 2022, our Board of Directors authorized a share repurchase program for up to $100 million of our common shares, effective January 1, 2023 through to December 31, 2023. Share repurchases may be effected from time to time in the open market or privately negotiated transactions, depending on market conditions.



ITEM 5.     OTHER INFORMATION

Disclosure of Certain Activities Under Section 13(r) of the Securities Exchange Act of 1934

Section 13(r) of the Securities Exchange Act of 1934, as amended, requires issuers to disclose in their annual and quarterly reports whether they or any of their affiliates knowingly engaged in certain activities with Iran or with individuals or entities that are subject to certain sanctions under U.S. law. Issuers are required to provide this disclosure even where the activities, transactions or dealings are conducted outside of the U.S. in compliance with applicable law.

As and when allowed by the applicable law and regulations, certain of our non-U.S. subsidiaries provide treaty reinsurance coverage to non-U.S. insurers on a worldwide basis, including insurers of liability, marine, aviation and energy risks, and as a result, these underlying insurance and reinsurance portfolios may have some exposure to Iran. In addition, we provide insurance and facultative reinsurance on a global basis to non-U.S. insureds and insurers, including for liability, marine, aviation and energy risks. Coverage provided to non-Iranian business may indirectly cover an exposure in Iran. For example, certain of our operations underwrite global marine hull war and cargo policies that provide coverage for vessels navigating into and out of ports worldwide, including Iran. For the quarter ended March 31, 2023, there has been no material amount of premium allocated or apportioned to activities relating to Iran. We intend for our non-U.S. subsidiaries to continue to provide such coverage only to the extent permitted by applicable law.

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ITEM 6.     EXHIBITS
Rule 2.7 Announcement, dated July 5, 2017 in connection with acquisition of Novae Group plc (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on July 6, 2017).
Rule 2.7 Announcement, dated August 24, 2017 in connection with acquisition of Novae Group plc (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on August 25, 2017).
Certificate of Incorporation and Memorandum of Association (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1(Amendment No. 1) (No. 333-103620) filed on April 16, 2003).
Amended and Restated Bye-Laws (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 filed on May 15, 2009).
Specimen Common Share Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (Amendment No. 3) (No. 333-103620) filed on June 10, 2003).
Certificate of Designations establishing the specific rights, preferences, limitations and other terms of the Series E Preferred Shares (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on November 7, 2016).
Employment Agreement dated April 11, 2023 by and between AXIS Specialty U.S. Services, Inc., AXIS Capital Holdings Limited and Vincent Tizzio (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 14, 2023).
Form of Employee Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K filed on February 27, 2023).
Form of Employee Restricted Stock Unit Award Agreement (Three Year - Performance Vesting) (incorporated by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K filed on February 27, 2023).
Form of Employee Restricted Stock Unit Award Agreement (One Year - Performance Vesting) (incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K filed on February 27, 2023).
†31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
†31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
†32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
†32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
†101The following financial information from AXIS Capital Holdings Limited’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 formatted in Inline XBRL: (i) Consolidated Balance Sheets at March 31, 2023 and December 31, 2022; (ii) Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022; (iv) Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2023 and 2022; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022; and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail.
†104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
† Filed herewith.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 26, 2023
 
AXIS CAPITAL HOLDINGS LIMITED
By:
/S/ ALBERT BENCHIMOL
Albert Benchimol
President and Chief Executive Officer
(Principal Executive Officer)
/S/ PETER VOGT
Peter Vogt
Chief Financial Officer
(Principal Financial Officer)


































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Exhibit 31.1
CERTIFICATION
AXIS Capital Holdings Limited
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Albert Benchimol, certify that:
 

1.I have reviewed this Quarterly Report on Form 10-Q of AXIS Capital Holdings Limited for the period ended March 31, 2023;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
/S/ ALBERT BENCHIMOL
Date:April 26, 2023
Albert Benchimol
President and Chief Executive Officer

Exhibit 31.2
CERTIFICATION
AXIS Capital Holdings Limited
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Peter Vogt, certify that:
 

1.I have reviewed this Quarterly Report on Form 10-Q of AXIS Capital Holdings Limited for the period ended March 31, 2023;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
/S/ PETER VOGT
Date:April 26, 2023
Peter Vogt
Chief Financial Officer

Exhibit 32.1
AXIS CAPITAL HOLDINGS LIMITED
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of AXIS Capital Holdings Limited (the “Company”) for the quarterly period ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Albert Benchimol, Chief Executive Officer of the Company, hereby certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
  
Date:April 26, 2023
/S/ ALBERT BENCHIMOL
 Albert Benchimol
 President and Chief Executive Officer

This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

Exhibit 32.2
AXIS CAPITAL HOLDINGS LIMITED
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of AXIS Capital Holdings Limited (the “Company”) for the quarterly period ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter Vogt, Chief Financial Officer of the Company, hereby certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
  
Date:April 26, 2023/S/ PETER VOGT
 Peter Vogt
 Chief Financial Officer

This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.