Good morning and welcome to the Second Quarter 2016 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. I would now like to turn the conference over to Linda Ventresca. Please go ahead.

Thank you, Carrie; and good morning, ladies and gentlemen. I am happy to welcome you to our conference call to discuss the financial results for AXIS Capital for the second quarter ended June 30, 2016. 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 10088680. 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 results, level of activity, performance or achievements expressed or implied by the forward-looking statements as are further described in the risk factors 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 like to turn the call over to Albert.

Thanks, Linda. Good morning, everyone. Thank you for joining us today. Last night, AXIS reported second quarter net income of $119 million, or $1.29 per diluted share, and operating income of $47 million or $0.51 per diluted share. As noted in our pre-announcement of July 18, this quarter was impacted by 20 catastrophe and weather events, leading to $104 million of second quarter catastrophe and weather losses. We ended the quarter with diluted book value per share of $57.62. Growth in diluted book value per share adjusted for dividends, which we believe is the best measure of value creation, was up 3% in the quarter and 14% over the last 12 months. Joe will shortly review the financial results in more detail, but before that I’d like to put our quarterly results into context. The insurance industry occasionally experiences quarters with unusual catastrophe frequency or severity. And this was one of them with over $19 billion in estimated insured losses. Our estimated market share of the losses is consistent with our positions in the lines and geographies exposed, and meaningfully lower than our average share in prior years. We are pleased that our actions in recent years positioned our portfolio to better absorb catastrophe and weather activity, and deliver strong book value growth. Importantly, all relevant metrics in our second quarter and year-to-date results demonstrate clear progress along the various initiatives focused on delivering a consistent, attractive return to shareholders. In addition to a lesser impact from catastrophes and weather than we would have experienced a few short years ago, our accident share loss ratio and combined ratio, excluding the impact of catastrophes and weather, improved over the quarter and the year-to-date even as we and the rest of the industry experienced weaker pricing. A significant highlight of this quarter…

Thank you, Albert; and good morning, everyone. During the quarter, we generated good results featuring net income of $119 million and an annualized ROE of 9%. Our operating income for the quarter was $47 million, an annualized operating ROE of 3.6%. Our net income this quarter benefited from a strong performance from our investment portfolio, including realized gains, foreign exchange gains, continued favorable prior year development, a decrease in our ex-cat and weather, current accident year loss ratio, and lower general and administrative expenses. These positive factors were offset by an elevated level of catastrophe and weather-related losses in the quarter. Despite the headwinds to net income, book value per share grew 3% in the quarter, favorably impacted by an increase in unrealized gains on our available for sale investment portfolio, which reflected downward shifts in sovereign yield curves and tightening of credit spreads partially offset by strengthening of the U.S. dollar against the euro and sterling. Before I get into specifics, I’d like to provide some context for premium growth in our reinsurance segment, both in the quarter and year-to-date. First, there were some significant transactions, which I’ll explain shortly. The more moderate growth adjusting for these transactions primarily reflects expansion of our relationships with key customers. Second, we have increased retrocessions, which are reflected in the ceded premium ratio of our reinsurance segment increasing in the quarter to 10%. Half of these sessions were to third-party capital providers and that will increase in the second-half of the year and beyond with our new Harrington relationship. It is our expectation that Harrington will be writing at a net premium to capital ratio in the range of 0.25 to 0.321. And this will be entirely sourced from AXIS. There will be increased impacts on our financial results prospectively, as our…

Thank you, Joe. Turning to industry conditions, as we look forward, notwithstanding the high loss quarter we just experienced, we expect market conditions to remain generally challenging, with the localized firming, where there is no escaping, that needs for improvement. In our insurance business, renewal rates were down 4% on average as compared to down 3% in the earlier quarter. Casualty lines in the U.S. are strongest with positive rate change, while professional lines are flat to down modestly and property related lines down the most. The London market is the most competitive with international property and energy lines still down double-digits. We’re managing our activities accordingly, emphasizing service, responsiveness and the claims management as our differentiators. In the reinsurance market, we are encouraged by increasing signs of discipline, at least in North America. You’ll recall we expected this in the most recent renewals and we have observed that. Most Florida renewals were completed flat to minus 5% and some accounts renewed at better terms. Following the June 1 renewals, there were strong demand for capacity that was generally only provided at a higher terms. In professional liability lines, cedents and brokers were pushing for better terms and ceding commissions, but generally face strong pushback, especially from established industry leaders. And a number of placements were not completed, even at flat ceding commissions. While we are not expecting across the board reinsurance price increases in the immediate future, we believe we are close to a floor, especially in North America. We expect Europe to be a bit more competitive and smaller international markets, the most challenging of all, as capacity continues to exceed demand. Approximately 10% of AXIS Re’s 2015 expiring the premium was renewable in July. For us, volume and price technical ratios were essentially flat with expiring, as…

We will now begin the question-and-answer session. [Operator Instructions] At this time, we will pause momentarily to assemble our roster. Our first question comes from Kai Pan of Morgan Stanley. Please go ahead.

Good morning and thank you. First question, Albert, you mentioned in the past few years you had been optimizing the portfolio for lower volatility business and second quarter cats [ph] is kind of the realized cats [ph] of that strategy. So can you expand a little bit more on the performance of portfolio versus expectations, because the 3.6% operating ROE is still not ideal? Do you see further reduction in the cat volatility?

Thanks for that question, Kai. I would separate that question into two, which is how do we feel about the changes in our cat book volatility; and secondly, what are we doing to improve our overall ROE. So we’ll take a look at this quarter and this quarter is really - every event and every quarter is a single data point, and so of course you don’t want to generalize just from one quarter. But if you take a look at where we were in the 2010 to the 2012-2013 period, and you look at the various cat quarters and cat events that we had, our average market share of loss in that period was a little above 1.1%. Our share of loss in this quarter is 0.5%. If you look at the second quarter of 2013, which was another second quarter with multiple events, that was a quarter with approximately $12 billion to $13 billion of cat events across the industry. In that quarter, we reported $140 million of cat losses or 1.1% share of the reported losses in that quarter. And if you then turn around - and by the way that was also about 15 points of cat losses in the second quarter of 2013. If you look at the 2016 second quarter, this is a quarter where people are estimating $18 billion to $20 billion; we’re using a $19 billion number. With that $19 billion, our market share of loss is not 1.1%, like it was in 2013 but 0.5%. The combined ratio impact of those events was not 15 but 10.7, and the book value loss was lower. So I feel good that we have had significant change in our sensitivity to catastrophe events across the world. Does that mean that we are happy with…

Thank you. That’s very comprehensive. Then follow-up on the insurance segments, there you saw a core loss ratio improvement year on year for the first quarter, both first quarter and second quarter. But you can see the second quarter actually look underlying loss ratio at a higher than the first quarter. I just wonder if that six months view is probably is a better indication of the trend, current trend; and also any other opportunity to improve the core loss ratio in the current pricing environment?

The reasons for the second quarter over the first quarter, is we had more midsize losses in the second quarter than the first. So you’re always going to have some volatility. But overall, again, I feel good about the fact that the loss ratio has come down for the six months and the second quarter. With regards to ongoing improvements, I’ll go back to my earlier answer. We’re continuing to apply analytics to guide our underwriting activities. And we expect to continue to see results from those portfolio improvement activities.

Okay. Lastly, on the expense side, are we still on track to achieve the $50 million expense savings by 2017 and beyond that any other sort of potential opportunities?

Yes, Kai, it’s Joe. We’re very pleased with the progress that we made on the expense side. If you compare our year-to-date expense ratio drop you can see it is down about $20 million. So we’re well on our way to achieving the $50 million that we outlined in prior periods. And frankly, we’re taking some additional actions to continue to improve upon that. So we’re very comfortable with the progress made on the expense side.

Okay. Great, thank you so much.

Our next question comes from Charles Sebaski of BMO Capital. Please go ahead.

Thank you. Good morning. First question, I guess, just a little more clarity on Harrington Re and how the flow through is going to be. I think, Joe, you said they expect to write at 0.25% to 0.3%. So that would be a little under $200 million. So should we think that your reinsurance book is going to grow by $200 million and then that will be ceded off? Is that conceptually how that’s going to work?

I think you have to separate the front-end from the back-end. I think the front-end will grow or shrink based on the opportunities available to us. And then, we will turn around and cede business to Harrington in the scale that both Joe and you have estimated. I think whether we grow or not on the reinsurance side it still makes sense to cede premium to Harrington Re. We get the opportunity of leveraging our front-end. We get the opportunity of earning fees. And we have the opportunity of establishing multiple sources of risk funding, which are I believe critical to the success of the company going forward.

Okay. And it will all come out of the reinsurance section then, as opposed to your primary book where you might have a reinsurance program with Harrington Re. Will they be getting any access to the primary or is it all on the reinsurance side?

Charles, that’s a very question. We will - predominantly they will see the bulk of their business coming in from AXIS Re’s book. But Harrington will also be given an opportunity to participate in our established reinsurance panels. And so, that will also be a source of revenues to Harrington Re.

Okay. And I guess just a little follow-up. I appreciate the clarity on the share of loss in the back years versus this. But I guess, and you mentioned you felt your $19 billion loss estimate was in the middle of the industry estimates. I guess, I thought, it seemed a bit high. It seemed that a lot of the competitors that were announcing industry losses were more in the $14 billion to $16 billion range. And I guess I’m just curious on what your overall sensitivity of your loss pick is, the $104 million to that end industry loss, as it develops over time?

Charles, I haven’t gone through every report in detail. But my understanding is that many of the other companies were giving you the total of the cats that they were reporting for. So their geographic expansion, the business that they’re in may have caused them to include or exclude a cat whether it’s in Ecuador or in Japan or Europe. And that I think is the basis for the difference. We have been for as long as I recall, a global company, and so we do participate in Japan, we do participate in Latin America, in Europe, in America. And therefore, we like the spread that we get as a result of this, but it also means that when there are global catastrophe events we will include them in our book. And so, what you see in the $18 billion to $20 billion that we are telling you is the total for all of the events that we’ve named. And we continue to believe that those are reasonable numbers. Joe?

Charles, the one thing I’ll add to that, is that we’ve taken a very close look at each of these events. And for some reason the events deteriorate, in other words the loss estimates go up. We will not participate on a proportional basis to how others might be affected in the industry.

Excellent, thank you very much for the answers, guys.

Thank you.

Our next question comes from Christopher Campbell of KBW. Please go ahead.

Hi, good morning and congrats on a great quarter.

Thank you.

Okay. My first question is just with Harrington now in the market. Is this going to change AXIS’ reinsurance underwriting appetite?

No. It’s exactly the same underwriting appetite. And I think a clear feature of Harrington for us is, we only share business with Harrington that we are writing and retaining the majority of that business. So if it’s not good for us, it’s not good for Harrington. And if it’s good for us, we believe it’ll be good for Harrington. So we will continue to size our portfolio appropriately. We will continue to underwrite with the underwriting discipline that is core to our strategy. But we also do recognize that today we have the equivalent of $600 million of extra capacity. So where the risks are appropriate, we will be happy to take a larger share, knowing that Harrington will share in that.

Okay. And will you can - so you have $600 million funded currently. Will you continue additional fundraising in that vehicle? And then, how should we think about the premiums written to fee income for modeling?

Right, I think that we are - part of our strategy is to expand our sources of a third-party capital. So we may certainly at some point in the future do a second round for Harrington, we may look for other sources of capital for different risks than those that are currently targeted by Harrington. And as Joe mentioned earlier in our third quarter supplement, we will introduce information with regards to managed premium. You’ll see exactly how much we write gross and net. And we will also disclose on that sheet, the fees that we are collecting as part of our third-party capital initiative.

Okay, thanks. That’s very helpful. And just two more minor questions, just a little surprised by the reinsurance property cat, and the insurance commercial property growth. Can you give a little bit more details behind those opportunities in what you’re seeing?

My understanding is that both up on a gross basis and both down on a net basis. And so - and what we’re doing is optimizing the net portfolio of course.

Okay. Perfect. That makes sense. And just a final question is with the more competitive pricing environment. And reserve releases were up about 140 bps year over year. So just for the more significant lines driving that, what accident years are those releases coming from?

On the reinsurance side, the releases are coming from virtually all accident years with the exception of 2015. We had some development on a property loss there. And for the most part, on the insurance side it’s the same story. We had one or two earlier accident years in which there were adverse development, but it relates to an unusual transaction. It has nothing to do with actual development. So for the most part, favorable development is coming from all accident years in those segments.

Okay. Thanks for all the answers and good luck in the 3Q.

Thank you.

Thank you.

[Operator Instructions] Our next question comes from Ryan Byrnes of Janney. Please go ahead.

Great, thanks. Good morning, everybody. I want to follow up - if I may, I want to follow-up a little bit on the prop-cat, I guess, gross growth, but net declines. Just want to understand the strategy there. And maybe, what kind of retro purchases you are buying there, and just trying to get a little further understanding of that strategy?

Well, I think the strategy on the cat reinsurance business is again a combination of not gross and retro, but gross, retro and third-party capital. So part of our premiums are not simply shared in the retro market, but through [ph] third-party capital. As you know, there is appetite in the investment community for catastrophe risk and we shared with them all. So I’ll go back to the point that I made earlier, which is that it’s important for us to make sure that we are responsive to attractive opportunities in the market. The front-end really needs to be about serving our clients and brokers, and making sense - and writing business when it makes sense; and then, secondly, on the backend having diversified sources of risk funding. And so, we are certainly going to continue to look for opportunities to serve our clients and brokers on the front-end. But in many cases we don’t expect that that will result in a net increase, because we will be sharing those risks with capital partners. Joe, you want to add to that.

Yes. Ryan, just to comment on the insurance property growth, which was about 7% in the quarter, it’s really due to three reasons. One, as you know, we participated in some new facilities as of the first of the year. Those two broker portfolios have a property element to them. Secondly, in renewable energy, we actually rewrote a major account which gave the impression of creating more growth and maybe we actually did. And then third, on the Lloyd side, we’re actually seeing - with our new Lloyd’s capability, we’re actually seeing a lot more smaller accounts which are helping to diversify our portfolio. And then, on the ceded side, we’ve actually changed our reinsurance program to the point where we’re now in excess of $5 million as opposed to excess of $10 million as we’ve been in the past. So there’s been some growth, but as Albert pointed out, we’re ceding that back out on the reinsurance side. So I hope that helps.

Okay. Yes, it does. And then, it could be just moving back to Harrington as well. How long should that take to get it to scale, again of that 0.25% or 0.321%? Could that be done in the next 12 months? I imagine, it could be possible. And then secondly, I just also wanted to just understand what their kind of prop-cat kind of PML tolerance would be?

One of the values of creating a company like Harrington is that in fact you can ramp up the volume immediately simply by sizing the quota share that we have with them. And you’re absolutely correct that we expect Harrington to reach their premium to capital leverage in the first year. And we will grow that as they grow their capital. The second question related to their PML appetite, and Harrington is substantially focused on mid- to long-tail lines. And that is the cat book is not a large part of that book. They will have some small cat exposure for diversification purposes, but Harrington needs to be considered really as a mid- to long-tail line reinsurer.

Okay, great. And then, Joe, just one quick little nitpick one. The corporate expenses kind of - they were running mid-20s, they bumped up a little above $30 million this quarter. Was that something to do with Harrington ramp-up or just other one-timers?

It’s actually more due to reallocation between our segments and corporate - the total expenses really have gone down as I mentioned before. But we decided to keep certain expenses at a corporate level as opposed to allocate them to the businesses. So if you look at the business expense line, it’s actually down, offset by the increase on the corporate expenses.

Sure, but that relationship, should it continue though, so I guess a little bit more into corporate, a little bit back into the segments?

Yes, I think the run rate you’re seeing for corporate expenses should hold.

Okay, great. Now, thanks for that.

And this concludes our question-and-answer session. I would now like to turn the conference back over to Albert Benchimol for any closing remarks.

Thank you very much for participating in our conference call. And we look forward to speaking with you again later. Have a good summer. Bye-bye.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. Have a great day.