Good day ladies and gentlemen, and welcome to the Second Quarter 2008 AXIS Capital Holdings Limited Earnings Conference Call. My name is Lacy and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Ms. Linda Ventresca with Investor Relations. Please proceed.

Thank you, Lacy. Good morning, ladies and gentlemen. I am happy to welcome you to our conference call to discuss to the financial results for AXIS Capital for the quarter ended June 30, 2008. Our second quarter earnings press release and financial supplement were issued yesterday evening after the market closed. If you'd like copies, please visit the Investor Information section of our website, www.axiscapital.com. We set aside an hour for today's call, which is also available as an audio webcast through the Investor Information section of our website, through August 29th. An audio replay will also be available through August 15th. The toll-free dial in number for the replay is 888-286-8010 and the international number is 617-801-6888. The pass code for both replay dial-in numbers is 48567247. With me on today's call are John Charman, our CEO and President and David Greenfield, our CFO. Before I turn the call over to John, I will remind everyone that statements made during this call including the question-and-answer session which are not historical facts, maybe forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements contained in this presentation include but are not necessarily limited to information regarding our estimate of losses related to catastrophes and other loss events, future growth prospects and financial results, evaluation of losses of loss reserves, investment strategies, investment portfolio and market performance, impact of the marketplace with respect to changes and pricing models and our expectations regarding pricing and other market conditions. Each statements involve risks, uncertainties and assumptions which could cause actual results to differ materially from our expectations. For a discussion of these matters, please refer to the Risk Factors section in our most recent Form 10-K on file with the Securities and Exchange Commission. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. In addition this presentation contains information regarding operating income, which is up financial measure within the meaning of the U.S. federal securities laws. For a reconciliation in this item to the most directly comparable GAAP financial measures, please refer to our press release and Form 8-K issued last night which can be found on our website. With that, I now turn the call over to John.

Good morning, everyone. I am pleased to report we had another strong quarter culminating in an annualized return on average common equity at 19.2%. For the 12 months ended June 30th, of 2008 our diluted book value per share has grown by an excellent 21%. Despite the extremely competitive market conditions, our underwriting results were good and our reserves from prior accident years continue to develop favorably. We also posted record quarterly net investment income. Our business is still generating very strong underwriting profitability, even against the backdrop of increased market loss activity during this first half of the year in the property lines. However, there are fewer good opportunities becoming available to us in our traditional wholesale markets. Fortunately, the diversification strategy we have from our inception, we accelerated at the right times to help us insulate us from the value disruption we are seeing in those markets. Also we are much less reliant on the big three broking houses. Since 2003, we have deliberately broadened our international distribution capabilities. As we continue to build out our operational capabilities for the specialty small and middle market business, the underwriting opportunities that we are targeting are not big capital consumers. This combined with the volatility in the financial markets, presented us with the opportunity to return a $175 million to shareholders in the quarter through share repurchases at attractive valuations. These measured share repurchases are a vital for the constructing long-term value for our shareholders. And with that, I'd like to hand the call over to David.

Thank you, John and good morning everyone. As John mentioned, we're extremely pleased with our results for the quarter. Net income was $231 million or $1.47 per diluted share compared with $252 million or $1.51 per diluted share for the second quarter of 2007. After-tax operating income which excludes the impact of realized gains and losses on investments was $229 million or $1.45 per diluted share compared with $256 million or $1.54 per diluted share for the second quarter of 2007. For the first half of 2008, net income was $469 million compared with $479 million in 2007. Earnings per diluted share of $2.95 increased 2% from $2.88 per diluted share for the first six months of 2007. After-tax operating income was $434 million or $2.73 per diluted share compared to $483 million or $2.91 per diluted share for the first half of last year. These results translate to an annualized return on average common equity for the quarter of 19.2%. Our diluted book value per share has increased 21% over the last 12 months and 5% for the year-to-date, even after considering the effects of share repurchases which I will discuss later. Turning to our top line, our consolidated gross premiums written were $874 million for the quarter, down 9% from the second quarter of 2007. The extremely competitive market conditions continued to present challenges this quarter, although we were still able to identify good profit potential within our globally diversified portfolio of businesses. For the year-to-date, consolidated gross premiums written were $2.1 billion, down 5% from the first six months of 2007. Gross premiums written in our insurance segment were $555 million, down 9% from the prior year quarter. Disciplined and focused underwriting in the face of competitive market conditions, drove exposure reduction in a number of our…

Thank you, David. Now I'd like to comment on market conditions in more detail. In our insurance segment depressingly not much has changed since last quarter. All of our business lines are under extreme pricing pressure with only one notable exception. We continue to see improvement in the financial institution's classes within our professional lines business. However, the balance of our professional lines business remains under pressure with rate decreases in the single digits. Large account property rate decreases freely applied by the market continue to be in the range of 20% to 50% with supplements increasing. Despite the recent high-profile loss activity, there has been no noticeable impact on general levels of pricing or discipline throughout the market. In the mining and heavy industrial sectors where recent large losses have been concentrated, the market is put through price increases at renewal but at levels we do not consider adequate. In a number of cases the market broadens the terms and conditions rendering those renewals inappropriate to us. Overall, property account retention in our U.S. surplus lines insurance business has been impacted by extreme competition. Particularly, for the Californian earthquake peril and this has brought us to walk-away levels of an increasing number of cases. Exposure adjusted offshore energy rate decreases are in the region of 20% for international business and 15% for Gulf of Mexico business. U.S. casualty insurance business continues to see great decline unabated. Umbrella business has lagged primary casualty for some time in terms of the level of competition. The competition here is accelerated to the point where it is caught up with primary casualty. Our U.S. casualty portfolio, which we believe is not representative of the overall market, because we write this account very selectively, is seeing rate decline by about 10%. Turning to the…

[Operator Instructions]. And our first question will come from the line of Susan Spivak with Wachovia. Please proceed.

Good morning, John and David. Thanks, for the --

Good morning, Susan.

Good morning, Susan.

Commentary. Just a couple of questions. David, on those reserve releases, on the political risk line, can you just remind me is this first time that you're releasing within that line?

We also had some releases in the first quarter of this year, Susan.

Okay. But the majority of your longer tail lines is still something that would be up for review say, to second half of this year?

Yes, that's correct. Although I didn't say at this time in my remarks, as I've said over the last several quarters, we have not released any of our long tail reserves as of yet, with the exception of I think, there was one case reserve we released last year. But we are reviewing that as I have said on earlier calls and you will hear more about that in the second half of the year.

Okay. And then just a couple more follow-ups. John, with the increase in the frequency of these smaller events on the insurance side, I am just wondering if you are looking into buying more reinsurance coverage to cover those. And then secondly, as we head into this storm season, we've seen couple of these tropical storms hitting the Texas coast. I just wanted to review, how large of a hurricane loss would it have to be to an insured loss to say hit your reinsurance portfolio? And then, do you have meaningful exposure on the Texas coast on the insurance side?

Good morning, Susan. And I am slightly puzzled by the fact that the losses in the second quarter from the property sides have not been replicated elsewhere. But I don't know how other people reserve. I can assure you that the losses were rather than mill losses, we had our normal market shares on those losses and they... the rest of the subscription market were along side us. So, I'm not quite sure how to comment on that, but what I will say is the fact that we will not need to buy anymore reinsurance capital, we were very successful in completing May renewals on the property side this year in which we continued to reduce our retentions. We continued to buyout reinstatements, we continued to take out aggregate deductibles and we continued to buy more coverage. And we were fortunate that our reinsurance acknowledged the quality of our underwriting in order to provide attractive pricing for us. So, I think as an overall statement, the depths and strengths of our reinsurance program relative to our insurance business, because don't forget we buy it on our insurance business, and we run our reinsurance business net. But the strengths and depths of our reinsurance program is the strongest it has been since the inception of the company. But I'm very comfortable about that.

Okay, great.

With regard to your point about our hurricane loss, as I just said to you that I think that we have an extremely robust and strong reinsurance program. Our market shares as a guide of what we would expect from a major hurricane will be between 1% and 2%.

Okay. Thanks very much and I'll get back in line for the rest of my questions.

Yes but as I said that if you look at that the difference between '05 and where we are today, where our modeling say much more superior, our understanding of the underlying data and the way that we analyze it so much more superior. And that's why we still tend to look at it as a market share, but I would optimistically look at it from a Southeast win point of view being closer to 1% than 2%.

And our next question will come from the line of Vinay Misquith with Credit Suisse. Please proceed.

Hi, good morning.

Good morning, Vinay.

Good morning, Vinay.

Could you comment on the difference between the professional lines business that you are writing in your reinsurance segment versus what's been written by Media Pro. My understanding was that the Media Pro was more small account business?

Yes, it is. It's completely different.

So, you are saying that the pricing on that is holding up better than the larger accounts, on your reinsurance lines?

Yes, the price rate... it's at a completely different price level. And it's that small middle market business where it's very difficult, unless you got the technology and the specialty capability to access that business, the distribution is much broader and very different from the traditional professional lines business.

And you've spent a reasonable amount of money trying to build out that platform and going global over that. If you could give us a sense for how that's progressing and when do you expect that to really impact the bottom line?

We've been... we embarked on this over two years ago in terms of the diversification strategy. And especially in this area, we have spent heavily, in a very targeted way over the last 12 to 18 months. And that is now coming on stream really for the third quarter onwards. And I would expect to ramp up out that business over the next 15 months.

So, that's great. And this is the question for David. David, looking at your reserves on the long-tail liability side. You said we should be seeing more of that in the second half of this year. Would you remind us how much of your reserves are liability reserves, and how much pertains to your '03 to'05?

I think on the first point, I mean, I think roughly I am just looking for the numbers here. I mean, I think, I gave you some of these numbers in the first quarter, but in terms of some of our longer tail lines, we are probably looking at close to 60% of the reserves are related to longer tail lines.

Alright.

And that encompasses professional lines liability-type coverages. I don't have the breakdown in terms of what accident years those recover in front of me. But again I'd just reiterate that, we've said our loss picks on those reserves on those lines when we originally began to ride them. We have not adjusted those given that they were relatively new and the length of our business and we are looking at this year to determine whether we should make adjustments to those loss picks.

And Vinay, that you remember because you were on those early phone calls that when we started writing those lines principally in 2003 in both insurance and reinsurance lines, which has very conservative loss picks which were at the upper end of the industry, loss picks. And that's been evidenced by all sorts of third-party papers since then.

Okay, that's fair. Thank you very much.

Thank you.

And our next question will come from the line of Jay Cohen with Merrill Lynch. Please proceed.

Thank you. Good morning, everybody.

Hi Jay, good morning.

Good morning.

I got three questions that should be relatively short. In the first quarter as I recall, you had slowed down the pace of the buyback. This quarter, you stepped it up and what was more important in that decision, was it the price coming down or the realization at the opportunities to deploy capital weren't quite as good as you had thought?

I think if you go back to what I said in the first quarter, Jay, a lot of what drove our decision making in the first quarter had to do with the volatility in the financial markets and the fact that many of the market were effectively closed. So, we're being cautious about what we're doing with our capital under the circumstances. In the second quarter, I think we looked at the market opportunities that were there and felt very comfortable with doing a buyback in the range of $175 million.

So, just more of the stabilization of what was happening in the financial markets?

Well, I hope they were stable, but I don't think they're stable yet. But they were more open in the second quarter than they were in the first quarter. But even saying it that way, as you know them, the markets really aren't that open even today, but certainly a little more stable than they were three months ago.

Got it. Secondly, what was the expense that ran through the income statement related to the restricted stock?

In this quarter it was, I don't have the number right in front but it was a couple of million dollars but you were talking about on the CEO amendment, right... the contract amendment?

Yes.

Yes. So, it was a couple of million in the second quarter. But as I said in my remarks, it will be higher in the third and fourth quarter, because that grant was made towards the end of the second quarter.

Okay. And then last question. As you look at potential acquisition opportunities I'm sure you are seeing a lot these days, what's more intriguing to you? Is it buying a company or an MGA as you have done in the past?

Well, I think we had the same questions last quarter, Jay, but I'll will try and respond it in a consistent manner. But, that you know that we look internationally for MGA-type arrangements where they can provide us with embedded value, niche market embedded value so that we can look for an opportunity to create greater value on an ongoing basis. And we did that with Media Pro and we certainly would expect to continue to acquire a limited number of strategic businesses in the near future. With regard to what I consider to be the traditional M&A side, every man and his dog has been hooked around the market by the investment bankers over the last 18 months, two years, and it's still surprising that even though price to foot values have come off by about 30% or 40% there is still no sign of any real M&A activity. We've maintained and I said in my prepared remarks that we are very, very conservative when we approach a third party for the view to looking at an acquisition. And we will not destroy the franchise that we have built so strongly over the last seven years by not applying the same rigorous standards to a third party in terms of underwriting background reserve people. We are not interested in having overwhelming ourselves with legacy issues, whether it's infrastructure, people, reserve systems. So, the reality is the M&A opportunities for us in the market as it stands are pretty limited. But nonetheless we are open to them. We look very carefully but we have yet to find real value in that market.

Great, thank you.

Thank you, Jay.

Thanks, Jay.

And our next question will come from the line of Matthew Heimermann with JPMorgan. Please proceed

Hi, good morning everyone.

Hi, Matt.

Good morning, Matt.

Hi. Couple of questions and these are hopefully pretty quick as well. The bad debt provision, reinsurance bad debt provision this quarter didn't really change in aggregate but reinsurance dropped dramatically and I didn't know if there was unusual driving this, if you actually got a collection or just what changed there?

We did have a positive outcome on our arbitration on the reinsurance side related to some claims for the 2004 hurricanes. And then separately, we took a more adverse view on a claim related to Hurricane Katrina. So coincidentally, they were close in numbers and sort of offset each other but there was some movement between the two lines.

Okay. And then you mentioned that in the motor reinsurance book there was some higher premium adjustments this quarter and I was curious, does that explain the entire difference in volume year-on-year or are you also seeing maybe some opportunities there?

That was most of the change year-on-year between the two years, was the adjustments.

Okay, that's fair. And then just within the reinsurance segment, you talked about the cedents, the appetite by cedents to retain business continues to be quite high. Just curious how concentrated is your reinsurance book on the professional lines? Is this just a couple of treaties moving off the books or is this the impact of multiple treaties coming off the book?

Well, I think that we had a couple of large treaties, longstanding treaties coming off the books. But it's been a consistent trend across the portfolio as well. But if you got a couple of large ones on the books, of course it's going to have disproportionate effect, but the large ones are done. It's more of an attritional position now. And then just going back to the French... the European motor, we actually have been more defensive at the last year end. So, as you made a comment, I think a little bit about market conditions. We are more on the defensive side than opportunistic.

Okay, that makes sense. And then the last one is just on the Fannie/Freddie preferred stock, did you make any adjustments to the fair value in this quarter?

Well, we carry them at fair value as required. And so, there is an unrealized loss associated with them, but we did not make any impairment charges related to those securities this quarter.

Okay, perfect. Thank you.

Thanks.

Thank you.

[Operator Instructions]. And our next question will come from the line of Alain Karaoglan with Bank of America Securities. Please proceed.

Good morning.

Good morning, Alain.

Good morning, Alain.

The question relates to both the expense ratio and share buybacks. Since we are in a much more competitive environment John, and it doesn't seem that its going to change any time soon. Does that fact, how do you think about the expense ratio going forward? Is there a certain percentage that starts to bother you given that just arithmetically premium are going to continue to decline, that ratio is going to continue to go up and affect your results? And from a capital position, your common equity is almost $1 billion more than it was at the end of '06, premiums are at the same level, reserves are around the same level. If you don't make an acquisition, don't your share buyback and capital management have to become much more aggressive in an environment where you don't see things improving?

Let me answer the first one. David, can go to the second one. The first one is of course we are mindful of our expense ratios. We have been at the bottom end of the industry expense ratios since we've founded AXIS. I told you we're never going to overwhelm ourselves with people, infrastructure, legacy systems and costs. But at the same time, as I said in my prepared remarks, we have to continue to invest strongly in the future. If we don't position our business for the diversification that we need to continue to grow our business, we will be subjected to the excessive competition that regularly occurs within the insurance wholesale markets and I believe very strongly that we must forge ahead and continue to make appropriate investment, regardless of market circumstances in those areas. And we've been doing so for the last two years and we will continue to do so probably for the next couple of years. But at the same time, we have to be mindful of those increased expenses against the declining revenue base. But because of the diversity we have in our portfolio, those geographically and byproduct lines through both our insurance and reinsurance businesses, we are able to trade much more efficiently in the market globally today than we've would have been three years ago. And it's because of our investment and our people, our infrastructure, our product lines that we're able to do so. So, we can squeeze more business out of the system, regardless of the competitive environment because of that spending than we otherwise would have been. And so, I am pretty comfortable where we are. We are certainly not complacent about cost, because we realize that... but at the same time we have to invest in the future. And the quality of our current earnings will continue to improve as that investment flows through our operating capabilities. David, do you want to?

Sure, thank you. As you can appreciate it and as you also stated I mean, the point around capital management and capital levels is a very dynamic approach or consideration. I think, we are very comfortable with the position we have currently. I think, I mentioned in my opening or my comments that we have a further $320 million of buyback authorization available to us. We expect to be active with that throughout the rest of the year, given whatever the market conditions maybe in the time of the year we are in. But as long as we are continuing to produce very healthy return on equity, we're going to continue to want to have a strong capital base to continue to build out the franchise that we've continually told you about and what John, is commenting about with respect to building our business in the future years. So, I think it's not a simple answer as we are just going to have the same capital level that we had two years ago. We are looking to the future, we are making investments in our business, we are continuing to return to the shareholders, a very healthy return on equity, and as these you heard we are being very active with our capital management at the appropriate times and we'll continue to do that.

And David, you did mention, I don't know if I missed it; did you mention the return on alternative investment this quarter? I know you mentioned that it was higher than you would expect sort of front rate to be, but did you mention the percentage return?

I didn't actually mention it and I don't have the portfolio number in front of me but I'll try to get that before we finish or we'll call you back. But effectively, I think on an expected portfolio basis, I think we've said in the past, we've tried to achieve about an 8% or 9% return on that portfolio. Clearly we had a very good portfolio... return on the portfolio this quarter. We don't expect that will continue unabated in the quarters ahead. So, it will be a little bit choppy, but I'll try and get the... I don't have the actual number here unfortunately in front of me.

Thank you, very much.

Thanks.

And your next question will come from the line of Josh Shanker with Citi. Please proceed.

Thank you. Good morning, everyone.

Good morning, Josh.

Given the losses in China, I'm wondering if there is an opportunity for you guys to grow in that market and what is the real long-term market opportunity for China? How will that develop over time?

Well, I worked for the Chinese, back in 1981 for five years. And I've traveled extensively to Mainland, China. And we have been extremely conservative in our approach to the Chinese market. The life and asset management market in China, is a market that I see great potential in. And if you look at the way that IIG expanded in China you can see that. The P&C market is still completely undeveloped. And I think the aspirations for premium volume as well as quality of business are ahead of reality and I believe that will remain so probably for the next five to seven years. The reality is that the Chinese market is a very undeveloped market in... along P&C lines. We tend to assume that the mature markets of Europe and America, the buying habits of those matured markets have replicated in Asia, but they're not. In certain parts of Asia, people deem it unlucky to actually buy insurance coverage both personally and corporately. And it's not until there is much greater western capital going into places like China and with capital come board representation. With board representation comes better risk management and better identification of threat. And with naturally follows the capital markets protection of traditional insurance and reinsurance protection. That has a long way to go and even though I'm still deeply involved with China, for us as a company, we actually had extremely limited exposure there. Because we just do not see every man and his dog as I used the expression earlier, once again put a pin in the map of China and put that flag on it. The reality, if you were to get them to split out their revenue and their lack of profitability from many years of their involvement in that region, you will see the reality of it. And quite frankly, I don't buy this story of the fact you've got to get in there early and build up your franchise name. Because it's a commoditized market and you could go in there at anytime, as long as you are competitive, efficient and service-oriented, you'll be able to get whatever market share you want and there is very little customer loyalty. If that helps you.

And so, when we look at the losses accumulate this quarter, what types of businesses are buying protection that are mature enough to be wanting to do it right now?

In China, most of the businesses that are buying protections are actually international companies with operations in China, Josh. Not many of the pure Chinese industrial companies are buying substantial amount of insurance or business interruption coverage. That may change in the aftermath of the terrible earthquake there. But I suspect it's got to take a while for that to feed through. Most of the losses were as a result of international companies operations in China, not actual Chinese domestic companies. It's very interesting question.

Well, I appreciate your responses. Thank you.

Great, pleasure.

Thank you, Josh.

At this time, we have no questions in queue. I would now like to turn the call back over to John Charman, for closing remarks.

Well, thank you very much ladies and gentlemen for taking the time to listen to us. And I hope you have a good August. And I hope the weather is favorable to you and we look forward to seeing you in a quarter's time. Thank you.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.