AXIS CAPITAL HOLDINGS LTD (AXS) FY 2022 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, 2022 and 2021, and our financial condition at December 31, 2022 and 2021. 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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2022 FINANCIAL HIGHLIGHTS

2022 Consolidated Results of Operations

•Net income available to common shareholders of $193 million, or $2.27 per common share, and $2.25 per diluted common share

•Operating income(1) of $498 million, or $5.81 per diluted common share(1)

•Gross premiums written of $8.2 billion

•Net premiums written of $5.3 billion

•Net premiums earned of $5.2 billion

•Pre-tax catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, of $403 million ($350 million, after-tax), (Insurance: $207 million; Reinsurance: $196 million), or 7.8 points on the current accident year loss ratio, including natural catastrophe and weather-related losses of $338 million, or 6.5 points, primarily attributable to Hurricane Ian, Winter Storm Elliot, June European Convective Storms, and other weather-related events. The remaining losses included $43 million, or 0.8 points, attributable to the Russia-Ukraine war, and $23 million, or 0.4 points, attributable to the COVID-19 pandemic.

•Net favorable prior year reserve development of $26 million

•Net loss of $11 million related to loss portfolio transfer reinsurance agreements including adverse prior year reserve development of $5 million and acquisition costs of $6 million. Refer to 'Management's Discussion and Analysis of Financial Condition and Results of Operations – Overview – Recent Developments – Loss Portfolio Transfer Reinsurance Agreements'.

•Underwriting income(2) of $359 million and combined ratio of 95.8%

•Net investment income of $419 million

•Net investment losses of $457 million

•Foreign exchange gains of $158 million

•Reorganization expenses of $31 million

2022 Consolidated Financial Condition

•Total cash and investments of $15.6 billion; fixed maturities, short-term investments, and cash and cash equivalents comprise 85% of total cash and investments and have an average credit rating of AA-

•Total assets of $27.6 billion

•Reserve for losses and loss expenses of $15.2 billion and reinsurance recoverable on unpaid and paid losses and loss expenses of $6.4 billion, including $422 million related to loss portfolio transfer reinsurance agreements. Refer to 'Management's Discussion and Analysis of Financial Condition and Results of Operations – Overview – Recent Developments – Loss Portfolio Transfer Reinsurance Agreements'.

•Debt of $1.3 billion and a debt to total capital ratio(3) of 22.0%

•Common shares repurchased were 897,000 common shares for a total of $49 million,

•Common shareholders’ equity of $4.1 billion; book value per diluted common share of $46.95

(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 2022 included the following:

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

•re-balancing our portfolio towards less volatile lines of business, including the exit from catastrophe and property reinsurance lines in June 2022, that carry attractive returns while deploying capital with risk limits, diversification and risk management;

•investing in attractive growth markets, including the launch of our dedicated Wholesale division in September 2022, and advancing capabilities to address more transactional specialist business (small to mid-sized customers) with our key distribution partners;

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

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

•investing in data and technology capabilities, and tools to empower our underwriters and enhance the service 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, 2021, compared to year ended December 31, 2020, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K, which was filed with the SEC on February 25, 2022, and such discussions are incorporated herein by reference.

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Outlook

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

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

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

The reinsurance market is experiencing material improvements in rates, and terms and conditions. In light of 2022 marking the sixth consecutive year of challenging market loss events, reinsurance carriers are aiming to reduce net volatility and increase profitability. We expect to see opportunity to drive profitable growth among the specialty and casualty reinsurance lines that we offer.

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

Response to Russia-Ukraine War

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

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

Our team is tracking the situation closely, and is performing stress and scenario testing on existing underwriting exposures. A range of economic impacts and external pressures across individual product lines are being considered.

Underwriting

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

We are also closely monitoring cash due from our customers and reinsurers, giving due consideration to the Russia-Ukraine war and associated international sanctions. At December 31, 2022, we considered the potential financial impact of the Russia-Ukraine war when determining allowances for expected credit losses for insurance and reinsurance premium balances receivable and reinsurance recoverable balances on unpaid losses and loss expenses. Based on facts and circumstances at that time, we did not adjust allowances for expected credit losses at December 31, 2022. We will continue to monitor the appropriateness of allowances for expected credit losses as new information comes to light. Adjustments to allowances for expected credit losses in subsequent periods could be material.

Reserving

At December 31, 2022, estimated pre-tax net losses attributable to the Russia-Ukraine war were $43 million.

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

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While we believe the overall estimate of net reserves for losses and loss expenses is adequate for losses and loss adjustment expenses that have been incurred at December 31, 2022, based on current facts and circumstances, we will continue to monitor the appropriateness of our assumptions as new information comes to light and will adjust the estimate of net reserves for losses and loss adjustment expenses, as appropriate. Actual losses for this event may ultimately differ materially from current estimates.

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

Investments

At December 31, 2022, we had no direct exposures to Russia or Ukraine within our investments portfolio.

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

Recent Developments

AXIS Re's exit from Catastrophe and Property lines of business

On June 7, 2022, we announced the decision to exit catastrophe and property reinsurance lines of business. This strategic initiative is part of an overall approach to reduce our exposure to volatile catastrophe risk. Reorganization expenses, mainly related to this strategic initiative for the year ended December 31, 2022 of $31 million, were attributable to compensation-related costs associated with the termination of certain employees and software asset impairments.

Loss Portfolio Transfer Reinsurance Agreements

On December 9, 2022 (the "transaction date" or "closing date"), we entered into loss portfolio transfer reinsurance agreements with a third-party to reinsure several of our professional lines and liability insurance portfolios, predominantly relating to 2019 and prior accident years.

The transaction covers net reserves for losses and loss expenses of approximately $400 million and provides ground-up cover to a policy limit of $605 million.

The transaction was deemed to have met the established criteria for retroactive reinsurance accounting. At the closing date, we recognized a loss of $17 million as adverse prior year reserve development associated with the transaction. Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses' for further details.

Under the terms of the loss portfolio transfer reinsurance agreements, the reinsurer also assumed responsibility for the management of certain claims. At the closing date, we recognized income of $12 million in losses and loss expenses associated with this change in claims management responsibility.

We also recognized acquisition costs of $6 million associated with the transaction.

In subsequent periods, we will reassess the reserves for losses and loss expenses subject to the loss portfolio transfer reinsurance agreements.

Any adverse prior year reserve development associated with the subject business will result in the cumulative amounts ceded to the reinsurer exceeding the consideration paid which will result in a gain determined in accordance with retroactive reinsurance accounting. Consistent with our accounting policy, (refer to Item 8, Note 2 to the Consolidated Financial Statements 'Basis of Presentation and Significant Accounting Policies' for further details), gains will be deferred and amortized into net income over the claims settlement period.

Although retroactive reinsurance accounting may result in volatility to our results in the short-term, the loss portfolio transfer reinsurance agreements will protect us from prior year reserve development on the subject business over the contract term, provided this remains within the limit of the agreements.

Transition in our senior leadership

On December 16, 2022, our Board of Directors appointed Vincent Tizzio to succeed Albert Benchimol as Chief Executive Officer, President and as a Class III director, effective at the close of business on the date of the Company’s annual general meeting currently scheduled for May 4, 2023.

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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 $130 million, $126 million, and $102 million for 2022, 2021, and 2020, 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 2.5%, 2.7% and 2.3% for 2022, 2021 and 2020, 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 2022 increased by $722 million, or 15% ($804 million, or 17%, on a constant currency basis(1)), compared to 2021 attributable to all lines of business.

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

Ceded Premiums Written

Ceded premiums written in 2022 were $2,208 million, or 40% of gross premiums written, compared to $1,968 million, or 40% in 2021. The increase in ceded premiums written of $239 million, or 12% was primarily driven by increases in liability, property, cyber, and credit and political risk lines, partially offset by decreases in professional lines and accident and health lines.

The increases in liability, property, cyber, and credit and political risk lines reflected the increase in gross premiums written in 2022, compared to 2021. The increase in property lines was also attributable to a new quota share treaty and to the restructuring of a significant existing quota share treaty. The decrease in professional lines was due to the restructuring of a significant existing quota share treaty. The decrease in accident and health lines was due to new business written in 2022 which was fully retained.

(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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Net Premiums Earned

Net premiums earned by line of business were as follows:

Net premiums earned in 2022 increased by $483 million, or 18% ($532 million, or 20%, on a constant currency basis), compared to 2021. The increase was primarily driven by increases in gross premiums earned in liability, professional lines, cyber, property, accident and health, and marine and aviation lines, partially offset by increases in ceded premiums earned in liability, property, cyber, and 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 57.5% in 2022 from 57.8% in 2021.

During 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.

Comparatively, in 2021, catastrophe and weather-related losses, net of reinstatement premiums, were $175 million, or 6.4 points, primarily attributable to Hurricane Ida, Winter Storms Uri and Viola, and other weather-related events.

After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 51.0% in 2022 from 51.4% in 2021. The decrease in the current accident year loss ratio, after adjusting for the impact of the catastrophe and weather-related losses was principally due to the impact of favorable pricing over loss trends, partially offset by changes in business mix.

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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, the expected claim tails, and prior year development.

Acquisition Cost Ratio

The acquisition cost ratio increased to 18.4% in 2022 from 18.3% in 2021, respectively, principally related to an increase in profit commission costs and fees associated with the loss portfolio transfer reinsurance agreements (refer to Management's Discussion and Analysis of Financial Condition and Results of Operations – Overview – Recent Developments – Loss Portfolio Transfer Reinsurance Agreements for further details), largely offset by changes in business mix attributable to the decrease in program business in property lines written in recent periods, and an increase in ceding commissions mainly in liability lines.

Underwriting-Related General and Administrative Expense Ratio

The underwriting-related general and administrative expense ratio decreased to 14.2% in 2022 from 16.2% in 2021, mainly driven by an increase in net premiums earned, partially offset by an increase in personnel costs and travel 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 2022 decreased by $194 million, or 7% ($140 million, or 5%, on a constant currency basis), compared to 2021. The decrease was primarily attributable to catastrophe, property, motor, and liability lines, partially offset by increases in credit and surety, professional lines, agriculture, marine and aviation, engineering, and accident and health lines.

The decreases in catastrophe and property lines were largely driven by non-renewals and decreased line sizes associated with repositioning the portfolio during the six months ended June 2022, together with the exit from these lines of business in June 2022. The decrease in catastrophe lines was also due to a lower level of reinstatement premiums related to catastrophe losses in 2022, compared to 2021.

The decrease in motor lines was largely driven by non-renewals and decreased line sizes associated with repositioning the portfolio. In addition, the decrease in motor lines was attributable to the impact of foreign exchange rate movements, and the timing of the renewal of a significant contract, partially offset by a lower level of negative premium adjustments in 2022, compared to 2021 due to significant adjustments attributable to the COVID-19 pandemic recognized in 2021.

The decrease in liability lines was due to a lower level of premium adjustments associated with favorable market conditions in 2022, compared to 2021, largely offset by an increase in renewals due to favorable market conditions, and new business.

The increases in credit and surety, agriculture, professional lines, and accident and health lines were driven by new business.

The increases in credit and surety, and accident and health lines were also due to premium adjustments related to significant contracts.

The increase in professional lines was also due to a higher level of premium adjustments associated with favorable market conditions in 2022, compared to 2021. In addition, an increase in renewals associated with favorable market conditions and increased line sizes on several contracts contributed to the increase in professional lines in 2022, compared to 2021.

The increase in engineering lines was due to premium adjustments related to a significant contract.

The increase in marine and aviation lines was attributable to new business and premium adjustments.

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Ceded Premiums Written

Ceded premiums written in 2022 were $744 million, or 28%, of gross premiums written, compared to $791 million, or 28%, in 2021. The decrease in ceded premiums written of $47 million, or 6%, was primarily driven by a decrease in catastrophe lines, partially offset by increases in professional lines, motor, and credit and surety lines.

The decrease in catastrophe lines reflected the decrease in gross premiums written in 2022, compared to 2021.

The increase in professional lines was due to the increase in gross premiums written in 2022, compared to 2021, premiums ceded to new quota share retrocessional treaties with a strategic capital partner and the restructuring of significant quota share retrocessional treaties.

The increase in motor lines was associated with the restructuring of significant quota share retrocessional treaties, partially offset by the decrease in gross premiums written in 2022, compared to 2021.

The increase in credit and surety lines was attributable to the increase in gross premiums written in 2022, compared to 2021, premium adjustments and the restructuring of a significant quota share retrocessional treaty.

Net Premiums Earned

Net premiums earned by line of business were as follows:

Net premiums earned in 2022 decreased by $32 million, or 2%, (increased by $54 million, or 3%, on a constant currency basis), compared to 2021. The decrease was primarily driven by decreases in gross premiums earned in catastrophe, property, and motor lines, together with increases in ceded premiums earned in professional lines, motor, and credit and surety lines. These decreases were partially offset by increases in gross premiums earned in liability, professional lines, credit and surety, agriculture, and marine and aviation lines and decreases in ceded premiums earned in catastrophe lines.

Other Insurance Related Income (Loss)

Other insurance related income of $13 million in 2022, compared to other insurance related income of $22 million in 2021, a decrease of $9 million, primarily due to a decrease in fees related to arrangements with strategic capital partners.

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Loss Ratio

The components of the loss ratio were as follows:

Current Accident Year Loss Ratio

The current accident year loss ratio decreased to 72.3% in 2022 from 73.2% in 2021. The decrease in the current accident year loss ratio was impacted by a lower level of catastrophe and weather-related losses.

During 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.

Comparatively, in 2021, catastrophe and weather-related losses, net of reinstatement premiums, were $268 million or 13.3 points, primarily attributable to Hurricane Ida, July European Floods, Winter Storms Uri and Viola, June European Convective Storms, December Convective Storms that principally impacted the U.S. Southwest and the Upper Midwest, Quad-state tornadoes, and other weather-related events.

After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio increased to 62.6% in 2022 from 59.9% in 2021, principally due to changes in business mix associated with the exit from catastrophe and property lines of business in June 2022.

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, the expected claim tails, and prior year development.

Acquisition Cost Ratio

The acquisition cost ratio increased to 21.9% in 2022 from 21.3% in 2021, principally related to changes in business mix driven by the decrease in property catastrophe business written in recent periods and the increase in liability, professional lines, and credit and surety lines of business written in recent periods, together with higher costs associated with professional lines business mainly due to more proportional business being written in the recent periods, partially offset by the impact of retrocessional contracts.

Underwriting-Related General and Administrative Expense Ratio

The underwriting-related general and administrative expense ratio increased to 5.3% in 2022 from 5.1% in 2021, mainly driven by a decrease in net premiums earned and a decrease in fees related to arrangements with strategic capital partners, largely offset by a decrease in personnel costs and performance-related compensation costs.

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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

2022 versus 2021: Net investment income in 2022 increased by $68 million or 26%, compared to 2021 due to an increase in yields.

Other Investments

Other investments include hedge 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)Excluded overseas deposits in 2020. Overseas deposits in 2020 included investments in private funds held by Syndicate 2007 where the underlying investments were primarily U.S. government, non-U.S. government and corporate debt securities.

(2)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, excluding overseas deposits.

2022 versus 2021: Pre-tax return on other investments in 2022 decreased to 5.9%, compared to 21.4% in 2021. The decrease was primarily attributable to lower returns from hedge, direct lending and private equity 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.

2022 versus 2021: Net investment losses in 2022 were $457 million compared to net investment gains of $134 million in 2021. 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. Net investment gains reported in 2021 mainly reflected net realized gains on the sale of corporate debt, non-U.S. government and CMBS and net unrealized gains 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.

Impairment Losses

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

2022 versus 2021: Impairment losses in 2022 were $13 million compared to impairment losses of $nil in 2021. The impairment losses in 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.

Change in Fair Value of Investment Derivatives

From time to time, we economically hedge foreign exchange exposure with derivative contracts.

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.

During 2021, foreign exchange hedges resulted in $4 million of net gains which primarily related to securities denominated in euro which experienced volatility during 2021.

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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 the statement of changes in 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 period end less net unrealized gains (losses) at the prior period end.

(2)The average cash and investments is calculated by taking the average of the period end fair value balances.

(3)Pre-tax total return on cash and investments excluding foreign exchange rate 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 gains (losses) of $(110) million, $(40) million and $55 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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 decreased to 2.5% in 2022 from 2.7% in 2021.

The increase in corporate expenses in 2022 was mainly driven by executive-related compensation cost of $15 million associated with the transition in our senior leadership and an increase in personnel costs, largely offset by decreases in performance-related compensation costs, business fees, and professional services costs.

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Foreign Exchange Losses (Gains)

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

Foreign exchange 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.

Foreign exchange losses in 2021 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, Australian dollar and other currencies, largely offset by the strengthening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in euro and Japanese yen.

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"), and 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 2022.

Interest expense and financing costs increased by $1 million in 2022, compared to 2021, due to the FHLB advances in 2022.

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 9.0%, 9.2%, and 9.3% in 2022, 2021, and 2020, respectively. This effective rate can vary between years depending on the distribution of net income (loss) among tax jurisdictions, as well as other factors.

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 takes 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 maturity securities 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 $62 million in 2021 was principally due to the generation of pre-tax income in our U.S., U.K. and European operations.

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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 decrease in ROACE in 2022, compared to 2021, was primarily driven by net investment losses, a decrease in net investment income, reorganization expenses, and a decrease in interest in income (loss) of equity method investments, partially offset by foreign exchange gains, an increase in underwriting income, and a decrease in income tax expense. In addition, ROACE was impacted by a decrease in average common shareholders' equity.

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.

The increase in operating ROACE in 2022, compared to 2021, was primarily driven by an increase in underwriting income and a decrease in income tax expense, partially offset by a decrease in net investment income. In addition, operating ROACE was impacted by a decrease in average common shareholders' equity.

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

In 2021, book value per diluted common share increased by 1%, due to the net income generated, partially offset by a decrease in net unrealized investment gains reported in other comprehensive income and common dividends declared.

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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 have approved nineteen successive annual increases in quarterly common share dividends.

Book Value per Diluted Common Share Adjusted for Dividends

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

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

In 2021, the increase in total value of $2.38, or 4%, was driven by the net income generated in the year, partially offset by a decrease in net unrealized investment gains recognized in accumulated other comprehensive income.

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NON-GAAP FINANCIAL MEASURES RECONCILIATION

(1)Tax expense (benefit) of $(36) million, $11 million and $18 million for the years ended December 31, 2022, 2021 and 2020, 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 $16 million, $3 million and $(4) million for the years ended December 31, 2022, 2021 and 2020, 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 $(4) million, $nil and $(1) million for the years ended December 31, 2022, 2021 and 2020, 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, 2022, 2021 and 2020, respectively, Tax impact is estimated by applying the statutory rates of applicable jurisdictions.

(5)Loss per diluted common share and operating loss per diluted common share for the year ended December 31, 2020, were calculated using weighted average common shares outstanding due to the net loss attributable to common shareholders and the operating loss recognized in that year.

(6)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 recognized in other comprehensive income (loss), generally offset a large portion of the foreign exchange losses (gains) arising from our underwriting portfolio, thereby minimizing the impact of foreign exchange rate movements on total shareholders' equity. As a result, we believe that foreign exchange losses (gains) in our consolidated statements of operations in isolation are not a meaningful contributor to our underwriting performance. Therefore, foreign exchange losses (gains) are excluded from consolidated underwriting income (loss).

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

Reorganization expenses include compensation-related costs and software asset impairments mainly attributable to our exit from catastrophe and property reinsurance lines of business, part of an overall approach to reduce our exposure to volatile

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catastrophe risk, announced in June 2022. 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 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 consolidated operating income (loss)

Reorganization expenses include compensation-related costs and software asset impairments mainly attributable to our exit from catastrophe and property reinsurance lines of business, part of an overall approach to reduce our exposure to volatile catastrophe risk, announced in June 2022. 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, net premiums written and net premiums earned on a constant currency basis in this MD&A. The amounts presented on a constant currency basis are calculated by applying the average foreign exchange rate from the current year to the prior year amounts. We believe this presentation enables investors and other users of our financial information to analyze growth in gross premiums written, net premiums written and net premiums earned on a constant basis. The reconciliation to gross premiums written, net premiums written and net premiums earned on a GAAP basis is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results by Segment'.

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

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

CASH AND INVESTMENTS

Details of cash and investments are as follows:

(1)Presented at net carrying value of $698 million (2021: $446 million) in the consolidated balance sheets.

(2)Includes restricted cash and cash equivalents of $423 million and $473 million for 2022 and 2021, respectively.

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Overview

The fair value of total investments decreased by $804 million in 2022, driven by the decrease in market value of fixed maturities due to the increase in yields and the widening of credit spreads.

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, 2022, fixed maturities had a weighted average credit rating of AA- (2021: AA-), a book yield of 3.5% (2021: 1.9%), and an average duration of 3.0 years (2021: 3.0 years).

At December 31, 2022, fixed maturities together with short-term investments and cash and cash equivalents (i.e., total investments of $13.2 billion) had a weighted average credit rating of AA- (2021: AA-) and an average duration of 2.8 years (2021: 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, 2022, the fair value of fixed maturities not rated was $31 million (2021: $18 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, 2022, net unrealized losses on non-U.S. government securities were $51 million (2021: net unrealized gains of $0.5 million) which included gross unrealized foreign exchange losses of $24 million (2021: $5 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, 2022, our non-investment grade portfolio had a fair value of $1,021 million (2021: $1,032 million), a weighted average credit rating of B+ (2021: B) and duration of 2.9 years (2021: 1.7 years). At December 31, 2022, our corporate debt portfolio, including non-investment grade securities, had a duration of 3.6 years (2021: 3.7 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 AAA rated and are supported by loans which are diversified across geographical areas. At December 31, 2022, agency RMBS had an average duration of 5.7 years (2021: 4.4 years).

Non-agency RMBS mainly include investment grade bonds originated by non-agencies. At December 31, 2022, 94% (2021: 91%) of our non-agency RMBS were rated AA or better. At December 31, 2022, non-agency RMBS had an average duration of 4.6 years (2021: 2.1 years) and weighted average life of 6.7 years (2021: 4.8 years).

Commercial MBS

CMBS mainly include investment grade bonds originated by non-agencies. At December 31, 2022, 99% (2021: 99%) of our CMBS were rated AA or better. At December 31, 2022, the weighted average estimated subordination percentage of the portfolio was 38% (2021: 37%), 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, 2022, CMBS had an average duration of 2.4 years (2021: 3.1 years) and weighted average life of 3.3 years (2021: 4.0 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, 2022, the average duration our ABS portfolio was 0.5 years (2021: 0.7 years) and the weighted average life was 3.7 years (2021: 4.1 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.

Details of the fair value of our municipals portfolio by state and between Revenue bonds and General Obligation bonds are as follows:

General Obligation bonds are backed by the full faith and credit of the authority that issued the debt and are secured by the taxing powers of those authorities. Revenue bonds are backed by the revenue stream generated by the services provided by the issuer (e.g., sewer, water or utility projects). As issuers of revenue bonds do not have the ability to draw from tax revenues or levy taxes to fund obligations, revenue bonds may carry a greater risk of default than General Obligation bonds. At December 31, 2022, all municipals held (2021: 97%) are taxable.

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Gross Unrealized Losses

At December 31, 2022, the gross unrealized losses on our fixed maturities, available for sale portfolio were $857 million (2021: $94 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 increase in gross unrealized losses on investment grade fixed maturities reflected the impact of the increase in yields and the widening 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 increase in gross unrealized losses on non-investment grade fixed maturities reflected the impact of the widening of credit spreads on non-investment grade high yield corporate debt securities.

Equity Securities

At December 31, 2022, net unrealized losses on equity securities were $9 million (2021: net unrealized gains of $127 million). The decrease was driven by the decline in market value of bond mutual funds and the decline in global equity markets.

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Mortgage Loans

During 2022, investment in commercial mortgage loans increased to $627 million from $594 million, an increase of $33 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, 2022 and 2021, there were no credit losses or past due amounts associated with our commercial mortgage loans portfolio.

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 interest in Harrington Reinsurance Holdings Limited ("Harrington") is reported in interest in income (loss) of equity method investments.

Interest in income (loss) of equity method investments was $2 million in 2022, compared to $32 million in 2021. The decrease was attributable to lower investment gains realized by Harrington.

Restricted Assets

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

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

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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 2022, AXIS Capital received $225 million (2021: $300 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, 2022, 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.

•Net cash provided by operating activities was $692 million in 2022 compared to $1,115 million in 2021. 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 decreased in 2022 compared to 2021, primarily attributable to an increase in payments of premiums to reinsurers, and an increase in payments of losses and loss expenses, partially offset by an increase in premiums received, an increase in reinsurance recoverables received, and an increase in interest and dividends received from our fixed maturity securities portfolio.

•Investing cash outflows in 2022 principally related to the net purchases of fixed maturities of $599 million, short-term investments 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. Investing cash outflows in 2021 principally related to the net purchases of fixed maturities of $1,154 million and equity securities of $112 million, partially offset by the net proceeds from the sale and redemption of short-term investments of $130 million, and the net proceeds from the sale of other investments of $61 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. Financing cash outflows in 2021 were principally due to dividends paid to common and preferred shareholders of $176 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 set forth in our credit facilities (refer to 'Capital Resources – Share Repurchases' below for further details).

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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 $404 million in 2022, $450 million in 2021 and $773 million in 2020. 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.

Our investment portfolio is heavily weighted towards conservative, high quality and highly liquid securities. We expect that, if necessary, approximately $12.3 billion of cash and invested assets at December 31, 2022 could be available in one to three business days under normal market conditions. Of this amount, $5.2 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).

For context, at January 1, 2023, our largest 1-in-250 year return period, single occurrence, single-zone modeled probable maximum loss (Japan Earthquake) was approximately $195 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).

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 unrealized investment losses recognized in 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.

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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, 2022, the companies had admitted assets of approximately $3 billion which provides borrowing capacity of up to approximately $750 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).

Preferred Shares

Series D Preferred Shares

On May 20, 2013, we issued $225 million of 5.50% Series D preferred shares with a liquidation preference of $25.00 per share. On January 17, 2020, we redeemed all outstanding Series D preferred shares, for an aggregate liquidation preference of $225 million (refer to Item 8, Note 15 to the Consolidated Financial Statements 'Shareholders' Equity' for further details).

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.

On November 20, 2013, certain of AXIS Capital’s operating subsidiaries (the "Participating Subsidiaries") entered into an amendment to extend the term of its secured $750 million letter of credit facility with Citibank Europe plc ("Citibank") (the "$750 million Facility").

On March 31, 2015, the Participating Subsidiaries entered into an amendment to reduce the maximum aggregate utilization capacity of the $750 million Facility to $500 million (the "$500 million Facility"). All other material terms and conditions remained unchanged.

On March 27, 2017, the Participating Subsidiaries amended their existing $500 million Facility to include an additional $250 million of secured letter of credit capacity (the "$250 million Facility"). Under the terms of the amended $750 million

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Facility, letters of credit to a maximum aggregate amount of $250 million are available for issuance on behalf of the Participating Subsidiaries once the $500 million Facility has been fully utilized.

On December 24, 2019, the expiration date of the $500 million Facility was extended to December 31, 2023.

On March 28, 2020, the expiration date of the $250 million Facility was extended to March 31, 2021.

On March 31, 2021, the Participating Subsidiaries amended their existing secured $750 million Facility to extend the expiration date of the $250 million Facility to March 31, 2022, to reduce the utilization capacity available under the $250 million Facility to $150 million, reducing the maximum aggregate utilization capacity of the credit facility from $750 million to $650 million, and to make administrative changes to the remaining $500 million Facility.

On March 31, 2022, the Participating Subsidiaries amended their existing $650 million secured letter of credit facility to extend the expiration date of the $150 million secured letter of credit facility to March 31, 2023, with each letter of credit provided pursuant to such credit facility having a tenor not to extend beyond March 31, 2024. The terms and conditions of the $500 million secured letter of credit facility remain unchanged.

At December 31, 2022, letters of credit outstanding were $362 million (refer to Item 8, Note 10 to the Consolidated Financial Statements 'Debt and Financing Arrangements' for further details).

Common Equity

During the year ended December 31, 2022, common equity decreased by $771 million. The following table reconciles opening and closing common equity positions:

Share Repurchases

During 2022, we repurchased 897,000 common shares for a total of $49 million, including $35 million repurchased pursuant to our Board-authorized share repurchase program and $14 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 through December 31, 2023. The new share repurchase authorization, effective January 1, 2023, replaced the previous program which had $65 million available until December 31, 2022 (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.

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

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.

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Contractual Obligations and Commitments

At December 31, 2022, contractual obligations and commitments by period due were: