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A.M. Best Co. Inc. downgraded the financial strength rating of Axis Capital Holdings Ltd. to A from A+ as the insurer and reinsurer reported a loss for the first quarter of 2020.
The downgrade announced Tuesday reflects the deterioration of Axis’s “operating performance” the Oldwick, New Jersey-based rating agency said in a statement.
Albert Benchimol, CEO of Bermuda-based Axis, said in an earnings call with analysts on Tuesday that progress in realigning its business and rebalancing its book has been “slower than we desired” but he was “disappointed” in the downgrade.
The downgrade came the morning after Axis reported a net loss of $177.8 million for the first quarter of 2020, compared with net income of $108.8 million in the same period last year.
Sharply increased catastrophe losses related to the COVID-19 outbreak pushed the insurer and reinsurer to a loss, according to its earnings release Monday
Estimated pre-tax catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, were $300 million, with $235 million attributable to the COVID-19 pandemic, compared with $11 million in the first quarter 2019, the statement said, reiterating previous guidance.
Net premium written decreased 6% to $1.7 billion, with a 12% decrease reinsurance premium partially offset by a 10% increase in insurance premium.
Axis’s combined ratio deteriorated to 119.8%, compared with 96.9% a year ago.
Net investment income for the quarter was down 13% to $93 million, primarily attributable to lower hedge fund returns, the earnings statement said.
Most of Axis’s policies won’t “respond to the current situation,” Mr. Benchimol said.
Pandemic-related losses include property-related coverages, event cancellation and accident and health coverages, and assume a global shelter-in-place order remaining in effect until July 31, 2020, the earnings release said.
The majority of Axis’s policies, however, include physical damage requirements for business interruption, clear virus or pandemic exclusions and sublimits, Mr. Benchimol said.
“Where we do have exposures, we believe we have a good understanding of potential losses for first-party business,” he said.
Overall market firming was accelerating and spreading to almost all lines of business, Mr. Benchimol said on the call.
In insurance, this represents the continuation of improvements seen for 10 quarters, while in reinsurance “it’s only recently we’ve seen real pricing momentum take over,” he said.
The insurance business saw an average increase of 10%, with the U.S. division strongest at 15% and the international business at 8%, he said.
In the U.S. the strongest increases were in primary and excess casualty at more than 20%, excess and surplus property up 15%, and public and private company directors and officers insurance up 40% and 25% respectively. “We’re definitely entering hard market territory in these lines,” Mr. Benchimol said.