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Marine losses, investment income mire Axis second-quarter profit

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Axis Capital Holdings Ltd.’s second-quarter net income dropped 67% from that of the same period a year earlier to $63 million, owing in part to marine losses and lower investment income, the Pembroke, Bermuda-based underwriter reported.

Gross written premiums for the quarter dropped 3.2% from those of second-quarter 2014 to $1.19 billion, Axis said Tuesday in a statement. Investment income fell 22.9% to $88.5 million. The combined ratio deteriorated to 96.9% from 90.8% during the same period in 2014.

In its earnings release, Axis said it sustained estimated natural catastrophe and weather-related losses of $39 million, compared with $36 million in the second quarter of 2014. It also sustained pretax losses of $40 million in its insurance marine lines, and pretax merger costs related to its proposed merger with PartnerRe Ltd. of $8 million.

Axis had proposed a merger with PartnerRe early this year, but Italian investment firm Exor S.p.A. entered the fray with an all-cash offer for Partner Re in April. Recently, two major proxy firms urged PartnerRe shareholders to accept the Exor offer.

For the first six months of the year, Axis’ gross written premiums declined 5.9% over those of the same period a year earlier to $2.87 billion. Investment income dropped 8.6% to $180.7 million, and the combined ratio deteriorated to 95.3% from 91.3% for the first six months of 2014.

“Notwithstanding a more challenging market environment, we continued to make progress on our underwriting initiatives, and deliver growth in the more attractive lines and markets,” said Axis President and CEO Albert Benchimol in the earnings statement. “Our reinsurance segment is responding to the secular and cyclical changes in the reinsurance market through proactive exposure management. Our insurance results this quarter reflect our recent portfolio enhancement activities, as underlying improvements allowed us to absorb the impact of rate and loss trends, as well as unusually high large loss experience in the marine line of business.”

“Axis appears to be at a crossroads after what we now expect will be a broken deal with (Partner Re),” Cliff Gallant, an analyst at Nomura Securities International Inc. in San Francisco, said in a research note. “While having an enviable mix of insurance and reinsurance and attractive global spread, going ahead as stand-alone would be difficult, especially after having successfully argued for the advantages of greater size. In our view, the most obvious partners are comparably sized Bermudians facing similar challenges, which implies, in our view, merger-of-equals economics.”

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