AXIS CAPITAL HOLDINGS LTD (AXS) FY 2023 MD&A

ITEM 7.    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 years ended December 31, 2023 and 2022, and our financial condition at December 31, 2023 and 2022. This should be read in conjunction with Item 8 'Financial Statements and Supplementary Data' of this report. Unless otherwise noted, tabular dollars are in thousands, except per share amounts. Amounts may not reconcile due to rounding differences.

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2023 FINANCIAL HIGHLIGHTS

2023 Consolidated Results of Operations

•Net income available to common shareholders of $346 million, or $4.06 per common share, and $4.02 per diluted common share

•Operating income(1) of $486 million, or $5.65 per diluted common share(1)

•Gross premiums written of $8.4 billion

•Net premiums written of $5.1 billion

•Net premiums earned of $5.1 billion

•Pre-tax catastrophe and weather-related losses, net of reinsurance, of $138 million ($116 million, after-tax), (Insurance: $111 million; Reinsurance: $27 million), or 2.7 points primarily attributable to Cyclone Gabrielle and other weather-related events.

•Net adverse prior year reserve development of $412 million

•Underwriting income(2) of $161 million and combined ratio of 99.9%

•Net investment income of $612 million

•Net investment losses of $75 million

•Foreign exchange losses of $58 million

2023 Consolidated Financial Condition

•Total cash and investments of $16.7 billion; fixed maturities, short-term investments, and cash and cash equivalents comprise 86% of total cash and investments and have an average credit rating of AA-

•Total assets of $30.3 billion

•Reserve for losses and loss expenses of $16.4 billion and reinsurance recoverable on unpaid and paid losses and loss expenses of $6.9 billion.

•Debt of $1.3 billion and a debt to total capital ratio(3) of 20.0%

•Common shares repurchased from employees to satisfy personal withholding tax liabilities that arise on the vesting of share-settled restricted stock units were 398,000 common shares for a total of $24 million

•Common shareholders’ equity of $4.7 billion; book value per diluted common share of $54.06

(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 in 2023 included the following:

•growing in a 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 targeting the lower middle market with our key distribution partners;

•leveraging our global platform to introduce our products and services to new regions including the expansion of our London specialty lines to North America markets;

•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.

For discussion of our results of operations and changes in financial condition for year ended December 31, 2022, compared to year ended December 31, 2021, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Form 10-K, which was filed with the SEC on February 27, 2023, and such discussions are incorporated herein by reference.

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Outlook

We are committed to leadership in specialty insurance and reinsurance. We believe our market positioning, specialty underwriting acumen, global platform, claims management capabilities and deep 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.

We anticipate overall rate movement to remain positive, in excess of loss cost trends, in the traditional property and casualty insurance classes but to continue to be challenged across the professional lines sector. Following multiple years of rate increases outpacing loss cost trends, pricing across most lines remains above loss cost trends as we continue to pursue selective profitable growth areas.

Market dislocations in the admitted market continue to drive additional risk types into the Wholesale channel. We anticipate this continuing throughout 2024 with strong market opportunities arising predominantly in the Specialty and E&S lines. We continue to pursue targeted growth opportunities by employing a disciplined underwriting appetite and strategy.

Pricing momentum in non-proportional reinsurance continues to be strong while our proportional reinsurance business is benefiting from rate increases in the underlying business. We expect these market conditions to persist in the near term. We continue to focus on underwriting discipline to drive 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 2024, and that rate will continue to keep pace with loss cost trends in the majority of our lines. Where prices continue to 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 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

Retrocession Agreement with Monarch Point Re

On September 22, 2023 (the "closing date"), we entered into an agreement, with an effective date of January 1, 2023, to retrocede a diversified portfolio of casualty reinsurance business to Monarch Point Re. The agreement covers losses both on a prospective basis and on a retroactive basis. Therefore, we have bifurcated the prospective and retroactive elements of the agreement and are accounting for each element separately. Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses' and Note 18 to the Consolidated Financial Statements 'Related Party Transactions' for further details.

Loan to Monarch Point Re

During 2023, we advanced an amount of $297 million to Monarch Point Re. This loan will be repaid in a manner consistent with the timing of amounts due to Monarch Point Re under the retrocession agreement. At December 31, 2023, the Company had committed to advance a further $16 million to Monarch Point Re.

How We Work Program

Reorganization expenses of $29 million include impairments of computer software assets and severance costs mainly attributable to our "How We Work" program which is focused on simplifying our operating structure.

Bermuda Corporate Income Tax Act of 2023

The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, as amended, has given each of our Bermuda resident companies an assurance that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to our Bermuda resident companies or any of their respective operations, shares, debentures or other obligations until March 31, 2035.

Notwithstanding the above, on December 27, 2023, the Bermuda government enacted a corporate income tax which will apply for accounting periods starting on or after January 1, 2025. Importantly, under the Corporate Income Tax Act 2023 of Bermuda, any liability to the tax will apply regardless of any assurances previously provided under the Exempted Undertakings Tax Protection Act 1966 of Bermuda. This tax will likely have a material impact on our effective tax rate.

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CONSOLIDATED RESULTS OF OPERATIONS

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 $133 million, $130 million, and $126 million for 2023, 2022, and 2021, 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 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:

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:

(1)The general and administration expense ratio included corporate expenses not allocated to underwriting segments of 2.6%, 2.5% and 2.7% for 2023, 2022 and 2021, 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:

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Gross Premiums Written

Gross premiums written by line of business were as follows:

Gross premiums written in 2023 increased by $555 million, or 10%, compared to 2022. The increase was primarily attributable to property, marine and aviation, liability, accident and health, and credit and political risk lines, partially offset by a decrease in professional lines.

The increases in property, marine and aviation, liability, and credit and political risk 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 reflected the unattractive pricing environment for U.S. public D&O business, together with a lower level of activity in transactional liability business.

Ceded Premiums Written

Ceded premiums written in 2023 were $2,382 million, or 39% of gross premiums written, compared to $2,208 million, or 40% in 2022. The increase in ceded premiums written of $174 million, or 8% was primarily driven by increases in property, liability, and marine and aviation lines, partially offset by a decrease in professional lines.

The increases in property, liability, and marine and aviation lines reflected the increase in gross premiums written in 2023, compared to 2022. The increase in property lines was also attributable to the restructuring of a significant existing quota share treaty.

The decrease in professional lines reflected the decrease in gross premiums written for 2023, compared to 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:

Net premiums earned in 2023 increased by $328 million, or 10% ($365 million, or 12%, on a constant currency basis(1)), compared to 2022. The increase was primarily driven by increases in gross premiums earned in property, liability, marine and aviation, accident and health, credit and political risk, and cyber lines, together with a decrease in ceded premiums earned in professional lines. These amounts were partially offset by increases in ceded premiums earned in property, liability, and marine and aviation lines together with a decrease in gross premiums earned in professional lines.

Loss Ratio

The components of the loss ratio were as follows:

Current Accident Year Loss Ratio

The current accident year loss ratio decreased to 55.0% in 2023 from 57.5% in 2022. The decrease in the current accident year loss ratio was impacted by a lower level of catastrophe and weather-related losses.

During 2023, catastrophe and weather-related losses, net of reinsurance, were $111 million, or 3.2 points, primarily attributable to the Israel-Hamas conflict, the Earthquake in Turkey, Maui wildfires, Cyclone Gabrielle, Typhoon Mawar and other weather-related events.

Comparatively, in 2022, catastrophe and weather-related losses, net of reinstatement premiums, were $207 million, or 6.5 points, including natural catastrophe and weather-related losses of $177 million, or 5.6 points, primarily attributable to Hurricane Ian, Winter Storm Elliot, Eastern Australia floods, South Africa floods, and other weather-related events. The remaining losses of $29 million, or 0.9 points, were attributable to the Russia-Ukraine war.

Adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio increased to 51.8% in 2023 from 51.0% in 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 elevated loss experience in property, and marine and aviation lines, and heightened loss trends in liability lines consistent with changes in loss assumptions reflected in recent periods, partially offset by the changes in business mix associated with the increase in property business and the decrease in professional lines business written in recent periods.

(1) Amounts presented on a constant currency basis are non-GAAP financial measures as defined in Item10 (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 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses' for details on the lines of business and prior year development.

Acquisition Cost Ratio

The acquisition cost ratio increased to 18.7% in 2023 from 18.4% in 2022, principally related to a decrease in ceding commissions largely associated with changes in business mix driven by an increase in property business which is associated with relatively lower ceding commissions and a decrease in professional lines business written in recent periods which is associated with relatively higher ceding commissions.

Underwriting-Related General and Administrative Expense Ratio

The underwriting-related general and administrative expense ratio decreased to 13.7% in 2023 from 14.2% in 2022, mainly driven by an increase in net premiums earned, partially offset by increases in personnel costs and performance-related compensation costs.

Reinsurance Segment

Results for the reinsurance segment were as follows:

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Gross Premiums Written:

Gross premiums written by line of business were as follows:

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Gross premiums written in 2023 decreased by $413 million, or 16% ($365 million, or 14%, on a constant currency basis), compared to 2022. The decrease was primarily attributable to catastrophe, property, liability, motor, marine and aviation, professional lines, accident and health, and engineering lines, partially offset by an increase in credit and surety lines.

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

The decrease in liability lines was related to non-renewals of U.S. regional multi-line business that included a high proportion of property exposures and a decreased line size on a significant contract following the exit from catastrophe and property lines of business, together with non-renewals and decreased line sizes associated with repositioning the portfolio, partially offset by new business.

The decrease in motor lines was due to non-renewals and decreased line sizes associated with repositioning the portfolio and the timing of the renewal of a significant contract, partially offset by premium adjustments attributable to significant contracts associated with favorable market conditions, and new business.

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

The decrease in professional lines was attributable to lower premium adjustments associated with favorable market conditions in 2023, compared to 2022, together with the non-renewals of several under-performing contracts, partially offset by new business and increased line sizes.

The decrease in accident and health lines was related to lower premium adjustments in 2023, compared to 2022, together with the timing of renewals of two significant contracts, partially offset by the increased line size of a significant contract.

The decrease in engineering lines was attributable to premium adjustments related to a significant contract in 2022.

The increase in credit and surety lines was driven by new business, including mortgage business, partially offset by the timing of the renewal of a significant contract and premium adjustments related to several surety contracts.

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Ceded Premiums Written

Ceded premiums written in 2023 were $872 million, or 39%, of gross premiums written, compared to $744 million, or 28%, in 2022. The increase in ceded premiums written of $128 million, or 17%, was primarily driven by increases in liability, professional lines, accident and health, credit and surety, motor, and agriculture lines, partially offset by a decrease in catastrophe lines.

The increases in liability, professional lines, accident and health, credit and surety, and motor lines were primarily attributable to premiums ceded to a quota share retrocession agreement entered into with Monarch Point Re on September 22, 2023 with an effective date of January 1, 2023. Refer to Item 7 'Management's Discussion and Analysis of Financial Condition and Results of Operations – Overview – Recent Developments – Retrocession Agreement with Monarch Point Re' for further information.

The increase in liability lines was partially offset by the decrease in gross premiums written in 2023, compared to 2022, the non-renewal of a significant retrocessional treaty with a strategic capital partner and the restructuring of a significant quota share retrocessional treaty.

The increase in professional lines was partially offset by the non-renewal of a significant retrocessional treaty with a strategic capital partner.

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

The increase in credit and surety lines was partially offset by the restructuring of a significant quota share retrocessional treaty and the non-renewal of a fronting arrangement.

The increase in motor lines was partially offset by the decrease in gross premiums written in 2023, compared to 2022.

The increase in agriculture lines was attributable to premiums ceded to a new quota share retrocessional treaty.

The decrease in catastrophe lines was due to lower costs associated with catastrophe bond protection, together with the decrease in gross premiums written in 2023, compared to 2022 following the exit from this line of business in June 2022.

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Net Premiums Earned

Net premiums earned by line of business were as follows:

Net premiums earned in 2023 decreased by $404 million, or 20%, ($337 million, or 17%, on a constant currency basis), compared to 2022. The decrease was primarily driven by decreases in gross premiums earned in catastrophe, property, liability, motor, professional lines, engineering, marine and aviation, and accident and health lines, together with increases in ceded premiums earned in motor, accident and health, credit and surety, professional lines and liability lines. These amounts were partially offset by decreases in ceded premiums earned in catastrophe lines and increases in gross premiums earned in credit and surety lines.

Other Insurance Related Income (Loss)

Other insurance related income of $23 million in 2023, compared to other insurance related income of $13 million in 2022, an increase of $10 million, primarily associated with an increase in fees related to arrangements with strategic capital partners.

Loss Ratio

The components of the loss ratio were as follows:

Current Accident Year Loss Ratio

The current accident year loss ratio decreased to 66.4% in 2023 from 72.3% in 2022. The decrease in the current accident year loss ratio was impacted by a lower level of catastrophe and weather-related losses.

During 2023, catastrophe and weather-related losses, net of reinsurance, were $27 million, or 1.6 points, primarily attributable to Cyclone Gabrielle and other weather-related events.

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Comparatively, in 2022, catastrophe and weather-related losses, net of reinstatement premiums, were $196 million, or 9.7 points, including natural catastrophe and weather-related losses of $160 million, or 8.0 points, primarily attributable to Hurricane Ian, June European Convective Storms, Eastern Australia floods, South Africa floods, Winter Storm Elliot, and other weather-related events. The remaining losses included $23 million, or 1.1 points, attributable to the COVID-19 pandemic, and $13 million, or 0.6 points, attributable to the Russia-Ukraine war.

Adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio increased to 64.8% in 2023 from 62.6% in 2022, principally due to changes in business mix associated with the exit from catastrophe lines, partially offset by changes in business mix due to the increase in credit and surety business written in the recent periods which are associated with a relatively lower loss ratio.

Prior Year Reserve Development

Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses' for details on the lines of business and prior year development.

Acquisition Cost Ratio

The acquisition cost ratio decreased to 21.7% in 2023 from 21.9% in 2022, principally related to an increase in ceding commissions from retrocessional agreements due to changes in business mix driven by increases in credit and surety, professional lines, liability, accident and health, and motor business written in recent periods, together with decreases in catastrophe and property business written in recent periods.

Underwriting-Related General and Administrative Expense Ratio

The underwriting-related general and administrative expense ratio decreased to 4.9% in 2023 from 5.3% in 2022, mainly driven by a decrease in personnel costs associated with the exit from catastrophe and property lines, partially offset by decreases in net premiums earned and 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:

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(1)Pre-tax yield is calculated by dividing net investment income by the average month-end amortized cost balances.

Fixed Maturities

2023 versus 2022: Net investment income in 2023 increased by $185 million or 56%, compared to 2022 due to an increase in yields.

Other Investments

Other investments include multi-strategy funds, direct lending funds, private equity funds, real estate funds, other privately held investments and an indirect investment in CLO-Equities. These investments are recorded at fair value, with changes in fair value and income distributions reported in net investment income. Consequently, the pre-tax return on other investments may vary materially year over year, particularly during volatile equity and credit markets.

Net investment income from other investments was as follows:

(1)The pre-tax return on other investments is calculated by dividing total net investment income from other investments by the average month-end fair value balances held for the periods indicated.

2023 versus 2022: Pre-tax return on other investments in 2023 decreased to 2.1%, compared to 5.9% in 2022. The decrease was primarily attributable to lower returns from real estate funds and other privately held investments.

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Net Investment Gains (Losses)

Fixed maturities classified as available for sale are reported at fair value. Realized gains (losses) on fixed maturities are reported in net investment gains (losses) when these securities are sold or impaired.

Equity securities are reported at fair value. Realized gains (losses) on equity securities are also reported in net investment gains (losses) when securities are sold or impaired. In addition, changes in the fair values of equity securities are reported in net investment gains (losses).

Changes in the fair value of investment derivatives, mainly foreign exchange forward contracts are recorded in net investment gains (losses).

Net investment gains (losses) were as follows:

(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.

2023 versus 2022: Net investment losses in 2023 were $75 million compared to net investment losses of $457 million in 2022. Net investment losses reported in 2023 mainly reflected net realized losses on the sale of corporate debt, U.S. government and Non-Agency CMBS, partially offset by net unrealized gains on equity securities. Net investment losses reported in 2022 mainly reflected net realized losses on the sale of corporate debt, U.S. government and Agency RMBS and net unrealized losses on equity securities.

On Sale of Investments

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.

(Increase) Decrease in Allowance for Expected Credit Losses, Mortgage Loans

2023 versus 2022: The allowance for expected credit losses increased by $6 million in 2023 compared to $nil in 2022. The increase was primarily related to two collateral dependent mortgage loans.

Impairment Losses

The impairment losses (refer to 'Critical Accounting Estimates – Impairment losses' for further details) recognized in net income were as follows:

2023 versus 2022: Impairment losses in 2023 and 2022 were $13 million. The impairment losses in 2023 and 2022 were principally due to impairments of non-investment grade corporate debt securities that we intended to sell or where we determined that it was more likely than not that we were required to sell securities before their anticipated recovery.

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Change in Fair Value of Investment Derivatives

We economically hedge foreign exchange exposure with derivative contracts.

During 2023, foreign exchange hedges resulted in $1 million of net losses which primarily related to securities denominated in pound sterling and euro which experienced volatility during 2023.

During 2022, foreign exchange hedges resulted in $8 million of net gains which primarily related to securities denominated in pound sterling and euro which experienced volatility during 2022.

Our derivative instruments are not designated as hedges. Therefore, net unrealized gains (losses) on the hedged securities were recorded in accumulated other comprehensive income (loss) in total shareholders’ equity.

Total Return

Our investment strategy is to take a long-term view by actively managing our investment portfolio to maximize total return within certain guidelines and constraints. In assessing returns under this approach, we include net investment income, net investment gains (losses), the change in unrealized gains (losses) on fixed maturities, and interest in income (loss) of equity method investments generated by our investment portfolio.

Total return on cash and investments was as follows:

(1)Change in net unrealized gains (losses) on fixed maturities is calculated by taking net unrealized gains (losses) at year end less net unrealized gains (losses) at the prior year end.

(2)The average cash and investments balance is calculated by taking the average of the monthly 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 $51 million, $(110) million and $(40) million for the years ended December 31, 2023, 2022 and 2021, respectively.

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OTHER EXPENSES (REVENUES), NET

The following table provides a summary of other expenses (revenues), net:

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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 increased to 2.6% in 2023 from 2.5% in 2022.

The increase in corporate expenses in 2023 was mainly driven by increases in personnel costs and performance-related compensation costs, largely offset by a decrease in executive-related compensation costs associated with the transition in our senior leadership.

Foreign Exchange Losses (Gains)

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

Foreign exchange losses in 2023 were primarily related to the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in pound sterling, euro and Canadian dollar.

Foreign exchange gains in 2022 were primarily related to 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 2023 and 2022.

Interest expense and financing costs increased by $5 million in 2023, compared to 2022, due to the FHLB advances in 2023.

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 6.5%, 9.0%, and 9.2% in 2023, 2022, and 2021, respectively. This effective rate can vary between years depending on the distribution of net income (loss) among tax jurisdictions, as well as other factors.

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The tax expense of $26 million in 2023 was principally due to the generation of pre-tax income in our U.K. and European insurance operations, partially offset by the recognition of a tax benefit in Bermuda on unrealized investment losses included in other comprehensive income (loss) due to the enactment of corporate income tax that will take effect in 2025, and the generation of pre-tax losses in our U.S. operations.

In 2023, the valuation allowance decreased by $21 million. The net gain incurred by the AXIS Re SE, the Irish reinsurance company, resulted in the release of a valuation allowance of $25 million against the net deferred tax assets of AXIS Re SE and AXIS Re Europe, the Swiss branch of the Irish reinsurance company, of which $12 million was released in net income (loss) and $13 million was released in other comprehensive income (loss). A valuation allowance of $2 million was also released against U.S. foreign tax credits that were utilized. A valuation allowance of $6 million was recorded against foreign tax credits held by AXIS Specialty Europe SE.

At December 31, 2023, the U.S. operations had a deferred tax asset of $54 million for the unrealized losses on its fixed maturities that were recorded in other comprehensive income (loss). We examined the need for a valuation allowance and after considering all positive and negative evidence concluded a valuation allowance against its net unrealized investment losses in the U.S was not required.

The tax expense of $22 million in 2022 was principally due to the generation of pre-tax income in our U.K., U.S. and European insurance operations, together with a valuation allowance on certain deferred tax assets, partially offset by the re-estimation of the amount of net deferred tax assets that would be realized at the 25% tax rate in the U.K. that took effect in 2023.

In 2022, the valuation allowance increased by $43 million. The net loss incurred by AXIS Re SE, the Irish reinsurance company, resulted in the recognition of a valuation allowance of $41 million against the net deferred tax assets of AXIS Re SE and AXIS Re Europe, the Swiss branch of the Irish reinsurance company, of which $22 million was recorded in net income (loss) and $19 million was recorded in other comprehensive income (loss). A partial valuation allowance of $2 million was also recorded against U.S. foreign tax credits.

At December 31, 2022, the U.S. operations had a deferred tax asset of $71 million for the unrealized losses on its fixed maturities that were recorded in other comprehensive income (loss). We examined the need for a valuation allowance and after considering all positive and negative evidence concluded a valuation allowance against its net unrealized investment losses in the U.S. was not required.

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FINANCIAL MEASURES

We believe that the following financial indicators are important in evaluating performance and measuring the overall growth in value generated for common shareholders:

(1)    Return on average common equity ("ROACE") is calculated by dividing net income (loss) available (attributable) to common shareholders for the year by the average common shareholders' equity determined using the common shareholders' equity balances at the beginning and end of the year.

(2)    Operating return on average common equity ("operating ROACE"), 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, 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 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), reorganization expenses, and interest in income (loss) of equity method investments.

The increase in ROACE in 2023, compared to 2022, was primarily driven by a decrease in net investment losses, and an increase in net investment income, partially offset by foreign exchange losses, and a decrease in underwriting income.

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

Operating ROACE in 2023 was comparable to 2022 as a decrease in underwriting income was largely offset by an increase in net investment income.

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.

In 2023, book value per diluted common share increased by 15%, driven by net income for the year, and net unrealized investment gains reported in accumulated other comprehensive income (loss), partially offset by common dividends declared.

In 2022, book value per diluted common share decreased by 16%, due to the net unrealized investment losses reported in accumulated other comprehensive income (loss) and common dividends declared, partially offset by net income for the year.

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Cash Dividends Declared per Common Share

We believe in returning excess capital to shareholders by way of dividends. Accordingly, dividend policy is an integral part of the value we create for shareholders. Our Board of Directors has approved quarterly common share dividends for twenty consecutive years.

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 that investors use the book value per diluted common share adjusted for dividends metric to measure comparable performance across the industry.

In 2023, the increase in total value of $8.87, or 19%, was driven by net income for the year, and net unrealized investment gains reported in accumulated other comprehensive income (loss).

In 2022, the decrease in total value of $7.10, or 13%, was driven by net unrealized investment losses recognized in accumulated other comprehensive income (loss), partially offset by the net income for the year.

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NON-GAAP FINANCIAL MEASURES RECONCILIATION

(1)Tax expense (benefit) of $(10) million, $(36) million and $11 million for the years ended December 31, 2023, 2022 and 2021, 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 $(3) million, $16 million and $3 million for the years ended December 31, 2023, 2022 and 2021, 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 $(5) million, $(4) million and $nil for the years ended December 31, 2023, 2022 and 2021, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions.

(4)Tax expense (benefit) of $nil for the years ended December 31, 2023, 2022 and 2021, respectively, Tax impact is estimated by applying the statutory rates of applicable jurisdictions.

(5)Refer to Item 8, Note 14 to the Consolidated Financial Statements 'Earnings Per Common Share' for further details.

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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), 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 8, Note 3 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 8, Note 3 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 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 and Federal Home Loan Bank advances. 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).

Reorganization expenses in 2023 include impairments of computer software assets and severance costs mainly attributable to our "How We Work" program which is focused on simplifying our operating structure. Reorganization expenses in 2022 included severance costs and impairments of computer software assets mainly attributable to our exit from catastrophe and

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property reinsurance lines of business which was part of an overall approach to reduce our exposure to volatile catastrophe risk. Reorganization expenses are primarily driven by 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).

Amortization of intangible assets including the value of business acquired ("VOBA") 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), reorganization expenses 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).

Reorganization expenses in 2023 include impairments of computer software assets and severance costs mainly attributable to our "How We Work" program which is focused on simplifying our operating structure. Reorganization expenses in 2022 included severance costs and impairments of computer software assets mainly attributable to our exit from catastrophe and property reinsurance lines of business which was part of an overall approach to reduce our exposure to volatile catastrophe risk. Reorganization expenses are primarily driven by business decisions, the nature and timing of which are not related to the underwriting process. Therefore, these expenses 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), reorganization expenses, 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), reorganization expenses 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.

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We also present operating income (loss) per diluted common share and 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 return on average common equity ("ROACE"), respectively.

Constant Currency Basis

We present gross 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 and net premiums earned on a constant basis. The reconciliation to gross 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:

(1)Presented at net carrying value of $686 million (2022: $698 million) in the consolidated balance sheets.

(2)Includes restricted cash and cash equivalents of $431 million and $423 million for 2023 and 2022, respectively.

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Overview

The fair value of total investments increased by $921 million in 2023, driven by the increase in market value of fixed maturities due to the decline in yields and the tightening of credit spreads, reinvestment of interest income and cashflows from operations.

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

Fixed Maturities

Details of our fixed maturities portfolio are as follows:

(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 December 31, 2023, fixed maturities had a weighted average credit rating of AA- (2022: AA-), a book yield of 4.2% (2022: 3.5%), and an average duration of 3.0 years (2022: 3.0 years).

At December 31, 2023, fixed maturities together with short-term investments and cash and cash equivalents (i.e., total investments of $14.3 billion) had a weighted average credit rating of AA- (2022: AA-) and an average duration of 2.7 years (2022: 2.8 years).

Our methodology for assigning credit ratings to fixed maturities is in line with the methodology used for the Barclays U.S. Aggregate Bond index. This methodology uses the midpoint of Standard & Poor's (S&P), Moody's and Fitch ratings. When ratings from only two of these agencies are available, the lower rating is used. When only one agency rates a security, that rating is used. When ratings provided by S&P, Moody's and Fitch are not available, ratings from other nationally recognized agencies are used.

To calculate the weighted average credit rating for fixed maturities, we assign points to each rating with the highest points assigned to the highest rating (AAA) and the lowest points assigned to the lowest rating (D) and then calculate the weighted average based on the fair values of the individual securities. Securities that are not rated are excluded from weighted average calculations. At December 31, 2023, the fair value of fixed maturities not rated was $17 million (2022: $31 million).

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In addition to managing credit risk exposure within our fixed maturities portfolio we also monitor the aggregation of country risk exposure on a group-wide basis. Country risk exposure is the risk that events in a country, such as currency crises, regulatory changes and other political events, will adversely affect the ability of obligors in the country to honor their obligations. For corporate debt and structured securities, we measure the country of risk exposure based on a number of factors including, but not limited to, location of management, principal operations and country of revenues.

An analysis of our fixed maturities portfolio by major asset classes is detailed below:

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).

Details of exposures to governments in the eurozone and other non-U.S. government concentrations by fair value are as follows:

(1)Includes supranationals only in the eurozone.

At December 31, 2023, net unrealized losses on non-U.S. government securities were $6 million (2022: $51 million) which included gross unrealized foreign exchange losses of $6 million (2022: $24 million), mainly related to U.K. government bonds.

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Corporate Debt

Corporate debt securities consist primarily of investment grade debt of a wide variety of corporate issuers and industries.

Details of our corporate debt securities portfolio by sector are as follows:

At December 31, 2023, our non-investment grade portfolio had a fair value of $1,023 million (2022: $1,021 million), a weighted average credit rating of B+ (2022: B+) and duration of 2.4 years (2022: 2.9 years). At December 31, 2023, our corporate debt portfolio, including non-investment grade securities, had a duration of 3.4 years (2022: 3.6 years).

Mortgage-Backed Securities

Details of the fair values of our RMBS and CMBS portfolios by credit rating are as follows:

(1)Non-investment grade securities.

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Residential MBS

Agency RMBS consist of bonds issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association, which are primarily AA+ rated and are supported by loans which are diversified across geographical areas. At December 31, 2023, agency RMBS had an average duration of 5.2 years (2022: 5.7 years).

Non-agency RMBS mainly include investment grade bonds originated by non-agencies. At December 31, 2023, 98% (2022: 94%) of our non-agency RMBS were rated AA or better. At December 31, 2023, non-agency RMBS had an average duration of 4.0 years (2022: 4.6 years) and weighted average life of 5.6 years (2022: 6.7 years).

Commercial MBS

CMBS mainly include investment grade bonds originated by non-agencies. At December 31, 2023, 98% (2022: 99%) of our CMBS were rated AA or better. At December 31, 2023, the weighted average estimated subordination percentage of the portfolio was 37% (2022: 38%), which represents the current weighted average estimated percentage of the capital structure subordinated to the investment holding that is available to absorb losses before the security incurs the first dollar loss of principal. At December 31, 2023, CMBS had an average duration of 2.2 years (2022: 2.4 years) and weighted average life of 2.8 years (2022: 3.3 years).

Asset-Backed Securities

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.

Details of the fair value of our ABS portfolio by underlying collateral and credit rating are as follows:

At December 31, 2023, the average duration our ABS portfolio was 0.6 years (2022: 0.5 years) and the weighted average life was 3.0 years (2022: 3.7 years).

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Municipals

Municipals comprise revenue bonds and general obligation bonds issued by U.S. domiciled state and municipal entities and are primarily held in the taxable portfolios of our U.S. subsidiaries.

At December 31, 2023, our municipals had a fair value of $158 million (2022: $156 million), a weighted average credit rating of AA- (2022: AA-) and duration of 3.9 years (2022: 4.4 years).

Gross Unrealized Losses

At December 31, 2023, the gross unrealized losses on our fixed maturities, available for sale portfolio were $481 million (2022: $857 million).

Investment grade fixed maturities, available for sale

The severity of the unrealized loss position as a percentage of amortized cost for all investment grade fixed maturities in an unrealized loss position including any impact of foreign exchange losses (gains) was as follows:

The decrease in gross unrealized losses on investment grade fixed maturities reflected the impact of the decline in yields and the tightening of credit spreads on investment grade corporate debt securities.

Non-investment grade fixed maturities, available for sale

The severity of the unrealized loss position as a percentage of amortized cost for all non-investment grade fixed maturities in an unrealized loss position including any impact of foreign exchange losses (gains) was as follows:

The decrease in gross unrealized losses on non-investment grade fixed maturities reflected the impact of the tightening of credit spreads on non-investment grade high yield corporate debt securities.

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Equity Securities

At December 31, 2023, net unrealized gains on equity securities were $45 million (2022: net unrealized losses of $9 million). The increase was driven by the rally in global equity markets.

Mortgage Loans

During 2023, investment in commercial mortgage loans decreased to $610 million from $627 million, a decrease of $17 million. The commercial mortgage loans are high quality, and collateralized by a variety of commercial properties and diversified geographically throughout the U.S. and by property type to reduce the risk of concentration. At December 31, 2023, there are two collateral dependent loans with estimated loan-to-value ratios in excess of 100%, resulting in an allowance for expected credit loss of $6 million (2022: $nil).

Other Investments

Details of our other investments portfolio are as follows:

Refer to Item 8, Note 5(e) to the Consolidated Financial Statements 'Investments'.

Equity Method Investments

Our ownership interests in Harrington Reinsurance Holdings Limited ("Harrington") and Monarch Point Re (ISAC) Ltd. and Monarch Point Re (ISA 2023) Ltd. (collectively "Monarch Point Re") are reported in interest in income (loss) of equity method investments.

Interest in income (loss) of equity method investments of $4 million in 2023 was comparable to $2 million in 2022, as higher investment gains realized by Harrington were largely offset by higher underwriting losses at Harrington.

Restricted Assets

Refer to Item 8, Note 5(j) to the Consolidated Financial Statements 'Investments'.

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity is a measure of a company’s ability to generate cash flows sufficient to meet the short-term and long-term cash requirements of its business operations. We manage liquidity at the holding company and operating subsidiary level.

Holding Company

As a holding company, AXIS Capital has no operations of its own and its assets consist primarily of investments in its subsidiaries. Accordingly, AXIS Capital’s future cash flows depend on the availability of dividends or other statutorily permissible distributions, such as returns of capital, from its subsidiaries.

The ability to pay such dividends and/or distributions is limited by the applicable laws and regulations of the various countries and states in which AXIS Capital’s subsidiaries operate (refer to Item 8, Note 22 to the Consolidated Financial Statements 'Statutory Financial Information' for further details), as well as the need to maintain capital levels to adequately support insurance and reinsurance operations, and to preserve financial strength ratings issued by independent rating agencies.

During 2023, AXIS Capital received $375 million (2022: $225 million) of distributions from its subsidiaries. AXIS Capital’s primary uses of funds are dividend payments to common and preferred shareholders, interest and principal payments on debt, capital investments in subsidiaries, and payment of corporate operating expenses. We believe the dividend/distribution capacity of AXIS Capital’s subsidiaries, which was $0.9 billion at December 31, 2023, will provide AXIS Capital with sufficient liquidity for the foreseeable future.

Operating Subsidiaries

AXIS Capital’s operating subsidiaries primarily derive cash from the net inflow of premiums less claim payments related to underwriting activities and from net investment income. Historically, these cash receipts have been sufficient to fund the operating expenses of these subsidiaries, as well as to fund dividend payments to AXIS Capital. The subsidiaries’ remaining cash flows are generally invested in our investment portfolio and have also been used to fund common share repurchases in recent years.

The insurance and reinsurance business of our operating subsidiaries inherently provide liquidity, as premiums are received in advance (sometimes substantially in advance) of the time losses are paid. However, the amount of cash required to fund loss payments can fluctuate significantly from period to period, due to the low frequency/high severity nature of certain types of business we write.

Consolidated cash flows from operating, investing and financing activities in the last three years were as follows:

(1)    Refer to Item 8, 'Consolidated Statements of Cash Flows' for further details.

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Operating activities

•Net cash provided by operating activities was $1,256 million in 2023 compared to $798 million in 2022. Cash inflows from insurance and reinsurance operations typically include premiums, net of acquisition costs, and reinsurance recoverables. Cash outflows principally include payments of losses and loss expenses, payments of premiums to reinsurers and operating expenses. Cash provided by operating activities can fluctuate due to timing differences between the collection of premiums and reinsurance recoverables and the payment of losses and loss expenses, and the payment of premiums to reinsurers.

•Operating cash inflows increased in 2023 compared to 2022, primarily attributable to an increase in interest and dividends received from our investment portfolio and an increase in premiums received, partially offset by a decrease in reinsurance recoverables received and an increase in payments of premiums to reinsurers.

Investing activities

•Investing cash outflows in 2023 were principally related to the net purchases of fixed maturities of $554 million, equity securities of $34 million, equity method investments of $22 million, loan advances made to third party reinsurers of $350 million and purchases of other assets of $31 million, partially offset by the net proceeds from the sale of other investments of $67 million and net proceeds from the sales and redemptions/repayments of short-term investments of $56 million and mortgage loans of $12 million.

•Investing cash outflows in 2022 were principally related to the net purchases of fixed maturities of $599 million, loan advances made to third party reinsurers of $106 million, short term investment of $40 million, and mortgage loans of $33 million and purchases of other assets of $37 million, partially offset by the net proceeds from the sale of equity securities of $44 million, and other investments of $9 million.

Financing activities

•Financing cash outflows in 2023 were principally due to dividends paid to common and preferred shareholders of $184 million, and the repurchase of common shares of $24 million, partially offset by the receipt of the Federal Home Loan Bank advances of $5 million.

•Financing cash outflows in 2022 were principally due to dividends paid to common and preferred shareholders of $180 million, and the repurchase of common shares of $49 million, partially offset by the receipt of the Federal Home Loan Bank advances of $79 million.

•The declaration and payment of future dividends and share repurchases is at the discretion of our Board of Directors and will depend on many factors including, but not limited to, our net income, financial condition, business needs, capital and surplus requirements of our operating subsidiaries and regulatory and contractual restrictions, including those detailed in our credit facilities (refer to 'Capital Resources – Share Repurchases' below for further details).

We have generated positive operating cash flows in all years since 2003, with the exception of 2009 which was impacted by the global financial crisis. These positive cash flows were generated even with the recognition of significant catastrophe and weather-related losses including the impact of the COVID-19 pandemic in 2020 and 2021.

Net losses and loss expenses, gross of reinstatement premiums, included estimates of ultimate losses for catastrophe and weather-related losses of $138 million in 2023, $404 million in 2022 and $450 million in 2021. There remains significant uncertainty associated with estimates of ultimate losses for certain of these events (refer to 'Underwriting Results – Insurance segment – Current Accident Year Loss' and 'Underwriting Results – Reinsurance segment – Current Accident Year Loss Ratio' for further details), as well as the timing of the associated cash outflows.

Should claim payment obligations accelerate beyond our ability to fund payments from operating cash flows, we would utilize cash and cash equivalent balances and/or liquidate a portion of our investment portfolio.

For context, at January 1, 2024, our largest 1-in-250 year return period, single occurrence, single-zone modeled probable maximum loss (California Earthquake) was approximately $163 million, net of reinsurance. Claim payments pertaining to such an event would be paid out over a period spanning many months. Our internal risk tolerance framework aims to limit the loss of capital due to a single event and the loss of capital that would occur from multiple but perhaps smaller events, in any year (refer to Item 1 'Risk and Capital Management' for further details).

Our investment portfolio is heavily weighted towards conservative, high quality and highly liquid securities. We expect that, if necessary, approximately $13.6 billion of cash and invested assets at December 31, 2023 could be available in one to three

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business days under normal market conditions. Of this amount, $5.3 billion related to restricted assets, which primarily support our obligations in regulatory jurisdictions where we operate as a non-admitted carrier (refer to Item 8, Note 5(j) to the Consolidated Financial Statements 'Investments' for further details).

We expect that cash flows generated from operations, combined with the liquidity provided by our investment portfolio, to be sufficient to cover required cash outflows and other contractual commitments through the foreseeable future (refer to 'Contractual Obligations and Commitments' below for further details).

Capital Resources

In addition to common equity, we have utilized other external sources of financing, including debt, preferred shares, and letter of credit facilities to support our business operations. We believe that we hold sufficient capital to allow us to take advantage of market opportunities and to maintain our financial strength ratings, as well as to comply with various local statutory regulations. We monitor capital adequacy on a regular basis and will seek to adjust our capital base according to the needs of our business (refer to Item 1 'Risk and Capital Management' for further details).

The following table summarizes consolidated capital:

We finance our 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 net unrealized investment losses recognized in accumulated other comprehensive income (loss), following a decrease in market value of our fixed maturities, has reduced common shareholders' equity, we believe that our financial flexibility remains strong, and adjustments are made if there are developments that are different from previous expectations.

Debt

Debt represents the 5.150% Senior Notes issued in 2014, which will mature in 2045, the 4.000% Senior Notes issued in 2017, which will mature in 2027, the 3.900% Senior Notes issued in 2019, which will mature in 2029, and the 4.900% Junior Subordinated Notes issued in 2019, which will mature in 2040 (refer to Item 8, Note 10(a) to the Consolidated Financial Statements 'Debt and Financing Arrangements' for further details).

The 3.900% Senior Notes and the 4.900% Junior Subordinated Notes were issued to finance the repayment of $500 million aggregate principal amount of 5.875% Senior Notes that matured in June 2020 and to finance the redemption of Series D preferred shares on January 17, 2020 (refer to 'Preferred Shares' below for further details).

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").

Members may borrow from the FHLB at competitive rates subject to certain conditions. At December 31, 2023, the companies had admitted assets of approximately $3 billion which provides borrowing capacity of up to approximately $759 million. Conditions of membership include maintaining sufficient collateral deposits for funding, a requirement to maintain member stock at 0.4% of mortgage-related assets at December 31st of the prior year, and a requirement to purchase additional member stock of 2.0% or 4.5% of any amount borrowed (refer to Item 8, Note 11 to the Consolidated Financial Statements 'Federal Home Loan Bank Advances' for further details).

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At December 31, 2023, the Company had $86 million (2022: $81 million) of borrowings under the FHLB program, with maturities in 2024 and interest payable at interest rates between 5.6% and 5.9% (2022: 2.3% and 4.7%).

For the year ended December 31, 2023, the Company incurred interest expense of $5 million (2022: $1 million). The borrowings under the FHLB program are secured by cash and investments with a fair value of $95 million (2022: $91 million).

Preferred Shares

Series E Preferred Shares

On November 7, 2016, we issued $550 million of 5.50% Series E preferred shares with a liquidation preference of $2,500 per share (equivalent to $25 per depositary share). Dividends on the Series E preferred shares are non-cumulative. To the extent declared, dividends accumulate, with respect to each dividend period, in an amount per share equal to 5.50% of the liquidation preference per annum (equivalent to $137.50 per Series E preferred share and $1.375 per depositary share). We may redeem these shares on or after November 7, 2021 at a redemption price of $2,500 per Series E preferred share (equivalent to $25 per depositary share) (refer to Item 8, Note 15 to the Consolidated Financial Statements 'Shareholders' Equity' for further details).

Secured Letter of Credit Facilities

We routinely enter into agreements with financial institutions to obtain secured letter of credit facilities.

These facilities are primarily used for the issuance of letters of credit, in the normal course of operations, to certain insurance and reinsurance entities that purchase reinsurance protection from us. These letters of credit allow those operations to take credit, under local insurance regulations, for reinsurance obtained in jurisdictions where AXIS Capital’s subsidiaries are not licensed or otherwise admitted as an insurer. The value of our letters of credit outstanding is driven by, among other factors, the amount of unearned premiums, development of loss reserves, the payment patterns of loss reserves, the expansion of our business and the loss experience of that business.

A portion of these facilities may also be used for liquidity purposes.

At December 31, 2023, certain of AXIS Capital’s operating subsidiaries (the "Participating Subsidiaries") had a $500 million letter of credit facility available from Citibank Europe plc ("Citibank") (the "$500 million Facility").

At December 31, 2023, letters of credit outstanding were $325 million (refer to Item 8, Note 10 to the Consolidated Financial Statements 'Debt and Financing Arrangements' for further details).

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Common Equity

During the year ended December 31, 2023, common equity increased by $623 million. The following table reconciles opening and closing common equity positions:

Share Repurchases

During 2023, we repurchased 398,000 common shares for a total of $24 million from employees to facilitate the satisfaction of their personal withholding tax liabilities that arise on vesting of share-settled restricted stock units granted under our 2017 Long-Term Equity Compensation Plans.

As part of our capital management strategy, our Board of Directors authorizes common share repurchase programs. On December 8, 2022, our Board of Directors authorized a new share repurchase program for up to $100 million of our common shares, effective January 1, 2023, through December 31, 2023. (refer to Item 5 'Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities'). Share repurchases may be effected from time to time in the open market or privately negotiated transactions, depending on market conditions.

On December 7, 2023, our Board of Directors renewed its authorization for the repurchase of up to $100 million of our common shares, effective January 1, 2024, through December 31, 2024.

In 2024, we repurchased common shares for a total of $52 million pursuant to our Board-authorized share repurchase program.

Shelf Registrations

On November 9, 2022, we filed an unallocated universal shelf registration statement with the SEC, which became effective on filing. Pursuant to the shelf registration, we may issue an unlimited amount of equity, debt, warrants, purchase contracts or a combination of these securities. Our intent and ability to issue securities pursuant to this registration statement will depend on market conditions at the time of any proposed offering.

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Financial Strength Ratings

Operating subsidiaries

Our principal insurance and reinsurance operating subsidiaries are assigned financial strength ratings from internationally recognized rating agencies, including Standard & Poor’s, A.M. Best, and Moody’s Investors Service. These ratings are publicly announced and are available directly from the agencies, and on our website.

Financial strength ratings represent the opinions of the rating agencies on the overall financial strength of a company and its capacity to meet the obligations of its insurance and reinsurance contracts. Independent ratings are one of the important factors that establish a competitive position in insurance and reinsurance markets. The rating agencies consider many factors in determining the financial strength rating of an insurance company, including the relative level of statutory surplus necessary to support the business operations of the company. These ratings are based on factors considered by the rating agencies to be relevant to policyholders, agents and intermediaries and are not directed toward the protection of investors. Ratings are not recommendations to buy, sell or hold securities.

The following are the most recent financial strength ratings from internationally recognized agencies in relation to our principal insurance and insurance operating subsidiaries:

(1)    On July 20, 2022, Standard and Poor's revised its outlook from negative to stable due to improved underwriting performance and reduced prospective earnings volatility as a result of our exit from property and catastrophe reinsurance lines of business.

(2)    On May 5, 2020, A.M. Best revised its rating and outlook from A+ and negative to A and stable, respectively. The revised rating was based on unfavorable trends in operating performance over the past five years, particularly emanating from the insurance segment. The revised outlook continues to reflect our strong balance sheet, favorable business profile and appropriate risk management practices.

(3)    On May 31, 2022, Moody's Investors Service revised its outlook from negative to stable due to improved core underwriting profitability and reduced catastrophe risk exposure.

Non-operating holding companies

On November 17, 2023, Standard and Poor's placed AXIS Capital Holding Limited and the securities guaranteed by this non-operating holding company on CreditWatch Negative due to the potential regulatory restrictions to payments from Bermuda-based insurance and reinsurance operating companies to non-operating holding companies. On January 29, 2024, Standard and Poor's removed AXIS Capital Holdings Limited and related securities from Negative CreditWatch affirming the credit rating of AXIS Capital Holding Company at A- (Stable). In addition, Standard & Poor's also reaffirmed the A+ Financial Strength and issuer credit ratings on all core operating subsidiaries, with a Stable outlook. The stable outlook reflects Standard and Poor's expectation that AXIS will sustain its strong competitive position supported by solid, less-volatile underwriting performance, and will maintain capital adequacy at the 99.99% (or extreme stress) level in 2023-2025.

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Contractual Obligations and Commitments

At December 31, 2023, contractual obligations and commitments by period due were:

(1)We are obligated to pay claims for specified loss events covered by the insurance and reinsurance contracts that we write. Loss payments represent our most significant future payment obligation. In contrast to our other contractual obligations, cash payments are not determinable from the terms specified within the underlying contracts. Our best estimate of reserve for losses and loss expenses is reflected in the table above. Actual amounts and timing may differ materially from our best estimate (refer to ‘Critical Accounting Estimates – Reserve for Losses and Loss Expenses’ for further details). We have not taken into account corresponding reinsurance recoverable on unpaid amounts that would be due to us.

(2)In the ordinary course of business, we renew and enter into new leases for office space which expire at various dates (refer to Item 8, Note 13 to the Consolidated Financial Statements 'Leases' for further details).

(3)We have $502 million of unfunded investment commitments related to our other investments portfolio, which are callable by our investment managers (refer to Item 8, Note 5(e) to the Consolidated Financial Statements 'Investments' for further details). In addition, we have $10 million of unfunded commitments related to our commercial mortgage loans portfolio and $16 million of unfunded commitments related to our corporate debt portfolio.

(4)Refer to Item 8, Note 10(a) to the Consolidated Financial Statements 'Debt and Financing Arrangements' for further details.

(5)Debt (interest payments) includes $11 million of unamortized discount and debt issuance expenses.

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 to determine the reported values. We consider an accounting estimate to be critical if: (1) it requires that significant assumptions be made 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 that 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 credit losses associated with fixed maturities, available for sale.

Significant accounting policies are also important to understanding the consolidated financial statements (refer to Item 8, Note 2 to the Consolidated Financial Statements 'Basis of Presentation and Significant Accounting Policies' for further details).

We believe that the amounts included in the consolidated financial statements reflect management's best judgment. However, factors such as those described in Item 1A 'Risk Factors' could cause actual events or results to differ materially from the underlying assumptions and estimates which could lead to a material adverse impact on our results of operations, financial condition, or liquidity.

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Reserve for Losses and Loss Expenses

Overview

We believe the most significant accounting judgment we make is the estimate of reserve for losses and loss expenses ("loss reserves"). Loss reserves represent management’s estimate of the unpaid portion of our ultimate liability for losses and loss expenses ("ultimate losses") for insured and reinsured events that have occurred at or before the balance sheet date. Loss reserves reflect claims that have been reported ("case reserves") to us and claims that have been incurred but not reported ("IBNR") to us. Loss reserves represent our best estimate of what the ultimate settlement and administration of claims will cost, based on our assessment of facts and circumstances known at that particular point in time.

Loss reserves are not an exact calculation of the liability but instead are complex estimates. The process of estimating loss reserves involves a number of variables (refer to 'Selection of Reported Reserves – Management's Best Estimate' below for further details). We review estimates of loss reserves each reporting period and consider all significant facts and circumstances known at that particular point in time. As additional experience and other data become available and/or laws and legal interpretations change, we may adjust previous estimates of loss reserves. Adjustments are recognized in the period in which they are determined. Therefore, they can impact that period's underwriting results either favorably, indicating that current estimates are lower than previous estimates, or adversely, indicating that current estimates are higher than previous estimates.

Case Reserves

With respect to insurance business, we are generally notified of losses by our insureds and/or their brokers. Based on this information, our claims personnel estimate ultimate losses arising from the claim, including the cost of administering the claims settlement process. These estimates reflect the judgment of our claims personnel based on general reserving practices, the experience and knowledge of such personnel regarding the nature of the specific claim and, where appropriate, the advice of legal counsel, loss adjusters and other relevant consultants.

With respect to reinsurance business, we are generally notified of losses by ceding companies and/or their brokers. For excess of loss contracts, we are typically notified of insured losses on specific contracts and record a case reserve for the estimated ultimate liability arising from the claim. For contracts written on a proportional basis, we typically receive aggregated claims information and record a case reserve for the estimated ultimate liability arising from the claim based on that information. Proportional reinsurance contracts typically require that losses in excess of pre-defined amounts be separately notified so we can adequately evaluate them. Our claims department evaluates each specific loss notification we receive and records additional case reserves when a ceding company’s reserve for a claim is not considered adequate. We also undertake an extensive program of cedant audits, using outsourced legal and industry experience where necessary. This allows us to review cedants’ claims administration practices to ensure that reserves are consistent with exposures, adequately established, and properly reported in a timely manner.

IBNR

The estimation of IBNR is necessary due to potential development on reported claims and the time lag between when a loss event occurs and when it is actually reported, which is referred to as a reporting lag. Reporting lags may arise from a number of factors, including but not limited to, the nature of the loss, the use of intermediaries and complexities in the claims adjusting process. As we do not have specific information on IBNR, it must be estimated. IBNR is calculated by deducting incurred losses (i.e., paid losses and case reserves) from management’s best estimate of ultimate losses. In contrast to case reserves, which are established at the contract level, IBNR reserves are generally estimated at an aggregate level and cannot be identified as reserves for a particular loss event or contract (refer to 'Reserving for Catastrophic Events' below for further details).

Reserving Methodology

Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses – Reserving Methodology – Sources of Information' for a description of the collection and analysis of data used in our quarterly loss reserving process.

Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses – Reserving Methodology – Actuarial Analysis' for a description of the reserve estimation methods, Expected Loss Ratio Method ("ELR Method"), Loss Development Method (also referred to as the "Chain Ladder Method" or "Link Ratio Method") and Bornhuetter-Ferguson Method ("BF Method") which are commonly employed by our actuaries together with a discussion of their strengths and weaknesses.

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Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses – Reserving Methodology – Key Actuarial Assumptions', which notes that the most significant assumptions used in our quarterly loss reserving process are expected loss ratios ("ELRs) and loss development patterns.

Gross Loss Reserves by Line of Business

Gross loss reserves for each of the reportable segments, segregated between case reserves and IBNR, by line of business are shown below: