Good morning and welcome to the Third Quarter 2015 AXIS Capital Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. Now I would like to turn the conference over to Linda Ventresca, Director of Investor Relations. Ms. Ventresca, please go ahead.

Thank you, Keith, and good morning, ladies and gentlemen. I’m happy to welcome you to our conference call to discuss the financial results for AXIS Capital for the third quarter ended September 30, 2015. Our earnings press release and financial supplement were issued yesterday evening after the market closed. If you would 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. A replay of the teleconference will be available by dialing 877-344-7529 in United States and the international number is 412-317-0088. The conference code for both replay dial-in numbers is 10068213. With me on today’s call are Albert Benchimol, our President and CEO; and Joe Henry, our CFO. Before I turn the call over to Albert, I will remind everyone that the statements made during this call, including the question-and-answer session, which are not historical facts, may be forward-looking statements within the meaning of the U.S. Federal Securities Laws. Forward-looking statements contained in this presentation include, but are not limited to, information regarding our estimate of losses related to catastrophes, policies and other loss events; general economic, capital and credit market conditions; future growth prospects; financial results and capital management initiatives; evaluation of losses and loss reserves; investment strategies; investment portfolio and market performance; impact to the marketplace with respect to changes in pricing models; and our expectations regarding pricing and other market conditions. These are important factors that could cause actual results, level of activity, performance or achievements to differ materially from the result, level of activity, performance or achievements expressed or implied by the forward-looking statements as they are further described in the risk factor set forth in AXIS’ most recent report on Form 10-K and our other documents on file with the SEC. 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, our consolidated underwriting income, and adjusted group and segment results, which are non-GAAP financial measures within the meaning of the U.S. Federal Securities Laws. For a reconciliation of these items to the most directly comparable GAAP financial measures, please refer to our press release and financial supplement, which can be found on our website. With that, I’d like to turn the call over to Albert.

Thanks, Linda. And good morning, ladies and gentlemen. Thank you for joining us today. Last night AXIS reported third quarter net income available to common shareholders of $248 million or $2.50 per diluted common share. On an operating basis, we report net income of $51 million or $0.51 per diluted share. The operating income excludes a termination fee of $280 million following the cancellation of the amalgamation of agreement with PartnerRe, and a charge approximately $46 million relating to the reorganization that we communicated to you earlier this month. This quarter's results included several positive developments from the target portfolio enhancement actions we have undertaken over the last 18 months. We are pleased to observe the accident share loss ratio excluding catastrophe and weather improved by almost 0.5 point year-over-year. Despite the adverse impact of rate declines, and usually high marine losses, and a lower amount of earned catastrophe premium. This speaks to the great work our underwriters are doing to diversify and optimize the risk and return in our various portfolios using our enhanced data and analytic capabilities. However, we also experienced higher catalogue losses in the prior year. Including $30 million related to Tianjin explosion and much lower investment results, reflecting the week performance of the equity markets in the quarter. Overall, we reported a consolidated combined ratio of 96.6 including 4.7 of cat and 4.9 points of favorable prior year reserve development. Prior year favorable reserve development remains strong despite the actions taken to strengthen reserves for the professional lines portfolio in Australia, a big part of the retail insurance operations in Australia in which we decided to exit as part of our reorganization announcement, few weeks ago. We entered the quarter with diluted book value per share of $53.68, an increase of 8% over the last…

Thank you, Albert, and good morning, everyone. During the quarter, we generated positive results, which included operating income of 51 million, and an annualized operating ROE of 3.9%. Our net income for the quarter was $248 million compared to 279 million in Q3 2014. Our diluted book value per common share grew to $53.68, an increase of 4% compared to last quarter and an increase of 8% over the last 12 months. Adjusting for common dividends declared, the increase in book value per share was 10% over the last 12 months. Our net income this quarter reflected the termination fee of $280 million and $35 million in merger expense reimbursements received following the termination of our amalgamation agreement with PartnerRe. During the quarter, we also implemented a three enhancement initiatives including the wind-down of our Australian retail insurance operations, which resulted in the recognition of reorganization and related expenses of $46 million, and additional corporate expenses of $5 million. Our results continue to benefit from continued favorable prior year development in loss reserves and a decrease in our general and administrative of expenses. Our net income this square was impacted by a decrease in net earned premiums and an increase in catastrophe and weather-related losses driven by the losses related to the Tianjin port explosion. We also reported decrease in our net investment income, net realized investment losses, and an increase in unrealized losses on our available-for-sale investment portfolio, which reflected the negative performance of equity markets, the widening of credit spreads in non-government bonds and foreign exchange volatility in the third quarter. As you are no doubt aware of the global investment markets continue to be volatile and the performance of the markets since the end of September has been positive resulting in a substantial recovery of the losses…

Thank you, Joe. Moving on to market conditions. Competition in the market continues to escalate. Within our Insurance segment, the overall AXIS Insurance rate change for the third quarter of 2015 was minus 4%. Down from minus 3% last quarter and the same level as -- the same quarter last year. Within that, our U.S. P&C business stabilized at minus 4% similar to last quarter's rate. Global professional lines deteriorated slightly to minus 2% from minus 1% last quarter while international lines continue to be the most pressure, at about minus 7% compared to minus 5% in the second quarter of the year. In the U.S. market, catastrophe exposed E&S property and large account risk managed property are the most stressed with close to 10% rate reductions. Meanwhile, primary and middle-market business is stronger, but still showing an overall decline at minus 3% for the quarter. We have been actively balancing our property portfolio by adding smaller risks with a view toward achieving better, more stable attritional experience. Pricing in casualty lines which have driven the recent growth in our U.S. business, continues its positive trend, increasing by 2% in the quarter, slightly better than last quarter's rate, although below the plus 5% that we saw in the same quarter last year. We expect this overall positive trend to continue. As has been widely reported, auto and transportation business is now under significant stress due to an increased frequency of loss severity. Areas with exposure to auto, such as umbrella business, including low attaching auto, are experiencing positive bias in pricing and we expect this trend to intensify. Within our global professional lines business, pricing slipped a point in the quarter to minus 2% for minus 1% last quarter, and flat with the same quarter last year. Softening excess pricing…

Thank you. [Operator Instructions] And the first question comes from Mike Nannizzi from Goldman Sachs.

Thanks so much. Just one real quick upfront here, Joe, on the buyback, can you say what was the dollar spent in the quarter on buybacks? Do you have that?

That's $4.1 billion -- or $4.1 million shares and the size of the authorization, but I don't know if I saw a dollar amount.

Mike, we are about halfway through the ASR. I get you the specific number. We did buyback a few additional shares beyond the ASR before we implement it, but the number is actually 246 million to be specific.

Great. Perfect. Thank you so much. And then, on the profitability actions, restructuring efforts, to the extent that, more actions are necessary in order to get to run rate savings, do you expect that there may be further charges along the way in order to monetize those eventual savings?

We don't expect that. I think that we are well on our way to creating improvement on a consistent basis. So it's really changed in the way we approach the underwriting and the portfolio construction. As you know Mike, it takes a little while for those things to earn through the income statements. As you do that, there are some changes that we are making to efficiencies. As an ongoing part, I think we need to do that on a daily basis in the organization, but in terms of coordinated actions and the way that we’ve announced October 7th, it is not currently our intention to do that.

Okay. So you don't anticipate further headcount reductions, because that would probably the more expensive from a charge standpoint?

No, we have tried very hard to make sure that we identify those areas that required immediate and coordinated action. Again, what we need to do as a organization, what every organization needs to do is to make sure they're vigilant on daily basis about their staffing, organizations of various departments. But in terms of a coordinated action like the one we announced on October 7th, it is our strong desire not to that.

Okay. And I guess -- and thinking bigger picture, after the amalgamation agreement went away, and it seems like your strategy here is to right-size your infrastructure and expenses, and also reduce exposure to volatile lines, and thinking that through, it seems at least like this year, I think in Joe’s comments, Joe you mentioned that the expense benefits so far from some of the actions you’ve taken have been somewhat chewed up by the premium declines. So the ratio hasn't -- we haven't seen a ton of improvement yet. And then, the move to less volatile lines, I would think will cause underwriting profitability to deteriorate and, as you no longer being compensated for that additional volatility. My question is, how should we think about underlying profitability from here and, what is your own internal goal for an ROE or a return, had you define it. And how do we get there and if it's a double digit number in this environment, how much of the heavy lifting will reserve releases be forced to carry?

Okay. Let me see if I can address most of these comments. The first thing that I would say is that we're not so much moving away from volatility lines. You’ll recall that I mentioned earlier, excuse me, in the call, that I envision this to be the global leader in specialty risks. And specially risk, many of them have a fair amount of volatility. What we were focusing on is making sure that we manage that volatility well. We had a few areas where we probably were taking on more volatility than was desired and that is easily managed through line size management, through reinsurance management. But we are absolutely not moving away from volatility lines. That is a core strength of AXIS. What we are doing, however, is we are also balancing our portfolio by looking for growth in generally smaller, less volatile, more stable lines. So it's an expansion strategy, Mike, it's not a reduction strategy. So that would be the first. I think with regards to reducing expenses, I don't believe that AXIS is alone in facing a difficult environment and making sure that we right-size the expense structure to what has been a low-growth environment over the past little while with some profit pressures because of pricing. I think that we need to -- in an environment where I believe being nimble and quick to respond is going to be a competitive advantage, we need to make sure our operations are organized accordingly. And that is not a one-shot move. I think it’s a frame of mind in the way that we approach that. The third thing that I would say is we have been incredibly impressed with the improvements that we are seeing in our portfolio results not because we’re changing lines of business,…

And, Mike, it's Joe. Let me just add to that briefly. There is a lot of noise in our results this quarter as you could probably tell with the merger, expenses, expense reimbursement and the charge that we took. If you remove all of that from our expense ratio in the quarter, our expenses are actually down $5 million over the prior-year quarter and about $11 million your-to-date over the prior-year, year-to-date. So, what we're trying to do is shift, if you will -- the discussion a little bit to dollars as oppose to ratios. If you normalize the premium decrease that we’ve had year over year, the expense ratio is actually 15.3% in the quarter and 15.3% on year-to-date basis. I just want to throw those out to add to what Albert said.

Great. Thank you.

Thank you. And the next question comes from Vinay Misquith with Sterne Agee, CRT.

Hi, good morning. I just like to drill down further on these expense saves. So if I understand it correctly, number one, we have $30 million of expense saves that will come through in the future from here from the restructuring charges. Is that correct?

Correct.

Okay. The second piece is the $50 million and that's from 2014 to 2017. So the question is, how much do we have left from here on out because you just mentioned that the expenses were down $11 million, so do we have about 40 million left from here on out?

No, no, no. Vinay, we've outlined $50 million worth of expense savings. To get our expense ratio from where it was at the midpoint 2014 to where it is expected to be in 2017. We expect further expense reductions from this point forward. But to date, and we’ve talked about this on prior calls, we’ve saved about $20 million in non-personal related expenses, initiatives that we put in place for last couple years, lease cancellations, the establishment of a vendor management office, a number of things. We've consolidated frankly, management positions within the company. So we’ve achieved quite a bit of that. Now, some of that, as we’ve also communicated in the past, we plowed back into hiring additional resources, particularly in the actuarial area where we wanted to enhance data and analytics. So, that’s what we’ve achieved to-date. I quantify it as seen $20 million in non-personal related expenses, $30 million through the charge that we just took. And then we expect further increases to get to the $60 million that we outlined in 2014.

Okay. So the $30 million is a subset of the $50 million?

That’s correct.

Okay. And the improvements on the data and analytics, that's already come through mostly?

No. I would say that we’ve achieved substantial benefit from that as Albert said in his remarks. Particularly in professional lines, but we've expanded that to property lines and frankly, the insurance and reinsurance groups are completing, if you will, that across the rest of our portfolio. So we still expect further enhancements coming from the investment we’ve made in data and analytics.

Okay. So, to summarize, it seems that from and expense perspective you have about a $30 million to $40 million maybe over the next couple years plus in the form of data and analytics, some small improvements. And also in the scale, some of your smaller businesses you have a little bit of improvement? Does that sound about right?

The first part of it, I think it is a geography question. We are expecting further improvements in our loss ratio through enhancements that we've made in the data and analytics. Not necessarily on the expense side.

Sure. Fair enough.

On the second question, I'm sorry, was -- can I just take this back a bit, because I -- Vinay, I'm little concerned, we are throwing a lot of numbers around, and I want to make sure that they are probably done. We want to achieve at least $50 million in annualized savings by the fourth quarter of 2017. As Joe just mentioned, we've achieved approximately $10 million, $11 million this year through IT reorganizations, lease cancellations, so on and so forth. We've just announced to you today or earlier this month, an additional 30 which now gives you $40 million. We have already expenses that are on our schedule that will be coming on line or savings that will be coming on line of at least an additional $10 million which will be coming on line in 2017. That work has already been done, Vinay.

Sure.

So, we have actually -- we have now done what needs to be done to deliver $50 million. The 11 that we've just discussed, the 30 we've announced on October 7th and I can tell you at least another 10 that is already on the books as deliverable in 2017. We've made a huge amount of progress in delivering those. Obviously, they are not yet in our financial statements today. But, we have very, very strong confidence that we have taken the required actions to deliver on the commitment that we made to you to reduce our expenses and to reduce our expense ratio. We are taking, if you would, the focus now to dollars because, depending on how we achieved savings in terms of acquisition expense ratio versus G&A, I think that could be confusing. But we are not going to move away from our target of delivering at least $50 million in savings and I'm telling you now, we have already done all the work to deliver that. 11 already this year, 30 announced on October 7th and at least 10 that is already on the books for coming online in 2017.

Okay. That's helpful. Thank you. And…

Vinay on second part of your question in terms of new initiatives, repeating a little bit of what Albert said in his preferred remarks. We've seen about a 30% increase in gross written premium from the new initiatives, primarily on the insurance side of the house. That had a slight drag on our results and an improvement from where it was in 2014 and a slight drag on results in 2015. But we're actually assuming that we're going to see a benefit coming out of those initiatives in 2017. So that's a swing from a slight drag to a slight benefit with increased premium coming from those new business initiatives.

And that benefit was already about 0.7 points of combined ratio, this year year-to-date alone. And as those businesses grow further in 2016 and so on, we would expect some additional improvement as they start to contribute to the bottom-line of the company.

Okay. That's helpful. And then on the primary insurance, on the reserves related, I believe, there was a charge this quarter for the U.S. professional lines. I just want to be sure, because historically your U.S. -- your insurance business, had meaningful amount of favorable. Just want to sure that the rest of the reserves are pretty much on track and this quarter was really a bump in the road because of the professional lines business in Australia.

You're correct, Vinay. Basically we've strengthened reserves by a net amount of $18 million in the quarter for Australia. We actually had positive development in the rest of our remaining professional lines.

Okay. All right. Thank you very much.

Okay.

Thank you. And the next question comes from Charles Sebaski with BMO Capital Markets.

Good morning. Thank you. I don't want to belabor this I just want to make sure I understand something on the expense side. This most recent $30 million announcement, earlier this month, is included in the $50 million that you announced in 2014 and not in addition to. So, the total expense is 50, not 80.

That is correct. The 50 was the target. And what we are giving it is a progress report on working towards that 50.

Okay. Thank you for that. I guess, bigger picture, just would like your thoughts on the reinsurance business. Obviously, a lot has gone on this year. And, talk a bit about -- conceptually maybe scale was a more appropriate means to operate in that business. I'm just wondering what your thoughts are on -- how you go forward from here if scaling up that business is still appropriate for you guys or expectation is to grow it on absolute term or being more niche and bringing it back where you can operate in smaller lines that are more profitable. I guess, thoughts on which way, directionally, you think about it going forward.

Thank you for the question. I think that the short answer is that in reinsurance you need a minimum amount a scale. Because if you're going to provide the resources globally for your clients, you need to make sure you got the representation globally to understand local businesses. You need to write multiple lines to be able to provide them on multiple accounts. But, once you've achieved that scale, incremental scale is not necessarily a significant benefit. As probably can be proven by the fact that it's not necessarily the largest reinsurers that have the best results. So, your next question becomes, what about our scale? Interestingly enough, we actually believe we're ideally scaled in the reinsurance business. If you look at the most recent listing of the leaders in the reinsurance space, I believe that AXIS Re comes across as the number 14 largest reinsurers in the world. So, let's take a look at what is included in the comments below that. It includes Lloyds, which is not a company, it's a market and those premiums are carried by others. It includes RGA which is an outstanding company, but it’s a life company, it's not in the business that we're in. So, it doesn't compete with us. It includes national companies, like India Re, Korea Re that are very focus on their markets and have preferential access to business due to the regulations of their countries. And if you ignore those, AXIS ends being number nine or 10 on the global reinsurance market, which puts us right smack in the best spots in reinsurance. And why do I say that? Because there will be consolidation and there will be reductions in the number of panels. And what clients and brokers are looking to do is to reduce the number…

Now, it does and I appreciate it. I guess, just one follow-up on capital management. And, obviously, you outlined that you guys have, over the last few years, returned all of your operating income and then some. And I don't know if this is just timing matters. I guess when you announced the $300 million ASR, it kind of seemed to be solely the amount of the amalgamation termination fee as opposed to kind of the accrued operating earnings over the first couple of quarters. And so, I guess, just conceptually, how it did you get to 300 million. I guess I would have ball parked it as operating income plus the 280 into more of the $400 million, $500 million range.

I guess there's a couple of things to look at. The first is, there's no one thing. We just said over $2.3 billion returned to our shareholders. It's done over a period of time. I think when you do an ASR, it many ways it boxes you out of the market and it forces you into a contractual obligations that reduces your flexibility. So you don't want to make it's a large that you’ve lost all flexibility in the way you manage your capital. The fact that we have a $300 million ASR doesn't mean that we can't follow that with additional actions after that. So I think it's simply a question of making sure that we maintain the flexibility that we need in managing our capital. I think our bona fides in capital management have been well proven. We have been very consistent with our shareholders about our commitments to an intelligent shareholder-friendly capital management. As we’ve just noted, we’ve already returned 150% of all the operating income including the PartnerRe breakup fee year-to-date. And, we will be sitting down with our board again early December and reviewing our dividends and share repurchase authorizations. I think that our actions have been very consistent with our words.

I appreciate all the color. Thank you very much.

Thank you. And the next question comes from Ryan Byrnes with Janney.

Hi, good morning, guys. Just a question on the A&H growth in the quarter and I guess the year as well. I think you guys noted that was coming from Middle East. Was it a kind of a large new program, a reinsurance contract? And again separately, just want to go over the return profile now that the book is kind of -- your target 300 million on an annualized basis.

Yeah, Ryan, it is Joe. The third quarter is not a big quarter for A&H. A lot of for our businesses is one-one. But we did have a large new reinsurance quota share program in the third quarter. So that accounts for most of the growth itself. We've actually had some good growth on the year-to-date as well and frankly it is across both our insurance and reinsurance platforms both on a domestic and international basis. And then, the third part of your question is, profitability. We're moving steadily towards the goal that we set out for profitability in the long run. We made very good progress. Our technical ratio in A&H has been excellent from the beginning of the program, that stayed that way. I love it. Frankly, because it is very steady. And it has always been a scale issue and Chris and his team have continued to grow the operation significantly. And we are making the progress we want. If you include that in the overall initiatives, that really is one of the major contributors to some of the information that we pointed out before relative to the improvement from new business initiatives.

Okay. Great. Thanks for that color. And then just my last question, just want to get a quick -- the Australian professional liability book was a pressure on reserves. I think you also mentioned there was a pressure on the underlying loss ratio. Just wanted to get the size of how big that book is? And I guess try to figure out what kind of pressure that can be for the next kind four quarters going forward.

I think the fair request because as you pointed out, as he earned down the UPR from Australia that will have a negative effect. On an annualized basis, Australia is about $80 million of premium a year. It is come down a little bit, frankly in the last quarter since it was very competitive and we were growing it. So, I don't have the exact amount of UPR at the end of the third quarter for Australia. But if you assume that they are somewhere between -- and we will specify that -- but my guess is somewhere between 40 million and 50 million UPR from Australia that would probably in the right range.

Great. Thanks guys.

Thank you. And the next question comes from Christopher Campbell with KBW.

Yes, good morning. My first question relates to acquisition cost ratios across both segments. Insurance is up about 110 bps over the past two quarters and reinsurance is up about 50 bps over the same timeframe. Can you help us kind of understand what's driving this upward trend in each segment, and should we expect these trends to continue?

Well, there are a couple of things that I would say. There's always going to be a little bit of volatility in our acquisition expense ratio because of profit, shares that we provide both on the insurance and reinsurance side. On the reinsurance side I think you heard conversations in the market. In fact there have been request by clients for additional feeding commissions on quarter share treaties and those of course are driving increases in acquisition cost. And, I would say that in both insurance and reinsurance, the major driver happens to be changes in the mix of business where lines of business that already have a higher amount of acquisition costs are now becoming a larger part of the portfolio. Let me give you an example. Catastrophe is a line of business that tends to have a very low double-digit acquisition cost. We are writing less -- we are writing less catastrophe, we are writing more liability, we are writing more property, we are writing more motor. All of those have higher acquisition costs within their lines. So even if in that line of business, we don’t increase the acquisition cost the fact that those lines are greater part of the overall portfolio, it means that the reported acquisition cost number comes up. And I hope that gives you some coverage some explanation. Joe, do you want to add to that?

Yeah, I’d like to just add two things to it. Number one on the reinsurance side, we also have profit commissions when we take down reserves, when we release reserves from prior years that actually flows through the current year acquisition ratios. So that’s one of the factors. The other thing I’ll add and this is not a protection going forward but we have changed the reinsurance programs on the interim side pretty significantly. And the ceding commissions from those changes have flowed through our topline but have not flow through our bottom line. So we expect to see actually improvements in terms of acquisition ratios on the insurance side coming through ceding commissions if that makes sense to you.

On some of the lines?

Yes.

Yeah, thank you. That’s very helpful. And, just one more question, relating to corporate expenses. What’s the good quarterly run rate you assume for these excluding reorganization and related expenses?

That you’re dealing with corporate or are you dealing with the consolidated?

The consolidated -- yeah the consolidated corporate expenses?

They average somewhere in the $26 million to $27 million range for corporate.

Well, they will be coming down over the next six quarters as we speak. So we’ll have to come back to you with some more precise number.

Okay. Thank you very much. Best of luck this quarter.

We'll, operator?

Yes. That was the last question actually. So I would like to turn the call back over to management for any closing comments.

Yes, well, first of all, we want to apologize for the audience we did take a longer than our hour today. We thought we had a lot to report in particular giving you progress on our profit improvement plan. And obviously very good questions that needed to be addressed. We are making great progress. We feel very good about where we are. And we are absolutely focused on improving the results of our company for the benefit of all of our shareholders. And we look forward to giving you more progress on more improvements when we speak again in January. Have a good day.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.