# EDGAR Filing Document

**Accession Number:** 0001214816
**File Stem:** 0001214816-23-000032
**Filing Date:** 2023-3
**Character Count:** 496604
**Document Hash:** f9085c026560a945e619989ec9f8b934
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001214816-23-000032.hdr.sgml**: 20230324

**ACCESSION NUMBER**: 0001214816-23-000032

**CONFORMED SUBMISSION TYPE**: ARS

**PUBLIC DOCUMENT COUNT**: 1

**CONFORMED PERIOD OF REPORT**: 20230321

**FILED AS OF DATE**: 20230324

**DATE AS OF CHANGE**: 20230324

**EFFECTIVENESS DATE**: 20230324

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** AXIS CAPITAL HOLDINGS LTD
- **CENTRAL INDEX KEY:** 0001214816
- **STANDARD INDUSTRIAL CLASSIFICATION:** FIRE, MARINE & CASUALTY INSURANCE [6331]
- **IRS NUMBER:** 000000000
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** ARS
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-31721
- **FILM NUMBER:** 23757998

**BUSINESS ADDRESS:**
- **STREET 1:** 92 PITTS BAY ROAD
- **CITY:** PEMBROKE
- **STATE:** D0
- **ZIP:** HM 08
- **BUSINESS PHONE:** (441) 496-2600

**MAIL ADDRESS:**
- **STREET 1:** 92 PITTS BAY ROAD
- **CITY:** PEMBROKE
- **STATE:** D0
- **ZIP:** HM 08

### Attached PDF Documents

**Attachment 1:** `a2022_axis-ar.pdf`

ANNUAL REPORT 2022

# READY *for this* MOMENT

![img-0.jpeg](img-0.jpeg)

# DELIVERING VALUE TO SHAREHOLDERS1

AXIS is continuing to evolve our business and is positioned to increase profitability, lower volatility, and strengthen the portfolio, establishing a strong position in the fastest growing specialty markets.

We believe AXIS's rating of A+ from Standard and Poor's and A from A.M. Best reflects our excellent level of financial strength.

Mix of Business by GPW

![img-1.jpeg](img-1.jpeg)

INSURANCE: 68%
REINSURANCE: 32%

![img-2.jpeg](img-2.jpeg)

$15.6B
CASH AND INVESTED ASSETS2

$6.0B
TOTAL CAPITAL3

$8.2B
TOTAL GROSS PREMIUMS
WRITTEN (GPW)4

$27.6B
TOTAL ASSETS

# TOTAL SHAREHOLDER RETURN5

![img-3.jpeg](img-3.jpeg)

1 Key facts and figures at December 31, 2022 ($ in billions)

2 Total cash and invested assets represents the total cash and cash equivalents, fixed maturities, equity securities, mortgage loans, other investments, short-term investments, accrued interest receivable and net receivable (payable) for investments sold (purchased)

3 Total capital represents the sum of total shareholders' equity and debt

4 The Company exited Reinsurance Catastrophe and Property lines of business in June 2022 and will substantially complete this exit in 2023

5 Data computed from December 31, 2017 to December 31, 2022. Shown above is a graph comparing the yearly percentage change in the cumulative total shareholder return on our common shares (assuming reinvestment of dividends) from December 31, 2017 through December 31, 2022, as compared to the cumulative total return of the Standard & Poor's 500 Stock Index and the cumulative return of the Standard & Poor's Property and Casualty Insurance Index. This graph assumes an investment of $100 on December 31, 2017. The points on the graph represent fiscal year-end values based on the last trading day of each fiscal year. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our common shares.

2

# CEO LETTER

*Dear fellow shareholders*

## ADVANCING SPECIALTY LEADERSHIP

This was a milestone year for AXIS. Over the past several years, we've shared our journey with you as we've worked diligently and steadfastly to reposition AXIS to be a leading specialty underwriter - and create a stronger, more resilient book of business, while placing the Company on a pathway to generating lasting profitable growth.

We enter 2023 with a more focused mix of business, less volatile earnings profile, and the potential for strong performance in our chosen markets. Moreover, throughout the Company, our team is focused on our mission to advance our position as a leading specialty underwriter. To be clear, there is more work to be done and we remain focused on continuing to grow our business and further enhance our operations to drive agility, innovation, and efficiency.

Specifically, over the past year we further refocused our business on specialty lines where we believe we can compete effectively and profitably. We continued to invest in growth areas, including Wholesale insurance, growing our presence in the Lower Middle Markets, and leveraging our global platform to support our customers. In addition, we repositioned AXIS Re as a specialist reinsurer, and exited the volatile Catastrophe and Property reinsurance space, reducing our risk exposure while concentrating on Accident and Health, Casualty, Credit and Surety, and Specialty reinsurance lines. To support the more focused front-end of our business, we streamlined our organizational structure and centralized underwriting and other key functions.

Now, having built a solid platform as a leading specialty underwriter, we are well-positioned to continue increasing our growth, profitability, and efficiency. Indeed, with the recognition that we must continue to enhance and strengthen our business, we are progressing into 2023 with accelerating momentum, propelled by years of improved underlying performance, strong positions in our chosen markets, and rising demand for specialty coverage. We're confident that AXIS will not only continue to build on this progress, but that we are well on our way to taking the business to even higher levels.

### READY FOR THIS MOMENT

Our business is at a pivotal moment where volatile geopolitical conditions, extreme weather, and financial and social inflation are creating dislocations that are driving risks into the specialty market.

These dynamic market conditions have resulted in a reset in underwriting terms and conditions, improved pricing to keep up with loss cost trends, and more limited reinsurance capacity. This environment creates a unique opportunity for specialty carriers to deliver more value to the market. With a heritage in specialty underwriting that began at our inception, we believe AXIS is particularly well-positioned to help our customers navigate the current environment while providing products and risk solutions to help them operate their businesses with confidence.

While our strategy and structure have evolved, our core values remain the same: exceptional customer service, respect for colleagues, and a commitment to play a positive role in meeting society's needs.

With established leadership positions in attractive specialty markets, a talented and energized team of expert specialty underwriters, and a strong culture rooted in our values, we believe that AXIS can achieve our goals - and deliver on our potential - in 2023 and beyond. In short, AXIS is ready for this moment.

### POSITIVE PERFORMANCE TRENDS

The transformation journey we embarked upon some years ago positioned AXIS to deliver solid financial results in 2022 - highlighted by record premium production, as well as improved loss ratio, general and administrative (G&A) ratio, and combined ratio.

For our group results, gross premiums written were $8.2 billion in 2022, increasing by 7% from the prior year. Premium growth was largely due to an increase of 15% in the Insurance segment, partially offset by a 7% decrease in our Reinsurance business as our repositioning led to planned

reductions in Reinsurance Catastrophe, Property, and other selected lines. The Reinsurance lines we have targeted for growth, including Credit and Surety, Agriculture, Accident and Health, and others, experienced an increase of $212 million in gross premiums written compared to the year prior.

Our underwriting performance was strong. Underwriting income rose 35%, to $359 million in 2022, from $266 million in 2021. We improved our overall combined ratio by 1.7 points, to 95.8%. And, in a year marked

by such catastrophic events as the Russia-Ukraine war, severe weather, and the continued pandemic impact, pre-tax catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, were $403 million, or 7.8 points. This compares to $443 million, or 9.5 points, in 2021.

Net income available to common shareholders for 2022 was $193 million, or $2.25 per diluted common share, compared to $588 million, or $6.90 per diluted common share, for 2021. Much of the difference was due to investment losses, reflecting the heightened volatility of global financial markets. Operating income increased, however, to $498 million in 2022 from $436 million in 2021.

## STRONG LEADERSHIP FOR A BOLD FUTURE

To deliver on the potential of our new specialty underwriting model, we announced several changes in leadership during the past year. Vince Tizzio, who joined AXIS early in 2022 and was appointed CEO of AXIS Insurance, was given an expanded role as CEO of Specialty Insurance and Reinsurance at mid-year. This new position was created to foster a single, globally integrated approach for our businesses. And, at the conclusion of 2022, we announced that Vince will succeed me in May 2023 as President and CEO of AXIS.

I couldn't be more excited about the leadership that Vince is bringing to our company. Vince is a highly accomplished specialty leader, who in just over a year with the Company has demonstrated an immediate impact. In Vince, we have a fantastic leader who I'm confident has the vision, industry knowledge, grit, and tenacity to lead AXIS to even greater levels of success.

The future of AXIS will be in very capable hands under Vince's leadership, and I look forward to working with him to ensure a seamless transition. I am confident in the Company's tremendous potential as a specialty leader, and its ability to build and grow upon the foundation we have established.

In addition, Dan Draper has been promoted to the new position of Group Chief Underwriting Officer, and he has joined our executive committee. Dan, who previously served as Group Head of Underwriting,

is guiding underwriting governance, portfolio management, technical underwriting pricing, and ceded reinsurance and retrocession purchasing. This is an important change that is providing consistent and enhanced access to data, improved information flow, fostering a single view of risk across our portfolio, and enabling faster adoption of innovations to improve our business and our service to customers and distribution partners.

Also in 2022, Ann Haugh was named Reinsurance CEO, reporting to Vince. Ann has an established track record in multiple leadership roles within AXIS Re, including President of Global Property and, prior to that, President of Global Markets. In addition, we named Linda Ventresca as Head of Digital, reflecting our ongoing commitment to deliver digitized solutions across the underwriting enterprise.

During the course of 2022, in connection with our strategic repositioning, we also announced the departure of several longtime executives. I express my deep appreciation to these individuals. In particular I extend my gratitude to former AXIS Insurance CEO Pete Wilson and AXIS Reinsurance CEO Steve Arora for their tremendous contributions to the Company. In addition, as part of our pivot towards being a specialty carrier, AXIS also bid farewell to several other colleagues, including those from our Property Reinsurance business. I would like to take this opportunity to express my deepest gratitude to these colleagues for their contributions to AXIS.

## SPECIALISTS IN SPECIALTY

After a multi-year effort to reposition the business, AXIS today is a focused specialty underwriter, and vastly different from the company it was five years ago. Back then, a much higher proportion of our gross premiums written came from Reinsurance. In 2022, on a pro forma basis, 71% of our gross written premium was from Insurance, and we expect to report in excess of 75% this year.

To get there, we are building upon an already solid foundation: our established leadership in key specialty markets. For example, we are the #10 Syndicate at Lloyd's by capacity, #10 in Lloyd's Marine, #13 in U.S. Excess & Surplus lines, and hold leading positions in Cyber and Renewable Energy. We also are a top-15 carrier in Professional Lines in chosen markets of the U.S., London and Bermuda.

In 2022 we announced several initiatives to target additional attractive markets where we can forge leadership positions, better serve our customers, and provide increased value to our shareholders. Our efforts included launching a dedicated AXIS Wholesale Division, with a focus on further enhancing the products and risk solutions that we bring to customers across all of our distribution channels, and enhancing our operating infrastructure to be more responsive, integrated, and efficient.

**$8.2B**

GPW

**$359M**

UNDERWRITING INCOME

**95.8%**

COMBINED RATIO

4

# A CULTURE OF COMMITMENT AND CITIZENSHIP

I noted earlier that we have positioned AXIS to be “ready for this moment.” Our moment has arrived, in large part, because of the recognition that we live in a world where people are facing increasing risk. We certainly saw that in the geopolitical, economic and public health challenges of the past year, including the Russia-Ukraine war and its attendant human suffering and global disruption, the resurgence of inflation, and the ongoing effects of the pandemic. Add to that the increasing frequency and severity of climate events, and we can see why there is more demand than ever for companies like AXIS that understand and can help mitigate complex risks. That is a vital part of our social purpose - and of our value to our society and economy.

As an organization that serves an essential social purpose, AXIS is also committed to the values of Corporate Citizenship. Our Citizenship program is designed to address key environmental, social and governance (ESG) issues, by focusing on the areas where we believe we can make the greatest impact: protecting our planet, promoting diversity,

equity, and inclusion (DEI), and supporting our communities. This is exemplified by the Company’s commitment to phasing out thermal coal-related business, and more recently in setting standards for greenhouse gas (GHG) emissions and establishing goals for gender and ethnic representation through our DEI program. I encourage you to read more about our efforts in the Corporate Citizenship section of this report.

The Company’s strong commitment to social purpose and citizenship is directly due to our people and culture. Ours is a receptive and inclusive culture where people can see themselves and their values reflected. We believe that the right way to run a business is by treating each other with respect, bringing our best to our customers and distribution partners, and contributing to our communities. Our people are proud of our culture - and I am proud of them. Importantly, this culture, which has been recognized by Forbes as one of America’s Best Midsize Companies in 2022 and 2023 and Insurance Business as a Top Employer in 2023, has enabled us to recruit and retain top talent.

# TRANSFORMATION AND TRANSITION

With our upcoming CEO transition, this will be my last Annual Report letter with you as President and CEO of AXIS.

I would like to take this opportunity to offer my heartfelt thanks to so many who have shared this journey with me and have contributed to making AXIS the exciting enterprise it is today.

To my AXIS colleagues, both past and present, I am most proud of our consistent ability over the years to face adversity and always rise to the challenge. I know you will continue to deepen customer and broker relationships by providing outstanding service and products that meet their evolving needs, build a balanced and resilient book of business, and foster a strong culture rooted in our values.

To the members of the Board, I am deeply grateful for your commitment and support for AXIS. Thank you for your guidance and sound wisdom as we embarked on our transformation journey and developed the right strategy for the future.

To our customers and distribution partners, it has been my pleasure to serve you. Together, we navigated through complex risk landscapes, and it has been a wonderful experience to see how our industry has evolved.

To our shareholders, thank you for your trust and partnership. I take great pride knowing that AXIS has strong momentum to deliver sustained profitable growth and increased shareholder value in the coming years.

Before I close this Annual Report, I would be greatly remiss without recognizing the impact of former longtime AXIS Chair, Michael Butt, who passed away in February 2023. Michael was a towering figure and a trailblazer in our industry, and played a pivotal role in launching our Company and helping guide our growth from start-up to emerging specialty leader. He was also a passionate advocate for climate change, sustainability, and education. On a more personal note, Michael was a counselor and a mentor, a compassionate leader, and a wonderful friend. The industry, AXIS, and I will miss him dearly.

Serving as President and CEO of AXIS for the last eleven years has truly been an honor - and the highlight of my career. As I embark on the next chapter of my life, I am confident that the future is bright for AXIS and its best days are yet to come.

![img-4.jpeg](img-4.jpeg)

![img-5.jpeg](img-5.jpeg)

Sincerely,  
**Albert A. Benchimol**  
President and  
Chief Executive Officer

# CHAIR LETTER

*Dear fellow shareholders*

**CLEARLY, THE MOST SIGNIFICANT DEVELOPMENT FOR AXIS IN 2022 WAS OUR STRATEGIC REPOSITIONING AND THE ADVANCEMENT OF AXIS AS A LEADING SPECIALTY UNDERWRITER**

- a multi-year exercise highlighted by our exit from the volatile property cat reinsurance market and our organizational repositioning to increase agility and alignment. This required significant changes across the Company and I want to express our deep appreciation to all the AXIS team members who helped make this massive effort a success.

As a result, AXIS is a different company today than it was even a year ago. We are now more highly focused on attractive, less volatile markets. But we also are a leaner and more agile company with a more streamlined leadership structure. Our team is working better together than at any time I can recall.

## COMMITMENT TO SHAREHOLDER VALUE

Since our inception, we have always been a specialty underwriter. As we more sharply focused our strategy in the past year on advancing specialty leadership, we are encouraged by our results, in terms of premium growth in our selected lines, solid underwriting metrics, and profitability. We have more work to do - but we are excited about building on this foundation going forward. In addition, the Board is aware that our past performance has lagged behind our peers and we are very determined to drive improving returns for shareholders.

To get there, we are committed to successful execution: growing the current businesses where we believe we can get a good return, and adding promising new products and distribution channels, including

those powered by digital. One of our greatest strengths has always been the relationships we have with our customers and distribution partners, and we continue to work diligently to build on those relationships. Expense management also remains a high priority - not entirely through cost reductions, but also by continuing to grow premium while operating more efficiently across the organization.

Reflecting our ongoing commitment to our shareholders, in December 2022 our Board of Directors declared a one cent increase in the quarterly dividend to $0.44 per common share marking this as the 19th successive annual increase in dividends.

![img-6.jpeg](img-6.jpeg)

## TALENT AND CULTURE

We know that the key to successful execution is talent - retaining the quality employees we need to operate our existing businesses and attracting talented professionals to join our team. At AXIS, we believe that recruiting and retaining talent is only partially a matter of offering competitive compensation and benefits. We continue to invest in our people by creating an environment in which they feel appreciated, supported, listened to, and have an opportunity to make a difference.

We understand that our people have become adept at operating in a hybrid environment, so we created Flex for Your Day to help them find the right combination of time spent at the office and working virtually. We also have multiple programs aimed at supporting their physical and mental well-being, including an extensive network of Employee Resource Groups (ERGs) led by employee volunteers for members and allies of the following communities: ethnically diverse colleagues, LGBTQ+, parents and caregivers, women, and veterans.

## LEADERSHIP TRANSITION

Your Board and I would like to take this opportunity to thank Albert Benchimol, AXIS President and CEO, for almost thirteen years of service with the Company, including eleven as CEO. Among his countless contributions, Albert has led our strategic repositioning, refocusing AXIS as a specialty leader while building a balanced and resilient portfolio and placing the Company on a pathway to lasting profitable growth. He also has been a great culture leader, growing a strong workplace environment. Under Albert's guidance, AXIS has become a top employer in the industry and fostered a customer-service mindset that has forged strong and enduring bonds with brokers and customers. Further, Albert reflects the Company's commitment to Bermuda through his contributions to the Association of Bermuda Insurers and Reinsurers (ABIR). He previously served as Chair from 2019-2020 and Vice-Chair from 2017-2018.

We also wish to express our gratitude to former AXIS Insurance CEO Pete Wilson and AXIS Reinsurance CEO Steve Arora, who both departed the Company in 2022, and thank them for their years of leadership. As part of our repositioning of the business, the Company also said farewell to a number of other staff, particularly within our Property Reinsurance business - and we would like to express our deep appreciation to these individuals for their contributions to AXIS.

As successor to Albert, your Board has named Vince Tizzio as the future President and CEO of AXIS, effective in May 2023, following our Annual General Meeting. During his first year with the Company, Vince has already made an impressive impact, challenging AXIS to build on our progress by driving further profitable premium growth for our Insurance business, identifying exciting growth opportunities including expanding our Lower Middle Market presence, and advancing efforts to become even more agile and efficient in our front-end operations.

I have participated in some of their events, and I am impressed by the concern and care that people express for each other in this organization, and the positive impact it has on our culture.

It is important for our employees, customers and shareholders to know that AXIS is a company driven by deeply held values. We are taking meaningful action to enhance our ESG program. For example, we were an early adopter of underwriting and investment restrictions related to fossil fuels, supporting the transition to a low-carbon economy by investing in our Renewable Energy business where we are already a leading global player, and we are continuing to work toward greenhouse gas reductions. Our steadfast commitment to our values make AXIS a more diverse, resilient, and stronger company - and one that can be trusted to attract and develop talent, meet the needs of our customers, distribution partners and society, and deliver shareholder value.

Vince is deeply committed to our strategy of advancing AXIS as a leader in specialty underwriting. He also is an energizing people leader who will continue to help our team unlock the Company's significant potential.

Finally, your Board and I mourn the loss of longtime AXIS Chair, Michael Butt, who passed away in early 2023. Michael was appointed Chair of the AXIS Capital Board of Directors in September 2002, and played a foundational role not just in launching and growing AXIS but in helping to build the broader (re)insurance market in Bermuda, among numerous other achievements. Michael was an exceptional business leader, an accomplished humanitarian, and a dear friend. Though we deeply miss Michael, we continue his legacy through the values and culture at AXIS that he so deeply espoused.

As we look to the future, your Board and I are confident that AXIS has a tremendous opportunity to profitably grow our business and deliver superior value to our shareholders, employees, and customers. To echo comments made earlier in this Annual Report, in an increasingly uncertain market environment - where brokers and insureds are looking for specialized insurance and reinsurance risk solutions - we are quite literally ready for this moment.

![img-7.jpeg](img-7.jpeg)

![img-8.jpeg](img-8.jpeg)

Sincerely,
Henry B. Smith
Chair of the Board

# CEO SPECIALTY INSURANCE AND REINSURANCE LETTER

*Dear fellow shareholders*

AXIS made meaningful progress in 2022 as we pursue our strategic aspiration: to deliver sustained profitable growth and increased shareholder value by operating as a leading global specialty underwriter and writing insurance and niche reinsurance with diversification by class and geography. Our transformation efforts over the past year included a major refocusing of our books of businesses, strengthening our capabilities in selected markets, and related changes in organization structure and leadership responsibilities.

We are confident that our recent strategic initiatives have been built upon a strong foundation, reflected in the Company's solid improvement in our underlying performance over the past year as detailed in an earlier section of this report. Although this was partly due to generally favorable market conditions, our prior years' portfolio repositioning initiatives played a significant role, setting the stage for improved performance in 2022.

![img-9.jpeg](img-9.jpeg)

8

## INSURANCE - DRIVING ROBUST GROWTH

Our Insurance business generated $5.6 billion of gross premium in 2022, an all-time production record and an increase of 15% over the prior year. Among the lines that enjoyed the most robust growth were Liability, Property, Cyber, Accident and Health, Marine and Aviation, while we saw premium growth across all of our lines of business. Our Insurance underwriting profit was $327 million, an increase of 46% from the prior year despite adverse geopolitical conditions and severe weather events. Our combined ratio was 89.6% compared to 91.6% from last year. The accident year combined ratio ex-catastrophe and weather was 83.6%, an improvement of 2.3 points from a year ago.

To achieve our aspiration for the future of AXIS as a leading specialty underwriter, continued focused investment is critical.

In 2022, we added new products and resources to grow our long-standing Wholesale insurance business. Our new AXIS Wholesale Division brings together dedicated teams and resources focused specifically on the Wholesale channel.

# 89.6%

INSURANCE COMBINED RATIO

In addition, we enter 2023 with a focus on enhancing the services and product capabilities that we provide to all of our distribution partners throughout the global markets in which we operate.

Looking to our International business, we have substantially grown our presence in the London market, where today we are a top quartile performer at Lloyd's. AXIS was also recognized as the Specialist Insurer of the Year by the 2022 British Insurance Awards hosted by the Insurance Post.

As part of our strategy to be a leading specialty underwriter, we have identified an opportunity to grow in the Lower Middle Market, coupled with investments in growing our digital capabilities. We are expanding our products for this under-served space to better cater to our distribution partners and access new customer markets. For example, we recently launched an insurance policy offering custom-built cyber and specialist liability coverage for companies with up to $2 billion in revenue.

# $5.6B

INSURANCE GPW

## AXIS RE - SPECIALIST REINSURANCE FOCUS

In 2022, we shifted our focus to being a specialist reinsurer with a commitment to Accident and Health, Casualty, Credit and Surety, and Specialty lines.

Reinsurance gross premium for 2022 totaled $2.6 billion. While the gross premiums written total decreased by 7% from the prior year, that was largely due to the refocusing of the business as a specialist reinsurer. Essentially, we exited Catastrophe and Property reinsurance lines, while delivering growth in the reinsurance lines we have targeted including Agriculture, Accident and Health, Credit and Surety. Reinsurance underwriting profit was $31 million. Our combined ratio was 99.1% compared to 99.0% last year. The accident year combined ratio ex-catastrophe and weather increased 3.5 points from last year, to 89.8%.

# 99.1%

REINSURANCE COMBINED RATIO

Looking to the latest 1/1 renewal season, AXIS Re maintained relevance in our chosen product markets and geographies. Our team took great care to maintain an ongoing dialogue with our broker partners and customers, as well as with our teammates around our long-term commitment to our Reinsurance business. As a result, we successfully bound substantially all of the non-property related renewals that met our thresholds.

We believe our 1/1 performance speaks to the value that AXIS Re brings to the market through the knowledge and expertise of our underwriters and the deep relationships that we share with our customers. We enter 2023 with a disciplined growth mindset, focused on further optimizing our portfolio to achieve margin expansion. In addition, we expect to remain active in responding to evolving market conditions with a goal to deliver consistent financial performance.

# $2.6B

REINSURANCE GPW

9

## ADVANCING LEADERSHIP IN SPECIALTY

As AXIS looks toward 2023, our industry is preparing for another year of disruption, underpinned by global financial and geopolitical uncertainty, financial and social inflation, the effects of climate change, and the ongoing impacts of high catastrophe loss activity. In response, the industry has tightened underwriting terms and conditions and premium pricing, while reinsurance capacity is becoming less available. This environment creates a unique opportunity for specialty underwriters like AXIS to deliver more value to the market while meeting the needs of society. Through the creation of tailored insurance products and risk solutions, coupled with the deep expertise of our underwriting team in their respective markets, AXIS is well-positioned to help our customers navigate the challenges of this dynamic environment.

In this market, AXIS will focus on tapping into our expertise in specialty risks to give customers the products, tools and solutions to operate their businesses with confidence. We will “meet” customers in different

channels of distribution with different methods of underwriting, be they digital, traditional or a hybrid. And, we will do this in a manner that will enhance our margin and underwriting income to deliver value to our shareholders.

Finally, I am honored to have been named the incoming President and CEO of AXIS, effective May 4, 2023, and to have an opportunity to grow the foundation built by Albert Benchimol and AXIS colleagues throughout the Company. I would like to take this opportunity to express my deepest gratitude to Albert, Henry Smith, the Board of Directors, and my colleagues at AXIS for placing their trust in me. In my time with AXIS, I have gotten to know the Company, its people, and its culture, and I am more energized than ever to step into this role. Indeed, as we look to 2023 and beyond, I am excited to be part of a company that is so clearly “ready for this moment.”

*AXIS will focus on tapping into our expertise in specialty risks to give customers the products, tools and solutions to operate their businesses with confidence.*

![Handwritten signature of Vincent C. Tizzio]()

Sincerely,

CEO Specialty Insurance and Reinsurance

![img-10.jpeg](img-10.jpeg)

# THE AXIS JOURNEY

## 2023 AND BEYOND

Predominantly insurance focused and recognized leader in specialty risk

![img-0.jpeg](img-0.jpeg)

11

# CORPORATE CITIZENSHIP

At AXIS, our purpose is to help people and organizations navigate and manage risk in an increasingly complex and uncertain world. Consistent with that purpose, our Corporate Citizenship program, which aims to address ESG factors, is focused on making an impact across three key areas: Climate; Diversity, Equity, Inclusion (DEI); and Philanthropy.

## ENVIRONMENT - PROTECTING OUR PLANET

Climate-related risks are among the most serious issues facing the world today. We are committed to taking a long-term sustainable approach to helping safeguard the environment and manage climate and environmental risks. Our 2022 climate initiatives built on the tangible progress AXIS has made in prior years, such as our leadership in Renewable Energy insurance - where AXIS is a top global player - and our commitments to phase out thermal coal business from our insurance, facultative reinsurance and investment portfolios. To that end, in 2022, our climate initiatives received top five industry rankings in scorecards from Insure our Future, and our Fossil Fuel Policy earned the ESG Initiative of the Year award from the Insider Honours.

An additional 2022 highlight was the publication of our inaugural Task Force on Climate-Related Financial Disclosures (TCFD)-aligned report - a reflection of our commitment to bolstering our ESG transparency and holding ourselves accountable to our goals. We also published our third disclosure report aligned with Sustainability Accounting Standards Board (SASB) framework.

In 2022, AXIS also adopted a formal ESG Investment Policy. Key elements of the Policy include incorporating ESG concerns into the Company's investment decisions, prohibiting investment in eco-unfriendly activities, and allocating capital to eco-positive investments.

During the past year, we worked to set goals for reducing the Company's greenhouse gas (GHG) emissions - the latest step in our ambition to transition to a low-carbon economy.

In addition, AXIS continued its participation in various organizations dedicated to climate-positive actions, including the Sustainable Markets Initiative Insurance Task Force, chaired by Lloyd's; the Insurance Development Forum, which works to extend the use of insurance to build more resilient communities; and the Climate Change & Environment Working Group of the Geneva Association, an insurance industry think tank.

## DIVERSITY - FOSTERING EQUITY AND INCLUSION

At AXIS, we are focused on encouraging and promoting diverse, equitable, and inclusive practices, underpinned by a philosophy of valuing and actively embracing different perspectives and experiences. In 2022, guided by our Global DEI Council, we continued to grow our DEI efforts, using a five-part approach: internal education and awareness; recruitment and mobility; career development to support diverse colleagues; industry advocacy; and tools and measurement.

In the area of internal education, we are proud that close to half of our workforce attended our Annual DEI Forum with last year's theme focused on allyship - a concept that celebrates active efforts to promote diversity and eliminate roadblocks to inclusion. We also continued our ongoing DEI Learning Experience program that helps inform colleagues of relevant social issues. The program earned Gold honors in the Brandon Hall Group's 2022 Excellence in Technology Award for Best Advance in Rewards and Recognition Technology recognizing the innovative approach to promoting DEI and relevant social issues through technology.

To enhance recruitment and mobility, we provided resources to help managers work with their employees on career coaching and development plan options, including content specifically targeted at gender and ethnically diverse employees. We also continue to have highly engaged ERGs, led by volunteer staff, and covering such areas as ethnically diverse groups, LGBTQ+, parents and caregivers, veterans, and women.

Within our industry, AXIS continued to use our voice and influence to support the advancement of DEI, including serving as a Global Festival Partner in the 2022 Dive In Festival, an industry-wide initiative focused on DEI.

Recognizing the importance of setting measurable goals for our DEI progress, we have invested in tools to establish, report and track benchmark metrics. This includes measuring diverse hiring, turnover, promotions, and succession planning.

We are pleased to note that AXIS was recognized in the Bloomberg Gender-Equality Index for the third year in a row. To continue holding ourselves accountable, we also set goals to increase gender diversity within our organization.

Further, we implemented our Human Rights Policy restricting insurance coverage on projects undertaken on indigenous territories without Free, Prior, and Informed Consent (FPIC) in accordance with the United Nations Declaration on the Rights of Indigenous Peoples.

12

## PHILANTHROPY - INVESTING IN OUR COMMUNITIES

Our Company's philanthropic efforts are designed to empower our people to give back at global, local and individual levels through partnerships, with approximately 75% allotted towards our focus areas of environmental and DEI causes.

Once again, we hosted our annual AXIS Global Giving Rally, enabling AXIS colleagues throughout the world to use paid time off to volunteer at local organizations. In addition, AXIS established the Michael A. Butt Fund for Business & Society housed at INSEAD, the global business school, with a $250,000 endowment. Honoring former AXIS Board Chair Michael Butt, OBE, the Fund will support research on the intersection of business and society, aiming to provide fresh perspectives on critical global issues.

*In summary, we are proud of the progress we've made in growing the AXIS Corporate Citizenship program, although we recognize that there is more work to be done as the industry and society continue to grapple with environmental and DEI challenges. In 2023 and beyond, we look forward to continuing our efforts to make a positive impact.*

![img-1.jpeg](img-1.jpeg)

Photo of Cathrin Merten,
AXIS Zurich Office Manager

13

# NON-GAAP FINANCIAL MEASURES RECONCILIATION (UNAUDITED)

Year ended December 31, 2022

Year ended December 31, 2021

| Consolidated Key Ratios | Insurance | Reinsurance | Total | Insurance | Reinsurance | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 51.0% | 62.6% | 55.5% | 51.4% | 59.9% | 55.1% |
| Catastrophe and weather-related losses ratio | 6.5% | 9.7% | 7.8% | 6.4% | 13.3% | 9.5% |
| Current accident year loss ratio | 57.5% | 72.3% | 63.3% | 57.8% | 73.2% | 64.6% |
| Prior year reserve development ratio | (0.5%) | (0.4%) | (0.5%) | (0.7%) | (0.6%) | (0.7%) |
| Net losses and loss expenses ratio | 57.0% | 71.9% | 62.8% | 57.1% | 72.6% | 63.9% |
| Acquisition cost ratio | 18.4% | 21.9% | 19.8% | 18.3% | 21.3% | 19.6% |
| Underwriting-related general and administrative expense ratio | 14.2% | 5.3% | 10.7% | 16.2% | 5.1% | 11.3% |
| Corporate expense ratio |  |  | 2.5% |  |  | 2.7% |
| Combined ratio | 89.6% | 99.1% | 95.8% | 91.6% | 99.0% | 97.5% |
| Current accident year loss ratio excluding catastrophe and weather related losses | 83.6% | 89.8% | 88.5% | 85.9% | 86.3% | 88.7% |

(in thousands)

Years ended

| Operating Income | 2022 | 2021 |
| --- | --- | --- |
| Net income available to common shareholders | $192,833 | $588,359 |
| Net investment (gains) losses (1) | 456,789 | (134,279) |
| Foreign exchange losses (gains) (2) | (157,945) | 315 |
| Reorganization expenses (3) | 31,426 | - |
| Interest in (income) loss of equity method investments (4) | (1,995) | (32,084) |
| Income tax expense (benefit) | (23,177) | 14,166 |
| Operating income | $497,931 | $436,477 |

$^{(1)}$ Tax expense (benefit) of $(36) million and $11 million for the years ended December 31, 2022 and 2021, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the ability to utilize capital losses.

$^{(2)}$ Tax expense (benefit) of $16 million and $3 million for the years ended December 31, 2022 and 2021, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the tax status of specific foreign exchange transactions.

$^{(3)}$ Tax expense (benefit) of $(4) million and $nil for the years ended December 31, 2022 and 2021, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions.

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

14

(in thousands)

Year ended December 31, 2022

Year ended December 31, 2021

| Consolidated Segmental Data | Insurance | Reinsurance | Total | Insurance | Reinsurance | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Gross premiums written | $5,585,581 | $2,629,014 | $8,214,595 | $4,863,232 | $2,822,752 | $7,685,984 |
| Net premiums written | 3,377,906 | 1,885,150 | 5,263,056 | 2,894,885 | 2,031,739 | 4,926,624 |
| Net premiums earned | 3,134,155 | 2,026,171 | 5,160,326 | 2,651,339 | 2,058,511 | 4,709,850 |
| Other insurance related income | 559 | 12,514 | 13,073 | 1,662 | 21,633 | 23,295 |
| Net losses and loss expenses | (1,785,854) | (1,456,556) | (3,242,410) | (1,514,998) | (1,493,785) | (3,008,783) |
| Acquisition costs | (577,838) | (444,179) | (1,022,017) | (484,344) | (437,490) | (921,834) |
| Underwriting-related general and administrative expenses (1) | (443,704) | (106,585) | (550,289) | (429,282) | (107,552) | (536,834) |
| Underwriting income (1) | $327,318 | $31,365 | $358,683 | $224,377 | $41,317 | $265,694 |
| Net investment income |  |  | 418,829 |  |  | 454,301 |
| Net investment gains (losses) |  |  | (456,789) |  |  | 134,279 |
| Corporate expenses (1) |  |  | (130,054) |  |  | (126,470) |
| Foreign exchange (losses) gains |  |  | 157,945 |  |  | (315) |
| Interest expense and financing costs |  |  | (63,146) |  |  | (62,302) |
| Reorganization expenses |  |  | (31,426) |  |  | - |
| Amortization of value of business acquired |  |  | - |  |  | (3,854) |
| Amortization of intangible assets |  |  | (10,917) |  |  | (12,424) |
| Income before income taxes and interest in income of equity method investments |  |  | 243,125 |  |  | 648,909 |
| Income tax expense |  |  | (22,037) |  |  | (62,384) |
| Interest in income of equity method investments |  |  | 1,995 |  |  | 32,084 |
| Net income |  |  | 223,083 |  |  | 618,609 |
| Preferred share dividends |  |  | 30,250 |  |  | 30,250 |
| Net income available to common shareholders |  |  | $192,833 |  |  | $588,359 |

$^{(1)}$ Underwriting-related general and administrative expenses is a non-GAAP financial measure as defined in SEC Regulation G. The reconciliation to general and administrative expenses, the most comparable GAAP financial measure, also included corporate expenses of $130 million and $126 million for the years ended December 31, 2022 and 2021, respectively. Underwriting-related general and administrative expenses and corporate expenses are included in the general and administrative expense ratio.

$^{(1)}$ Consolidated underwriting income (loss) is a non-GAAP financial measure as defined in SEC Regulation G. The reconciliation to net income (loss), the most comparable GAAP financial measure, is presented in the table above.

## 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 report, we present underwriting-related general and administrative expenses, consolidated underwriting income (loss) and operating income (loss) which are non-

non-GAAP financial measures as defined in SEC Regulation G. 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').

15

# 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 the *Segment Information* note to our Consolidated Financial Statements, 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 the *Consolidated Segmental Data* section of this report.

# 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 the *Segment Information* note to our Consolidated Financial Statements, 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 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 the *Consolidated Segmental Data* section of this report.

# 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

16

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 the performance of our business, therefore, foreign exchange losses (gains) are excluded from 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 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 in the *Non-GAAP Financial Measures Reconciliation* section of this report.

## GROUP CONSOLIDATED DATA - EXCLUDING REINSURANCE CATASTROPHE AND PROPERTY

| (in thousands) | Group Total Year-to-date |  | Reinsurance Catastrophe and Property (a) Year-to-date |  | Group Total excluding Reinsurance Catastrophe and Property (a) Year-to-date |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Q4 2022 | Q4 2021 | Q4 2022 | Q4 2021 | Q4 2022 | Q4 2021 |
| Underwriting Revenues |  |  |  |  |  |  |
| Gross written premiums | $8,214,595 | $7,685,984 | $326,303 | $705,804 | $7,888,292 | $6,980,181 |
| Ceded premiums written | (2,951,539) | (2,759,360) | (144,766) | (295,065) | (2,806,773) | (2,464,295) |
| Net premiums written | 5,263,056 | 4,926,624 | 181,537 | 410,738 | 5,081,519 | 4,515,886 |
| Gross premiums earned | 7,936,382 | 7,281,709 | 445,881 | 772,405 | 7,490,501 | 6,509,304 |
| Ceded premiums earned | (2,776,056) | (2,571,859) | (154,168) | (302,537) | (2,621,888) | (2,269,321) |
| Net premiums earned | 5,160,326 | 4,709,850 | 291,713 | 469,868 | 4,868,613 | 4,239,983 |
| Other insurance related income (loss) | 13,073 | 23,295 | 218 | (188) | 12,855 | 23,484 |
| Total underwriting revenues | 5,173,399 | $4,733,145 | $291,931 | 469,679 | 4,881,468 | 4,263,466 |
| Underwriting Expenses |  |  |  |  |  |  |
| Net losses and loss expenses | 3,242,410 | 3,008,783 | 203,955 | 411,495 | 3,038,455 | $2,597,288 |
| Acquisition costs | 1,022,017 | 921,834 | 51,846 | 81,891 | 970,171 | 839,943 |
| Underwriting-related general and administrative expenses | 550,289 | 536,834 | 13,312 | 12,672 | 536,977 | 524,162 |
| Total underwriting expenses | 4,814,716 | 4,467,451 | 269,113 | 506,059 | 4,545,602 | 3,961,392 |
| Underwriting income (loss) | $358,683 | $265,694 | $22,818 | ($36,379) | $335,866 | $302,074 |

$^{(a)}$ Underwriting-related general and administrative expenses reflect the expected allocation of corporate costs necessary to support ongoing Specialty Reinsurance operations.

17

# AXIS DIRECTORS

## Albert A. Benchimol

President and Chief Executive Officer, AXIS Capital

- Executive Committee

## Henry B. Smith

Chair of the Board, AXIS Capital and former CEO, Bank of Bermuda Limited, and W.P. Stewart & Co., Ltd.

- Executive Committee, Chair

## W. Marston Becker

Former Chairman, QBE Insurance Group

- Executive Committee
- Human Capital and Compensation Committee
- Risk Committee, Chair

## Charles A. Davis

Chief Executive Officer, Stone Point Capital LLC

- Executive Committee
- Finance Committee
- Risk Committee

## Anne Melissa Dowling

Former Director of Insurance, State of Illinois

- Finance Committee, Chair
- Risk Committee

## Elanor R. Hardwick

Former Chief Digital Officer, UBS

- Corporate Governance, Nominating and Social Responsibility Committee
- Human Capital and Compensation Committee

## Michael Millegan

Founder and CEO, Millegan Advisory Group 3 LLC and former President of Verizon Global Wholesale Group

- Finance Committee
- Human Capital and Compensation Committee, Chair

## Thomas C. Ramey

Former Chairman and President, Liberty International, Liberty Mutual Group

- Audit Committee
- Corporate Governance, Nominating and Social Responsibility Committee

## Axel Theis

Former Member of Allianz SE Board of Management

- Audit Committee
- Risk Committee

## Barbara A. Yastine

Former Chair, President and Chief Executive Officer, Ally Bank

- Audit Committee
- Corporate Governance, Nominating and Social Responsibility Committee, Chair

## Lizabeth H. Zlatkus

Former Chief Financial Officer and Former Chief Risk Officer, The Hartford Financial Services Group, Inc.

- Audit Committee, Chair
- Executive Committee
- Finance Committee

# EXECUTIVE OFFICERS

## Albert A. Benchimol

President and Chief Executive Officer

## Vincent C. Tizzio

CEO Specialty Insurance and Reinsurance
Future Group CEO effective May 4, 2023

## Peter J. Vogt

Chief Financial Officer

## Conrad D. Brooks

General Counsel

## David S. Phillips

Chief Investment Officer

## Dan Draper

Group Chief Underwriting Officer

![img-2.jpeg](img-2.jpeg)

18

![img-3.jpeg](img-3.jpeg)

Courtesy of the NYSE

19

# SHAREHOLDER INFORMATION

## Annual Meeting

Date:

May 4, 2023 at 8:30 a.m. ADT

Location:

AXIS House, 92 Pitts Bay Road
Pembroke HM 08, Bermuda

## Independent Registered Public Accounting Firm

Deloitte Ltd.

Corner House, 20 Parliament Street
Hamilton HM 12, Bermuda

## Investor Relations

For copies of AXIS Capital's Annual Report,
Forms 10-K and 10-Q or other reports filed
with or furnished to the Securities and
Exchange Commission:

Visit:

The Investors section of www.axiscapital.com

Email:

Investor Relations Department of AXIS Capital
at investorrelations@axiscapital.com

## For Other Investor Relations Inquiries

Write to:

Head of Investor Relations
AXIS Capital Holdings Limited
AXIS House, 92 Pitts Bay Road
Pembroke HM 08, Bermuda

Call:

1.441.496.2600

Email:

investorrelations@axiscapital.com

## Transfer Agent and Registrar

The Transfer Agent for AXIS Capital is Computershare.
For shareholder inquiries, please contact Computershare:

By regular mail:

P.O. Box 43006
Providence, RI 02940-3006

By overnight delivery:

150 Royall Street Suite 101
Canton, MA 02021

Call:

1.800.522.6645 (within the U.S.)
1.201.680.6578 (outside the U.S.)
Hearing Impaired TDD: 1.800.952.9245

Website:

www.computershare.com

This report contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts included in this report, including statements regarding our estimates, beliefs, expectations, intentions, strategies or projections are forward-looking statements. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the United States federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as "may", "should", "could", "anticipate", "estimate", "expect", "plan", "believe", "predict", "potential", "intend" or similar expressions. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond management's control. These statements include, among other things, statements about our mix of business, product offerings, catastrophe losses and strategic initiatives. Results may differ materially from those expressed or implied by forward-looking statements. Factors that can cause results to differ materially include those described under "Forward Looking Statements" in AXIS Capital's most recent Form 10-K and Form 10-Q's filed with the SEC and available on our website. AXIS Capital undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

![img-4.jpeg](img-4.jpeg)

![img-5.jpeg](img-5.jpeg)

![img-6.jpeg](img-6.jpeg)

2022 FORM 10-K

# READY *for this* MOMENT

![img-0.jpeg](img-0.jpeg)

# **UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
Washington, D.C. 20549

# FORM 10-K

☑ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)**
**OF THE SECURITIES EXCHANGE ACT OF 1934**
For the fiscal year ended December 31, 2022

OR

☐ **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)**
**OF THE SECURITIES EXCHANGE ACT OF 1934**

For the transition period from to
Commission file number 001-31721

**AXIS CAPITAL HOLDINGS LIMITED**
(Exact name of registrant as specified in its charter)

**Bermuda**

(State or other jurisdiction of incorporation or organization)

**98-0395986**

(I.R.S. Employer Identification No.)

**92 Pitts Bay Road, Pembroke, Bermuda HM 08**

(Address of principal executive offices and zip code)

**(441) 496-2600**

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| --- | --- | --- |
| Common shares, par value $0.0125 per share | AXS | New York Stock Exchange |
| Depository shares, each representing a 1/100th interest in a 5.50% Series E preferred share | AXS PRE | New York Stock Exchange |

Securities registered pursuant to Section 12(g) of the Act: **None**

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑

Non-accelerated filer ☐

Accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☑ No ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the closing price at the last business day of the registrant's most recently completed second fiscal quarter, June 30, 2022, was approximately $4.8 billion.

At February 22, 2023, there were 84,710,662 common shares outstanding, $0.0125 par value per share, of the registrant.

# **DOCUMENTS INCORPORATED BY REFERENCE**

Portions of the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A relating to the annual meeting of shareholders to be held on May 4, 2023 are incorporated by reference in response to items 10, 11, 12, 13 and 14 in Part III of this Form 10-K. The definitive proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrant's fiscal year ended December 31, 2022.

# AXIS CAPITAL HOLDINGS LIMITED

# TABLE OF CONTENTS

|  | Page |
| --- | --- |
| PART I |  |
| Item 1. Business | 4 |
| Item 1A. Risk Factors | 32 |
| Item 1B. Unresolved Staff Comments | 54 |
| Item 2. Properties | 54 |
| Item 3. Legal Proceedings | 54 |
| Item 4. Mine Safety Disclosures | 54 |
| PART II |  |
| Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 55 |
| Item 6. Reserved | 55 |
| Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 56 |
| Item 7A. Quantitative and Qualitative Disclosure About Market Risk | 106 |
| Item 8. Financial Statements and Supplementary Data | 109 |
| Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 223 |
| Item 9A. Controls and Procedures | 223 |
| Item 9B. Other Information | 225 |
| Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections | 225 |
| PART III |  |
| Item 10. Directors, Executive Officers and Corporate Governance | 225 |
| Item 11. Executive Compensation | 225 |
| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 225 |
| Item 13. Certain Relationships and Related Transactions, and Director Independence | 226 |
| Item 14. Principal Accounting Fees and Services | 226 |
| PART IV |  |
| Item 15. Exhibits and Financial Statement Schedules | 226 |
| Item 16. Form 10-K Summary | 231 |

## Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts included in this report, including statements regarding our estimates, beliefs, expectations, intentions, strategies or projections are forward-looking statements. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the United States ("U.S.") federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as "may", "should", "could", "anticipate", "estimate", "expect", "plan", "believe", "predict", "potential", "intend" or similar expressions. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond management's control.

Forward-looking statements contained in this report may include, but are not limited to, information regarding our estimates for catastrophes and other weather-related losses, including losses related to the COVID-19 pandemic, measurements of potential losses in the fair market value of our investment portfolio and derivative contracts, our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, the outcome of our strategic initiatives including our exit from catastrophe and property reinsurance lines of business, our expectations regarding pricing, and other market and economic conditions including inflation, our growth prospects, and valuations of the potential impact of movements in interest rates, credit spreads, equity securities' prices, and foreign currency exchange rates.

Forward-looking statements only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Accordingly, there are or will be important factors that could cause actual events or results to differ materially from those indicated in such statements.

We believe that these factors include, but are not limited to, those described below in 'Summary of Risk Factors' and in more detail under Item 1A, 'Risk Factors' of this report, as those factors may be updated from time to time in our periodic and other filings with the Securities and Exchange Commission (the "SEC"), which are accessible on the SEC's website at www.sec.gov.

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 this Form 10-K, references to "AXIS Capital" refer to AXIS Capital Holdings Limited and references to "we", "us", "our", "AXIS", the "Group" or the "Company" refer to AXIS Capital Holdings Limited and its direct and indirect subsidiaries and branches.

## Summary of Risk Factors

Investing in our common stock involves substantial risks, and our ability to successfully operate our business is subject to numerous risks, including those that are generally associated with operating in the insurance/reinsurance industry. Some of the more significant material challenges and risks include the following:

### Insurance Risk

Insurance risk is the inherent uncertainty as to the occurrence, amount and timing of insurance and reinsurance liabilities transferred to us through the underwriting process.

- The insurance and reinsurance business is historically cyclical, and we expect to experience periods with excess underwriting capacity and unfavorable premium rates.
- We may be adversely impacted by a wide variety of natural catastrophes or man-made catastrophes. The incidence and severity of catastrophes are inherently unpredictable, and losses from catastrophes could be substantial. Our exposure to natural catastrophe losses may be increased by climate change, where we may have exposure to physical, transition and liability risks, as well as increasing regulation in the area of climate change. Other man-made catastrophes, such as cyber-attacks, remain relatively new and fast-evolving and therefore incorporate high degrees of uncertainty around the extent of their impact.
- We may be adversely affected by the effects of emerging claims, systemic risks and coverage issues and/or if actual claims exceed our reserves for losses and loss expenses ("loss reserves"). The actual final cost of settling outstanding claims, as well as claims expected to arise from the unexpired period of risk, is uncertain. There are many other factors

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that would cause loss reserves to increase or decrease, which include, but are not limited to, emerging claims, systemic risks and coverage issues such as changes in claim severity, changes in the expected level of reported claims, judicial action changing the scope and/or liability of coverage, changes in the legislative, regulatory, social and economic environment, and unexpected changes in loss costs due to inflation.

- We may be adversely impacted by inflation. Our operations, like those of other insurers and reinsurers, are susceptible to the effects of inflation because premiums are established before the ultimate amounts of losses and loss expenses are known.
- We may be adversely affected by the failure of our loss limitation strategy, including the use of reinsurance.
- We may be adversely affected by the failure of models used to support key decisions.

# Strategic Risk

Strategic risks affect or are created by an organization's business strategy and strategic objectives. Our review of strategic risk evaluates not only internal and external challenges that might cause our chosen strategy to fail but also evaluates major risks that could affect our long-term performance and position.

- We may be adversely affected by competition and consolidation in the insurance and reinsurance industry. Increased competition could result in fewer submissions, lower premium rates, less favorable policy terms and conditions, and greater costs of customer acquisition and retention.
- We have been and may continue to be adversely affected by a deterioration in global economic conditions. Economic uncertainty and market turmoil has affected and may in the future affect, among other aspects of our business, the demand for and claims made under our products, the ability of customers, counterparties and others to establish or maintain their relationships with us, our ability to access and efficiently use internal and external capital resources and our investment performance and portfolio. A persistent low interest rate environment may reduce our profitability as investment income falls.
- We may be adversely affected by the exit of the United Kingdom ("U.K.") from the E.U.
- We may be adversely affected by loss of business provided by a major broker.
- We may be adversely affected by a downgrade in our financial strength or credit rating. If we experience a credit rating downgrade, withdrawal or negative watch/outlook in the future, we could incur higher borrowing costs and may have more limited means to access capital. It could also result in a substantial loss of business for us.
- We may be adversely affected by the increasing scrutiny and evolving expectations from investors, customers, regulators, policymakers and other stakeholders regarding environmental, social and governance matters.

# COVID-19

We have been and may continue to be adversely affected by the ongoing novel coronavirus (COVID-19) pandemic. The pandemic continues to pose a risk and the impacts from the pandemic potentially interact with all areas of our business and exacerbate many of the other risk factors described in this report. The threat and outcome are better understood now than in the earlier stages, but the ultimate scale and scope remain uncertain and the impact on our business, results of operations, financial condition and liquidity could be material.

# Market Risk

Market risk is the risk that our financial instruments may be negatively impacted by movements in financial market prices or foreign currency exchange rates.

- Our investment and derivative instrument portfolios may be adversely impacted by capital markets risk related to changes in interest rates, credit spreads, equity securities' prices and other factors.
- Our operating results may be adversely affected by foreign currency exchange rate fluctuations.

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### Liquidity Risk

Liquidity risk is the risk that we may not have sufficient cash to meet our obligations when they are due, or would have to incur excessive costs to do so.

- Our underwriting activities may expose us to liquidity risk. This stems mainly from the need to pay claims on potential extreme loss events and regulatory constraints that limit the flow of funds within the Group.

### Credit Risk

Credit risk represents the risk of incurring financial loss due to the diminished creditworthiness (reduced financial strength and, ultimately, possibly default) of our third-party counterparties.

- We may be adversely impacted if we are unable to collect amounts due to us from our counterparties - most materially reinsurers, but also including brokers, agents and customers.

### Operational Risk

Operational risk represents the risk of loss as a result of inadequate processes, system failures, human error or external events, including but not limited to direct or indirect financial loss, reputational damage, customer dissatisfaction, and legal and regulatory penalties.

- We may be adversely impacted by failure of the processes, people or systems that we rely on to maintain our operations and manage the operational risks inherent to our business, including those outsourced to third parties.

### Regulatory Risk

Regulatory risk represents the risk arising from our failure to comply with legal, statutory or regulatory obligations.

- Our insurance and reinsurance subsidiaries conduct business globally and are subject to varying degrees of regulation, including data protection and privacy laws, in multiple jurisdictions. We may be adversely affected if we fail to comply fully with, or obtain exemption from, relevant regulations.

### Risks Related to the Ownership of our Securities

- In addition to the risks to our business listed above, there are certain other risks related to the ownership of our securities, for example relating to our holding company structure or provisions in our organizational documents and bye-laws.

### Risks Related to Taxation

- We may be adversely impacted by changes in tax rules or changes in the interpretation of existing tax rules in the multiple jurisdictions in which we operate.

Readers should carefully consider the risks noted above together with the risks detailed in Item 1A, *Risk Factors* and all of the other information included in this report.

### Website and Social Media Disclosure

We use our website (www.axiscapital.com) and our corporate LinkedIn (AXIS Capital) and Twitter (@AXIS_Capital) accounts as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, e-mail alerts and other information about AXIS Capital may be received by those enrolled in our 'E-mail Alerts' program, which can be found in the Investor Information section of our website (www.axiscapital.com). The contents of our website and social media channels are not part of this Annual Report on Form 10-K.

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# PART I

## ITEM 1. BUSINESS

In this Form 10-K, references to 'AXIS Capital' refer to AXIS Capital Holdings Limited and references to 'we', 'us', 'our', 'AXIS', the 'Group' or the 'Company' refer to AXIS Capital Holdings Limited and its direct and indirect subsidiaries and branches, including: AXIS Specialty Holdings Bermuda Limited, AXIS Specialty Limited ('AXIS Specialty Bermuda'), AXIS Specialty Limited (Singapore Branch), AXIS Specialty Investments Limited, AXIS Specialty Investments II Limited, AXIS Specialty UK Holdings Limited, AXIS Managing Agency Ltd., AXIS Corporate Capital UK Limited (corporate member which provides 70% capital support to AXIS Syndicate 1686 ('Syndicate 1686')), Novae Group Limited, AXIS UK Services Limited, AXIS UK Services Limited (Irish Branch), AXIS Underwriting Limited, AXIS Corporate Capital UK II Limited (corporate member which provides 30% capital support to Syndicate 1686), AXIS ILS, Ltd. (formerly AXIS Ventures Limited ('AXIS Ventures')), AXIS Reinsurance Managers Limited ('AXIS Reinsurance Managers'), AXIS Specialty Holdings Ireland Limited, AXIS Specialty Europe SE ('AXIS Specialty Europe'), AXIS Specialty Europe SE (U.K. Branch), AXIS Specialty Europe SE (Belgium Branch), AXIS Re SE, AXIS Re SE, Dublin (Zurich Branch) ('AXIS Re Europe'), AXIS Re SE Escritório de Representação No Brasil Ltda., AXIS Specialty Global Holdings Limited, AXIS Specialty U.S. Holdings, Inc., AXIS Reinsurance Company ('AXIS Re U.S.'), AXIS Reinsurance Company (Canadian Branch), AXIS Specialty U.S. Services, Inc., AXIS Specialty U.S. Services, Inc. (U.K. Branch), AXIS Specialty Canada Services, ULC, AXIS Group Services, Inc., AXIS ILS, Inc. (formerly AXIS Specialty Underwriters, Inc.), AXIS Insurance Company ('AXIS Insurance Co.'), AXIS Surplus Insurance Company ('AXIS Surplus'), AXIS Group Benefits LLC (formerly Ternian Insurance Group LLC), AXIS Specialty Insurance Company ('AXIS Specialty U.S.'), AXIS Specialty Finance LLC and AXIS Specialty Finance PLC, unless the context suggests otherwise.

Unless otherwise noted, tabular dollars are in thousands. Amounts may not reconcile due to rounding differences.

### General

AXIS is a global specialty underwriter and provider of insurance and reinsurance solutions with operations in Bermuda, the United States ('U.S.'), Europe, Singapore and Canada. Our underwriting operations are organized around our global underwriting platforms, AXIS Insurance and AXIS Re.

The markets in which we operate have historically been cyclical. During periods of reduced underwriting capacity, pricing and policy terms and conditions are generally more favorable for insurers and reinsurers. Conversely, during periods of excess underwriting capacity, defined by the availability of capital, competition can result in lower pricing and less favorable policy terms and conditions for insurers and reinsurers. Historically, underwriting capacity has been impacted by a range of factors, including systemic risks such as industry losses and catastrophes, as well as changes in legal, regulatory and rating agency guidelines, investment results, and the financial strength and ratings of competitors.

In 2022, we leveraged firming market conditions to increase our relevance in a number of attractive specialty lines insurance and treaty reinsurance markets and we continued to re-balance our portfolio towards less volatile lines of business. At December 31, 2022, we had common shareholders' equity of $4.1 billion, total capital of $6.0 billion and total assets of $27.6 billion.

### Our Business Strategy

We are a global specialty underwriter and provider of insurance and reinsurance solutions and are a leader in many of the markets where we choose to compete. 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 balance 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, enabling us to deliver sustained profitable growth and increased shareholder value.

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We aim to execute on our business strategy through the following multi-pronged approach:

*We offer a diversified range of products and services across market segments and geographies:* Our position as a global specialty underwriter and provider of insurance and reinsurance solutions gives us insight into the opportunities and challenges in a variety of markets. We are headquartered in Bermuda and have locations in the U.S., Canada and Europe including Dublin, London, Zurich and Brussels. Our Singapore office serves as our regional hub in Asia and provides specialty insurance and reinsurance solutions in the Asia Pacific region. We service the Latin America specialty insurance and facultative reinsurance market through London and our other locations.

*We underwrite a balanced portfolio of risks, including complex and volatile lines, moderating overall volatility with risk limits, diversification and risk management:* Risk management is a strategic priority embedded in our organizational structure and we are continuously monitoring, reviewing and refining our enterprise risk management practices. We combine judgment and experience with data-driven analysis, enhancing our overall risk selection process.

*We modulate our risk appetite and deployment of capital across the underwriting cycle, commensurate with available market opportunities and returns:* In response to market dynamics, we recognize opportunities as they develop and react quickly as new trends emerge. Our risk analytics provide important and continuous feedback, further assisting with the ongoing assessment of our risk appetite and strategic capital deployment. We have been successful in extending our product lines, finding new distribution channels and entering new geographies. When we do not find sufficiently attractive uses for our capital, we may return excess capital to our shareholders through share repurchases and dividends.

*We develop and maintain deep, trusting and mutually beneficial relationships with clients and distribution partners, offering high levels of service and effective solutions for risk management needs:* Our management team has extensive industry experience, deep product knowledge, long-standing market relationships and a top caliber claims capability. We primarily transact in specialty markets, where risks are complex, and are also growing our transactional specialty business targeting the lower middle market. We invest in data and technology capabilities and tools to empower our underwriters and enhance the service that we provide to our customers. Our intellectual capital and proven client-service capability attract clients and distribution partners looking for solutions.

*We maintain excellent financial strength, characterized by financial discipline and transparency:* Our total capital of $6.0 billion at December 31, 2022, as well as our high-quality and liquid investment portfolio and our operating subsidiary ratings of 'A+' ('Strong') by Standard & Poor's and 'A' ('Excellent') by the A.M. Best Company, Inc. ('A.M. Best') are key indicators of our financial strength.

*We attract, develop, retain and motivate teams of experts:* We aim to attract and retain top talent in the industry and to motivate our employees to make decisions that are in the best interest of our clients and shareholders. We cultivate a culture that prioritizes ethics, risk awareness and achievement, while also promoting diversity, professionalism, responsibility, integrity, discipline and entrepreneurship. As a result, we believe that our staff is well-positioned to make the best underwriting and strategic decisions for AXIS.

In 2022, our key financial metrics for performance measurement of the Company included operating return on average common equity ('operating ROACE'), which is reconciled to the most comparable GAAP financial measure, return on average common equity ('ROACE'), in Item 7 'Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures Reconciliation', on an annual basis and relative total shareholder return ('TSR') over the long-term. We believe that the successful execution against long-term strategic plans should drive an increase in TSR over the long-term, and that TSR directly correlates to other relevant key performance metrics, including growth in book value per diluted common share adjusted for dividends. Our goal is to deliver sustained profitable growth and increased shareholder value.

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## Segment Information

Our underwriting operations are organized around our global underwriting platforms, AXIS Insurance and AXIS Re. We have determined that we have two reportable segments, insurance and reinsurance. We do not allocate assets by segment, with the exception of goodwill and intangible assets.

Refer to Item 7 *Management's Discussion and Analysis of Financial Condition and Results of Operations* for additional information relating to our reportable segments and Item 8, Note 3 to the Consolidated Financial Statements *Segment Information* for additional information relating to our reportable segments and a description of the geographic distribution of gross premiums written based on the location of our subsidiaries.

The table below presents gross premiums written in each of our reportable segments for each of the most recent three years:

| Year ended December 31, | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Insurance | $5,585,581 | $4,863,232 | $4,018,399 |
| Reinsurance | 2,629,014 | 2,822,752 | 2,808,539 |
| Total | $8,214,595 | $7,685,984 | $6,826,938 |

### Insurance Segment

#### Lines of Business and Distribution

Our insurance segment offers specialty insurance products to a variety of niche markets on a worldwide basis. The following are the lines of business in our insurance segment:

- • *Professional Lines*: provides directors' and officers' liability, errors and omissions liability, employment practices liability, fiduciary liability, crime, professional indemnity, medical malpractice and other financial insurance related covers for public and private commercial enterprises, financial institutions, not-for-profit organizations and other professional service providers. This business is predominantly written on a claims-made basis.
- • *Property*: provides physical loss or damage, business interruption and machinery breakdown cover for virtually all types of property, including commercial buildings, residential premises, construction projects, and onshore renewable energy installations, and physical damage and business interruption following an act of terrorism. This line of business includes primary and excess risks, some of which are catastrophe-exposed.
- • *Liability*: primarily targets primary and low to mid-level excess and umbrella commercial liability risks in the U.S. wholesale markets in addition to primary and excess of loss employers, public, and products liability business predominately in the U.K. Target industry sectors include construction, manufacturing, transportation and trucking, and other services.
- • *Cyber*: provides cover for cyber, technology errors and omissions, media and miscellaneous professional liability. Cover is provided for a range of risks including data recovery and bricking, cyber-crime, liability and regulatory actions, business interruption, extortion, reputational harm, Payment Card Industry Data Security Standard and media liability.
- • *Marine and Aviation*: Marine provides cover for traditional marine classes, including offshore energy, renewable offshore energy, cargo, liability including kidnap and ransom, fine art, specie, and hull war. Offshore energy coverages include physical damage, business interruption, operator's extra expense and liability coverage for all aspects of offshore upstream energy from exploration and construction through the operation and distribution phases. Aviation provides hull and liability, and specific war cover primarily for passenger airlines but also for cargo operations, general aviation operations, airports, aviation authorities, security firms and product manufacturers.
- • *Accident and Health*: includes personal accident, travel insurance and specialty health products for employer and affinity groups, and pet insurance.
- • *Credit and Political Risk*: provides credit and political risk insurance products for banks, commodity traders, corporations and multilateral and export credit agencies. Cover is provided for a range of risks including sovereign and corporate credit default, political violence, currency inconvertibility and non-transfer, expropriation, aircraft non-repossession and contract frustration due to political events.

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We produce business primarily through wholesale and retail brokers worldwide. Some of our insurance products are also distributed through managing general agents ("MGAs") and managing general underwriters ("MGUs"). In the U.S., we have the ability to write business on an admitted basis using forms and rates filed with state insurance regulators and on a non-admitted or surplus lines basis, which provides flexibility in forms and rates, as these are not filed with state regulators. Our ability to write business on a non-admitted basis in the U.S. provides us with the pricing flexibility needed to write non-standard coverages. Substantially all of our insurance business is subject to aggregate limits, in addition to event limits.

Gross premiums written by broker, shown individually where premiums by broker were 10% or more of the total in any of the last three years, were as follows:

| Years ended December 31, | 2022 |  | 2021 |  | 2020 |  |
| --- | --- | --- | --- | --- | --- | --- |
| Aon plc | $697,103 | 12% | $621,879 | 13% | $485,113 | 12% |
| Marsh & McLennan Companies Inc. | 630,085 | 11% | 548,964 | 11% | 496,913 | 12% |
| AmWINS Group Inc. | 605,727 | 11% | 491,690 | 10% | 409,951 | 10% |
| Other brokers | 2,746,828 | 50% | 2,423,379 | 50% | 1,900,736 | 48% |
| Managing general agencies and underwriters | 905,838 | 16% | 777,320 | 16% | 725,686 | 18% |
| Total | $5,585,581 | 100% | $4,863,232 | 100% | $4,018,399 | 100% |

No insured accounted for more than 10% of the gross premiums written in the insurance segment.

### *Competitive Environment*

In our insurance segment, where competition is focused on price, service, availability of capacity, appetite and distribution, among other considerations, we compete globally and locally with North American and non-North American carriers. We believe we can achieve positive differentiation through underwriting expertise in our chosen lines of business and market segments, providing customized solutions for our strategic partners and top caliber claims service levels to our customers. In addition, our investment in building an agile business model is expected to enable us to more quickly bring innovative products and services to market while delivering value to our customers and driving profitable growth.

### *Reinsurance Segment*

#### *Lines of Business and Distribution*

Our reinsurance segment provides treaty reinsurance to insurance companies on a worldwide basis, written on an excess of loss or a proportional basis. For excess of loss business, we typically indemnify the reinsured for a portion of losses, individually and in the aggregate, in excess of a specified individual or aggregate loss deductible. For proportional business, we assume an agreed percentage of the underlying premiums and accept liability for the same percentage of losses and loss expenses. Our business is primarily produced through reinsurance brokers worldwide. The following are the lines of business in our reinsurance segment:

- *Liability*: provides protection to insurers of admitted casualty business, excess and surplus lines casualty business and specialty casualty programs. The primary focus of the underlying business is general liability, workers' compensation, auto liability, and excess casualty.
- *Accident and Health*: includes personal accident, specialty health, accidental death, travel, life and disability reinsurance products which are offered on a proportional and catastrophic or per life excess of loss basis.
- *Professional Lines*: provides protection for directors' and officers' liability, employment practices liability, medical malpractice, professional indemnity, environmental liability, cyber, and miscellaneous errors and omissions insurance risks. The underlying business is predominantly written on a claims-made basis. This business is written on a proportional and excess of loss basis.
- *Credit and Surety*: Credit reinsurance provides reinsurance of trade credit insurance products and includes proportional and excess of loss structures. The underlying insurance indemnifies sellers of goods and services in the event of a payment default by the buyer of those goods and services. Surety reinsurance provides protection for losses arising from a broad array of surety bonds issued by insurers to satisfy regulatory demands or contract obligations in a variety of jurisdictions around the world. Mortgage reinsurance is provided to mortgage guaranty insurers and U.S. government-sponsored entities for losses related to credit risk transfer into the private sector.

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- • **Motor:** provides protection to insurers for motor liability and property damage losses arising out of any one occurrence. A loss occurrence can involve one or many claimants where the ceding insurer aggregates the claims from the occurrence. Traditional proportional and non-proportional reinsurance as well as structured solutions are offered.
- • **Agriculture:** provides protection for risks associated with the production of food and fiber on a global basis for primary insurance companies writing multi-peril crop insurance, crop hail, and named peril covers, as well as custom risk transfer mechanisms for agricultural dependent industries with exposures to crop yield and/or price deviations. This business is written on a proportional and aggregate stop loss reinsurance basis.
- • **Marine and Aviation:** Marine includes specialty marine classes such as cargo, hull, pleasure craft, marine liability, inland marine and offshore energy. The principal perils covered by policies in this portfolio include physical loss, damage and/or liability arising from natural perils of the seas or land, man-made events including fire and explosion, stranding/sinking/salvage, pollution, shipowners and maritime employers liability. This business is written on a non-proportional and proportional basis. Aviation provides cover for airline, aerospace and general aviation exposures. This business is written on a proportional and non-proportional basis. The Company exited Aviation business effective January 1, 2023.

#### Run-off lines

- • **Catastrophe:** provides protection for most catastrophic losses that are covered in the underlying insurance policies written by our cedants. The underlying policies principally cover property-related exposures but other exposures including workers compensation and personal accident are also covered. The principal perils covered by policies in this portfolio include hurricane and windstorm, earthquake, flood, tornado, hail and fire. In some instances, terrorism may be a covered peril or the only peril. This business is written on a proportional and an excess of loss basis. The Company exited this line of business in June 2022.
- • **Property:** provides protection for property damage and related losses resulting from natural and man-made perils that are covered in the underlying personal and commercial lines insurance policies written by our cedants. The predominant exposure is to property damage, but other risks, including business interruption and other non-property losses, may also be covered when arising from a covered peril. The most significant perils covered by policies in this portfolio include windstorm, tornado and earthquake, but other perils such as freezes, riots, floods, industrial explosions, fires, hail and a number of other loss events are also included. This business is written on a proportional and excess of loss basis. The Company exited this line of business in June 2022.
- • **Engineering:** provides protection for all types of construction risks and risks associated with erection, testing and commissioning of machinery and plants during the construction stage. This line of business also includes cover for losses arising from operational failures of machinery, plant and equipment, and electronic equipment as well as business interruption. The Company exited this line of business in 2020.

Gross premiums written by broker, shown individually where premiums by broker were 10% or more of the total in any of the last three years, were as follows:

| Years ended December 31, | 2022 |  | 2021 |  | 2020 |  |
| --- | --- | --- | --- | --- | --- | --- |
| Marsh & McLennan Companies Inc. | $739,380 | 28% | $858,049 | 30% | $818,821 | 29% |
| Aon plc | 659,811 | 25% | 716,585 | 25% | 694,712 | 25% |
| Arthur J. Gallagher & Co | 379,822 | 14% | 164,678 | 6% | 188,909 | 7% |
| Willis Tower Watson PLC | - | - % | 367,973 | 13% | 435,498 | 16% |
| Other brokers | 231,200 | 9% | 350,058 | 13% | 393,459 | 13% |
| Direct | 444,930 | 17% | 187,583 | 7% | 105,777 | 4% |
| Managing general agencies and underwriters | 173,871 | 7% | 177,826 | 6% | 171,363 | 6% |
| Total | $2,629,014 | 100% | $2,822,752 | 100% | $2,808,539 | 100% |

(1) Effective December 1, 2021, Arthur J. Gallagher & Co. completed the acquisition of substantially all of the treaty reinsurance brokerage operations from Willis Towers Watson plc. and the combined businesses commenced trading as Gallagher Re. The above table includes gross premiums written by Willis Towers Watson plc. for the eleven-month period ended November 30, 2021.

No cedant accounted for more than 10% of the gross premiums written in the reinsurance segment.

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### Competitive Environment

In our reinsurance segment, competition tends to be focused on availability, service, financial strength and price. We compete with major North American and non-North American reinsurers and reinsurance departments of numerous multi-line insurance organizations. In addition to traditional market participants, we also compete with new market entrants supported by alternative capital sources offering risk transfer solutions on a collateralized or other non-traditional basis. Our clients may also acquire reinsurance protection through capital market products such as catastrophe bonds and insurance loss warranties. We believe that we achieve a competitive advantage through our diversified global product offerings, responsiveness to customer needs and ability to provide sophisticated and innovative products. We offer excellent claims management, strong financial strength ratings and an ability to leverage our balance sheet and relationships with strategic capital partners to provide strong capacity.

### Cash and Investments

We seek to balance the investment portfolio's objectives of increasing book value with the generation of relatively stable investment income, while providing sufficient liquidity to meet our claims and other obligations. Liquidity needs arising from potential claims are of primary importance and are considered in asset class participation and the asset allocation process. A significant portion of our investment portfolio is dedicated to investment grade fixed maturities that will generate cash flows that match expected claim payouts.

To diversify risk and optimize the growth in book value, we may invest in other asset classes such as equity securities, high yield securities and alternative investments (e.g., private equity funds), which provide higher potential total rates of return. These individual investment classes involve varying degrees of risk, including the potential for more volatile returns and reduced liquidity. However, as part of a balanced portfolio, they also provide diversification from interest rate and credit risk.

With regard to our investment portfolio, we primarily utilize third-party investment managers for security selection and trade execution functions, subject to guidelines and objectives for each asset class. This enables us to actively manage our investment portfolio with access to top performers specializing in various products and markets. We select managers based on various criteria including investment style, performance history and corporate governance. In addition, we monitor approved investment asset classes for each subsidiary through analysis of our operating environment, including expected volatility of cash flows, overall capital position, regulatory and rating agency considerations. The Finance Committee of our Board of Directors approves overall group asset allocation targets and investment policy to ensure that they are consistent with our overall goals, strategies and objectives. We also have an Investment and Finance Committee, comprised of members of our senior management team, which oversees the implementation of our investment strategy.

Refer to Item 7 *Management's Discussion and Analysis of Financial Condition and Results of Operations - Cash and Investments* and Item 8, Note 5 to the Consolidated Financial Statements *Investments* for additional information regarding our investment portfolio.

Refer to *Risk and Capital Management* for additional information regarding the management of investment risk.

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# REGULATION

## General

Our insurance and reinsurance entities are regulated in most countries, although the degree and type of regulation varies significantly from one jurisdiction to another. We may become subject to regulation in new jurisdictions or to additional regulations in existing jurisdictions. To the extent we are aware of impending changes in regulation, our project teams prepare us to comply with such anticipated changes on a timely basis. The following describes the current material regulations under which the Company operates.

## Bermuda

Our Bermuda insurance operating subsidiary, AXIS Specialty Bermuda, is a Class 4 general business insurer subject to the Insurance Act 1978 of Bermuda and related regulations, as amended (the 'Insurance Act'). The Insurance Act provides that no person may carry on any insurance or reinsurance business in or from within Bermuda unless registered as an insurer by the Bermuda Monetary Authority (the 'BMA') under the Insurance Act. The Insurance Act imposes upon Bermuda insurance companies' solvency and liquidity standards, and auditing and reporting requirements, and grants the BMA powers to supervise, investigate, require information and demand the production of documents and intervene in the affairs of insurance companies.

Significant requirements pertaining to Class 4 insurers include the appointment of an independent auditor, the appointment of a loss reserve specialist, the appointment of a principal representative in Bermuda, the filing of annual Statutory Financial Returns together with annual GAAP financial statements and an annual Capital and Solvency Return, compliance with minimum and enhanced capital requirements, together with certain restrictions on reductions of capital and the payment of dividends and distributions as well as group solvency and supervision rules, if applicable, and compliance with the Insurance Code of Conduct.

Effective January 1, 2016, the BMA was granted full 'equivalence' under Solvency II (refer to *Ireland* below) for Bermuda's commercial insurance sector, including Class 4 insurers.

The BMA acts as group supervisor of AXIS Capital and has designated AXIS Specialty Bermuda as the 'designated insurer' of the Group. In accordance with the group supervision and insurance group solvency rules, AXIS Capital is required to prepare and submit an annual group Statutory Financial Return, annual audited group GAAP financial statements, an annual group Capital and Solvency Return and quarterly group unaudited GAAP financial statements, and to appoint a group actuary and a group auditor. AXIS Capital also files an annual capital and solvency return and must ensure compliance with minimum and enhanced capital requirements.

On July 30, 2018, the Insurance Amendment (No. 2) Act 2018 amended the Insurance Act to provide for the prior payment of policyholders' liabilities ahead of general unsecured creditors in the event of the liquidation or winding up of an insurer. Effective January 1, 2019, this amendment applies to general business insurers and provides that, subject to certain statutorily preferred debts, the insurance debts of an insurer must be paid in priority to all other unsecured debts of the insurer. Insurance debt is defined as a debt to which an insurer is or may become liable pursuant to an insurance contract, excluding debts owed to an insurer under an insurance contract where the insurer is the person insured.

In December 2018, Bermuda enacted the Economic Substance Act 2018 (as amended) of Bermuda and its related regulations (together, the 'ES Act'). The ES Act came into force on December 31, 2018, and requires resident registered entities that carry on as a business any one or more of the 'relevant activities' referred to in the ES Act to comply with economic substance requirements. The list of 'relevant activities' includes carrying on as a business any one or more of the following activities: banking, insurance, fund management, financing and leasing, headquarters, shipping, distribution and service center, intellectual property, and holding entity. Under the ES Act, if a company is engaged in one or more 'relevant activities' as a business, it is required to maintain a substantial economic presence in Bermuda and to comply with the economic substance requirements set forth in the ES Act.

In October 2020, the BMA established the Insurance Sector Operational Cyber Risk Management Code of Conduct. All Bermuda insurers, insurance managers and insurance intermediaries registered under the Insurance Act are required to comply with the BMA's Insurance Sector Operational Cyber Risk Management Code of Conduct, which established duties, requirements and standards in relation to operational cyber risk management.

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In August 2022, the BMA published a revised version of the Insurance Code of Conduct ("Insurance Code"). Overall, the amendments aim to improve and enhance the Insurance Code and its application, while at the same time incorporating various administrative changes. The most substantive changes to the Insurance Code relate to:

(i) Corporate Governance, including a new requirement that the board of directors of an insurer that is a subsidiary of a Bermuda registered insurance group, such as AXIS Specialty Bermuda, must have an appropriate number of non-executive directors;

(ii) Risk Management Framework, including the addition of a definition of "Environment, Social and Governance Risk"; and

(iii) Outsourcing, including enhanced requirements for material outsourcing arrangements.

The Insurance Code, as amended, came into force on September 1, 2022. Bermuda insurers and insurance groups are required to be compliant with sections 1 through 7 of the Insurance Code by September 1, 2023 and applicable parts of section 8 of the Insurance Code by March 1, 2023.

AXIS Reinsurance Managers is regulated by the BMA as an insurance manager. As an insurance manager, AXIS Reinsurance Managers is required to register with the BMA pursuant to the Insurance Act. AXIS Reinsurance Managers is also required to comply with the Insurance Manager Code of Conduct.

AXIS Capital, AXIS Specialty Bermuda, AXIS Specialty Holdings Bermuda Limited, AXIS Specialty Investments Limited, AXIS ILS Ltd., AXIS Specialty Investments II Limited and AXIS Reinsurance Managers must comply with provisions of the Bermuda Companies Act 1981 of Bermuda, as amended (the "Companies Act"), regulating the payment of dividends and distributions. A Bermuda company may not declare or pay a dividend or make a distribution out of contributed surplus if there are reasonable grounds for believing that:

(a) the company is, or would after the payment be, unable to pay its liabilities as they become due; or

(b) the realizable value of the company's assets would thereby be less than its liabilities.

The Singapore branch of AXIS Specialty Bermuda, AXIS Specialty Limited (Singapore Branch), established in 2008, is regulated by the Monetary Authority of Singapore (the "MAS") pursuant to The Insurance Act of Singapore, which imposes significant regulations relating to capital adequacy, risk management, governance, audit and actuarial requirements. AXIS Specialty Limited (Singapore Branch) is registered by the Accounting and Corporate Regulatory Authority ("ACRA") as a foreign company in Singapore and is also regulated by ACRA pursuant to the Singapore Companies Act. Prior to establishing its Singapore branch, AXIS Specialty Bermuda had maintained a representative office in Singapore since 2004.

AXIS Specialty Bermuda has reinsurance permissions in China and the Netherlands. AXIS Specialty Limited (Singapore Branch) has separate reinsurance permissions in China.

AXIS Re SE may write reinsurance in Bermuda under Solvency II equivalence between Bermuda and the E.U.

AXIS Managing Agency Ltd. may write general insurance and reinsurance in Bermuda using Lloyd's of London ("Lloyd's") licenses (refer to 'U.K. and Lloyd's of London' below).

# **United States**

# *U.S. Insurance Holding Company Regulation of AXIS Capital's Insurance Subsidiaries*

As members of an insurance holding company system, each of AXIS Insurance Co., AXIS Re U.S., AXIS Specialty U.S. and AXIS Surplus, (collectively the "U.S. Insurance Subsidiaries") are subject to the insurance holding company laws and regulations of the states in which they do business. These laws generally require each of the U.S. Insurance Subsidiaries to register with its domestic state insurance department and to furnish financial and other information which may materially affect the operations, management or financial condition within the holding company system. All transactions within a holding company system that involve an insurance company must be fair and equitable. Notice to the applicable insurance department is required prior to the consummation of transactions affecting the ownership or control of an insurer and of certain material transactions between an insurer and an entity in its holding company system, and certain transactions may not be consummated without the department's prior approval.

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### State Insurance Regulation

AXIS Re U.S. is licensed to transact insurance and reinsurance throughout the U.S. and in Puerto Rico. AXIS Re U.S. is also authorized to transact insurance and reinsurance throughout Canada through its Canadian branch and has reinsurance permissions in Argentina, Brazil, Colombia, Ecuador, Guam, Guatemala, Panama and Mexico. AXIS Insurance Co. is licensed to transact insurance and reinsurance throughout the U.S. AXIS Specialty U.S. is licensed to transact insurance and reinsurance throughout the U.S., except California, Iowa, Maine, New Mexico, New York and Wyoming. AXIS Surplus is eligible to write insurance on a surplus lines basis throughout the U.S., Puerto Rico and the U.S. Virgin Islands.

Our U.S. Insurance Subsidiaries are subject to regulation and supervision by their respective states of domicile and by other jurisdictions in which they do business. The regulations generally are derived from statutes that delegate regulatory and supervisory powers to an insurance official. The regulatory framework varies from state to state, but generally relates to approval of policy forms and rates, the standards of solvency that must be met and maintained, including risk-based capital standards, material transactions between an insurer and its affiliates, the licensing of insurers, agents and brokers, restrictions on insurance policy terminations, the nature of and limitations on the amount of certain investments, limitations on the net amount of insurance of a single risk compared to the insurer's surplus, deposits of securities for the benefit of policyholders, methods of accounting, periodic examinations of the financial condition and market conduct of insurance companies, the form and content of reports of financial condition required to be filed, reserves for unearned premiums, losses, expenses and other obligations.

Our U.S. Insurance Subsidiaries are required to file detailed quarterly statutory financial statements with state insurance regulators in each of the states in which they conduct business. In addition, the U.S. Insurance Subsidiaries' operations and accounts are subject to financial condition and market conduct examination at regular intervals by state regulators.

Regulators and rating agencies use statutory surplus as a measure to assess our U.S. Insurance Subsidiaries' ability to support business operations and pay dividends. Our U.S. Insurance Subsidiaries are subject to various state statutory and regulatory restrictions that limit the amount of dividends that may be paid from earned surplus without prior approval from regulatory authorities. These restrictions differ by state, but generally are based on calculations using statutory surplus, statutory net income and investment income. In addition, many state regulators use the National Association of Insurance Commissioners promulgated risk-based capital requirements as a means of identifying insurance companies that may be under-capitalized.

Although generally the insurance industry is not directly regulated by the federal government, federal legislation and initiatives can affect the industry and our business. Certain sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ('Dodd-Frank') pertain to the regulation and business of insurance. Specifically, the Federal Insurance Office ('FIO') has limited authority to collect information and report on the business of insurance to Congress. In addition, Dodd-Frank contains the Non-Admitted and Reinsurance Reform Act of 2010 ('NRRA'). NRRA attempts to coordinate the payment of surplus lines taxes, simplify the granting of alien insurers to become surplus lines authorized and coordinates the credit for certain reinsurance. The Company continues to monitor the implementation of Dodd-Frank.

AXIS Group Benefits LLC, a leading provider of voluntary, limited benefit, affordable health plans and other employee benefits coverage for hourly and part-time workers and their families, is an authorized insurance producer in all 50 American states except Hawaii. As a resident insurance producer in Arizona, AXIS Group Benefits LLC is subject to regulation and supervision by the Arizona Department of Insurance and is also subject to the regulation and supervision of the other states in which AXIS Group Benefits LLC transacts business.

AXIS Specialty Underwriters, Inc., was a Florida licensed reinsurance intermediary. Following the closure of our Florida office in 2021, AXIS Specialty Underwriters' coverholder agreement with Syndicate 1686 was terminated, effective December 31, 2021. All regulatory licenses in Florida for AXIS Specialty Underwriters, Inc. were terminated in 2022, however, the entity remained registered in Delaware and was renamed AXIS ILS, Inc. This entity is now utilized as a marketing services company for AXIS' insurance linked securities.

### U.S. Authorizations of our Non-U.S. Insurance Subsidiaries

The insurance laws of each state of the U.S. regulate or prohibit the sale of insurance and reinsurance by insurers and reinsurers that are not admitted to do business within their jurisdictions or otherwise conduct business pursuant to exemptions. AXIS Specialty Europe is eligible to write surplus lines business throughout the U.S. and in Puerto Rico. AXIS Managing Agency Ltd. is eligible to use Lloyd's licenses to (i) write surplus lines business throughout the U.S. and in all U.S. territories, (ii) write insurance business, except life insurance business, in the states of Illinois, Kentucky and in the U.S. Virgin Islands and (iii) write non-life reinsurance business throughout the U.S. and in all U.S. territories, except for accident and health reinsurance in New York.

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In addition to the regulatory requirements imposed by the jurisdictions in which they are licensed, reinsurers' business operations are affected by regulatory requirements in various states of the U.S. governing 'credit for reinsurance' that are imposed on their ceding companies. In general, a ceding company obtaining reinsurance from a reinsurer that is licensed or approved by the jurisdiction or state in which the ceding company files statutory financial statements is permitted to reflect in its statutory financial statements a credit in an aggregate amount equal to the ceding company's liability for unearned premiums (which is that portion of premiums written which applies to the unexpired portion of the policy period), loss reserves and loss expense reserves ceded to the reinsurer. The great majority of states, however, permit a credit to statutory surplus resulting from reinsurance obtained from a non-licensed or non-accredited reinsurer to be recognized to the extent that the reinsurer provides a letter of credit, trust fund or other acceptable security arrangement. A few states do not allow credit for reinsurance ceded to non-licensed reinsurers except in certain limited circumstances, and others impose additional requirements that make it difficult to become accredited. In connection with the establishment of a Multi-Beneficiary Reinsurance Trust, AXIS Specialty Bermuda obtained accredited or trusted reinsurer status in all U.S. jurisdictions except for New York.

During 2022, AXIS Specialty Bermuda obtained reciprocal jurisdiction reinsurer status with Missouri as its lead state. Reinsurers licensed in reciprocal jurisdictions (which include European Union member states, Bermuda, Japan and Switzerland) are not required to post reinsurance collateral if approved as reciprocal jurisdiction reinsurers. With its approval from Missouri, AXIS Specialty Bermuda has started to submit passporting applications in additional states. 'Passporting' refers to the process under which a state has the discretion to defer to the determination by another state that a reinsurer is a reciprocal jurisdiction reinsurer, thereby excusing the approved reinsurer from collateral requirements in such state.

## Ireland

Our Ireland domiciled insurer and reinsurer are subject to the Solvency II Directive (Directive 2009/138/EC), as amended. Solvency II represents a consolidation and modernization of existing European Commission Solvency I insurance and reinsurance regulation and supervision and includes a harmonized risk-based solvency and reporting regime for the insurance/reinsurance sector. Solvency II covers three main areas: (i) the valuation of assets and liabilities and related solvency capital requirements; (ii) governance requirements including key functions of compliance, internal audit, actuarial and risk management; and (iii) legal entity and European Union ('E.U.') group reporting and disclosure requirements including public disclosures. The capital requirement must be computed using the Solvency II standard formula unless the Central Bank of Ireland ('CBI') has previously authorized a company to use its own internal model. Certain of our European legal entities are subject to Solvency II.

### AXIS Specialty Europe

AXIS Specialty Europe is a European public limited liability company incorporated as a non-life insurer under the laws of Ireland. It is a Societas Europaea (SE), or European society company, and has been registered in accordance with E.U. law. As an SE company, AXIS Specialty Europe can more easily merge with companies in European member states and also transfer its domicile to other Member States of the E.U. AXIS Specialty Europe is authorized and regulated by the CBI pursuant to the Insurance Acts 1909 to 2000, as amended, repealed or replaced, the Central Bank Acts 1942 - 2014, as amended, repealed or replaced, and E.U. regulation relating to general insurance and statutory instruments made thereunder. AXIS Specialty Europe is authorized to conduct business in 16 non-life insurance classes throughout the E.U. and the European Economic Area ('EEA'), which includes each of the Member States of the E.U. with the addition of Iceland, Liechtenstein and Norway. AXIS Specialty Europe may also write reinsurance business within the classes of insurance business for which it is authorized.

AXIS Specialty Europe is subject to Solvency II. In accordance with Solvency II, AXIS Specialty Europe is permitted to provide insurance services to clients located in any EEA Member State ('Freedom of Services'), subject to compliance with any 'general good requirements' as may be established by the applicable EEA Member State regulator. AXIS Specialty Europe has notified the CBI of its intention to provide insurance services on a Freedom of Services basis in all EEA countries.

Solvency II also permits AXIS Specialty Europe to carry on insurance business in any EEA Member State under the principle of 'Freedom of Establishment' subject to the prior approval of the CBI. AXIS Specialty Europe operates under Freedom of Establishment in Belgium through its branch established in this jurisdiction. AXIS Specialty Europe also has a U.K. branch that transacts general insurance business in the U.K. and trades as AXIS Specialty London. The U.K. withdrew from the E.U. on January 31, 2020 and is now considered a third-country. In order to maintain business continuity, AXIS Specialty Europe submitted an application to the Prudential Regulatory Authority (the 'PRA') in 2018 for authorization of a third-country

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branch. This application was approved on October 28, 2022, and the UK Branch of AXIS Specialty Europe is now fully regulated by both the PRA and the Financial Conduct Authority ('FCA').

Effective January 1, 2019, Compagnie Belge d'Assurances Aviation NV/SA merged into AXIS Specialty Europe by way of merger by absorption and thereby dissolved without going into liquidation (the 'Aviabel Merger'). In connection with the Aviabel Merger, AXIS Specialty Europe established two new branches in Belgium and the Netherlands (see '*Belgium*' and the '*Netherlands*' below).

AXIS Specialty Europe has local regulatory permission to carry on insurance business in Jersey and has reinsurance permissions in India, China, Argentina, Mexico, Panama, Paraguay, Honduras, Ecuador, Colombia and Guatemala.

#### AXIS Re SE

AXIS Re SE is a European public limited liability company incorporated as a reinsurer under the laws of Ireland. AXIS Re SE is also a Societas Europaea (SE), or European society company, registered in accordance with E.U. law. AXIS Re SE is authorized by the CBI as a composite reinsurer (non-life and life) in accordance with the Insurance Acts 1909 to 2000, as amended, repealed or replaced, the Central Bank Acts 1942 - 2014, as amended, repealed or replaced, and E.U. regulation applicable to reinsurance and statutory instruments made thereunder. AXIS Re SE is authorized to transact reinsurance throughout the E.U. and the EEA and is subject to Solvency II.

AXIS Re SE conducts business through its branch in Zurich, Switzerland, trading as AXIS Re Europe (see '*Switzerland*' below).

AXIS Re SE Escritório de Representação No Brasil Ltda. was established in Brazil as a subsidiary of AXIS Re SE to facilitate the Brazilian Superintendence of Private Insurance ('SUSEP') regulatory requirements for approval of a representative office of AXIS Re SE and for the registration of AXIS Re SE with SUSEP as an Admitted Reinsurer.

AXIS Re SE has reinsurance permissions in Argentina, Bolivia, Brazil, China, Chile, Colombia, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, India, Mexico, Nicaragua, Panama, Paraguay, Peru and Venezuela.

#### AXIS Specialty Holdings Ireland Limited

AXIS Specialty Holdings Ireland Limited is the limited liability holding company for AXIS Specialty Europe, AXIS Re SE, and Contessa Limited.

#### AXIS Specialty Global Holdings Limited

AXIS Specialty Global Holdings Limited is the limited liability holding company for AXIS Capital's U.S. Insurance subsidiaries.

#### Other AXIS Entities

AXIS Specialty Bermuda may write reinsurance under Solvency II equivalence granted to Bermuda by the E.U.

AXIS Managing Agency Ltd. is eligible to write insurance (except permanent health) and reinsurance business in Ireland through Lloyd's Europe (see '*Regulatory Impact Due to Brexit*' below).

#### U.K. and Lloyd's of London

In the U.K., under the Financial Services and Markets Act 2000 ('FSMA'), no person may carry on a regulated activity unless authorized or exempt. Effecting or intermediating contracts of insurance or reinsurance are regulated activities requiring authorization. Effecting contracts of insurance requires authorization by the PRA and is regulated by the FCA. Intermediating contracts of insurance requires authorization by the FCA.

Under the Financial Services Act 2012, the FCA is a conduct regulator for all U.K. firms carrying on regulated activity in the U.K. while the PRA is the prudential regulator of U.K. banks, building societies, credit unions, insurers and major investment firms. As a prudential regulator, the PRA's general objective is to promote the safety and soundness of the firms it regulates. The PRA rules require financial firms to hold sufficient capital and have adequate risk controls in place.

The FCA's statutory strategic objective is to ensure that relevant markets function well and have operational objectives to protect consumers, protect financial markets and promote competition. It makes rules covering how the firm must be

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managed and requirements relating to the firm's systems and controls, how business must be conducted and the firm's arrangements to manage financial crime risk. The PRA and the FCA require regular and ad hoc reporting and monitor compliance with their respective rule books through a variety of means including the collection of data, industry reviews and site visits. The directors and senior managers of AXIS Managing Agency Ltd. must be 'approved persons' under FSMA, making them directly and personally accountable for ensuring compliance with the requirements of the PRA and the FCA.

#### AXIS Managing Agency Ltd.

AXIS Managing Agency Ltd. is authorized and regulated by the PRA and regulated by the FCA to conduct insurance and reinsurance business and is a Lloyd's managing agent authorized by Lloyd's to manage our syndicate, Syndicate 1686.

To consolidate our Lloyd's business under Syndicate 1686, Novae Syndicate 2007 ('Syndicate 2007') ceased accepting new business and was placed into run-off on January 1, 2019. The final underwriting year of Syndicate 2007, and of SPA 6129, a third-party Lloyd's special purpose arrangement, closed by way of reinsurance to close arrangements that took effect on January 1, 2021.

Lloyd's is a society of corporate and individual members that underwrite insurance and reinsurance as members of syndicates. A syndicate is made up of one or more members that form a group to accept insurance and reinsurance risks. Each syndicate is managed by a managing agent. Managing agents write insurance business on behalf of the members of the syndicate, which members receive profits or bear losses in proportion to their respective shares in the syndicate for each underwriting year of account.

Lloyd's is subject to U.K. law and is authorized under the FSMA. The Lloyd's Act 1982 defines the governance structure and rules under which the society operates. Under the Lloyd's Act 1982, the Council of Lloyd's is responsible for the management and supervision of the Lloyd's market and supports the Lloyd's market. Lloyd's manages and protects the Lloyd's network of international licenses. Lloyd's agrees to syndicates' business plans and evaluates performance against those plans. Syndicates are required to underwrite only in accordance with their agreed business plans. If they fail to do so, Lloyd's can take a range of actions including, as a last resort, prohibiting a syndicate from underwriting. Lloyd's also monitors syndicates' compliance with Lloyd's minimum standards and is responsible for setting both member and central capital levels.

Lloyd's has a global network of licenses and authorizations, and underwriters at Lloyd's may write business in and from countries where Lloyd's has authorized status or exemptions available to non-admitted insurers or reinsurers. Lloyd's licenses can only be used if the Syndicate Business Forecast, agreed annually with Lloyd's, names those countries.

AXIS Managing Agency Ltd. operated an underwriting division at Lloyd's Insurance Company (China) Limited, a wholly-owned subsidiary of the Corporation of Lloyd's which allowed it to underwrite reinsurance in China. Syndicate 1686 ceased underwriting business on the Lloyd's China platform effective December 31, 2021. This business was placed in run-off effective January 1, 2022.

#### AXIS Corporate Capital UK Limited

AXIS Corporate Capital UK Limited is a corporate member of Syndicate 1686, providing 70% capital support. Syndicate 1686 is managed by AXIS Managing Agency Ltd.

#### AXIS Corporate Capital UK II Limited (formerly Novae Corporate Underwriting Limited)

AXIS Corporate Capital UK II Limited is a corporate member of Syndicate 1686, providing 30% capital support.

#### AXIS Underwriting Limited

AXIS Underwriting Limited, formerly known as Novae Underwriting Limited, is authorized and regulated by the FCA as an insurance intermediary and underwrites insurance on behalf of AXIS Specialty Europe and at Lloyd's on behalf of Syndicate 1686.

#### Contessa Limited

Effective December 2019, Contessa Limited ceased writing insurance on behalf of AXIS Specialty Europe. AXIS Specialty Europe now manages this book of business on a run-off basis.

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In January 2021, Contessa Limited surrendered its license as an insurance intermediary with the FCA and is currently in liquidation.

#### *AXIS Specialty UK Holdings Limited*

AXIS Specialty UK Holdings Limited is a limited liability holding company for AXIS Managing Agency Ltd., AXIS Corporate Capital UK Limited and Novae Group Limited, and is incorporated under the laws of England and Wales.

#### *Regulatory Impact Due to Brexit*

On June 23, 2016, the U.K. voted to exit the E.U. ('Brexit') and on January 31, 2020, the U.K. completed its withdrawal from the E.U. Although an agreement was reached between the E.U. and the U.K., this agreement does not cover financial services. The following addresses the current impact to our insurers and reinsurers as a result of the U.K.'s withdrawal from the E.U.

#### *Insurance*

AXIS Specialty Europe established its branch in the U.K. in 2003 pursuant to the right to Freedom of Establishment under E.U. law. As it was anticipated that AXIS Specialty Europe would lose its authorization to conduct business in the U.K. as a result of the U.K.'s exit from the E.U., an application for authorization of a third-country branch was submitted to the PRA in 2018. This application was approved on October 28, 2022, and the UK Branch of AXIS Specialty Europe is now fully regulated by the PRA and FCA.

In preparation for Brexit, Lloyd's established Lloyd's Insurance Company S.A in Brussels ('Lloyd's Europe') to retain access to the EEA markets and transferred all EEA risks to Lloyd's Europe. Lloyd's Europe has been approved by the National Bank of Belgium ('NBB') and the Belgian conduct regulator, the Financial Services and Markets Authority ('Belgian FSMA') with authorization to write non-life insurance risks throughout the EEA. Lloyd's Europe has a third country branch established in the UK, regulated by the PRA and FCA. Effective with Brexit, all EEA risks are written by Lloyd's Europe. AXIS Managing Agency Ltd. has retained its access to the EEA markets through Lloyd's Europe.

In January 2021, Lloyd's Europe updated Lloyd's managing agents on its ongoing discussions with Lloyd's, NBB and the Belgian FSMA regarding Lloyd's Europe's operating model and the activities performed on behalf of Lloyd's Europe by Lloyd's managing agents. EEA business is now written through Lloyd's Europe's UK Branch by AXIS underwriters seconded to Lloyd's Europe. This model is to be reviewed by the NBB, and we continue to work with Lloyd's Europe on this operating model.

#### *Reinsurance*

AXIS Managing Agency Ltd. remains able to conduct non-life facultative, proportional and excess of loss reinsurance throughout the EEA via Lloyd's Europe. The E.U. has yet to make equivalence decisions for the U.K. under Solvency II. As a result, UK regulated firms' access to E.U. markets generally depends on the rules each Member State applies to third country regulated firms.

AXIS Re SE currently transacts reinsurance business in the EEA pursuant to European law. In November 2020, the U.K. granted equivalence under Solvency II to EEA supervised reinsurers, including AXIS Re SE, allowing such reinsurers to continue operations without interruption.

#### **Switzerland**

AXIS Re SE's branch in Zurich, Switzerland trades as AXIS Re Europe and is registered in Zurich as AXIS Re SE, Dublin (Zurich Branch). The CBI remains responsible for the prudential supervision of the branch. The Swiss Financial Market Supervisory Authority does not impose additional regulation upon a Swiss branch of an EEA reinsurer.

AXIS Managing Agency Ltd. is eligible to use Lloyd's licenses to write all classes of insurance business, except life, sickness and legal expenses, and is authorized to write all classes of reinsurance business in Switzerland.

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## **Singapore**

AXIS Specialty Bermuda conducts insurance and reinsurance business from its branch in Singapore, AXIS Specialty Limited (Singapore Branch), subject to the supervision of the BMA and the MAS which imposes significant regulations relating to capital adequacy, risk management, governance and audit and actuarial requirements. AXIS Specialty Limited (Singapore Branch) is registered by ACRA as a foreign company in Singapore and regulated by ACRA pursuant to the Singapore Companies Act.

AXIS Managing Agency Ltd. is eligible to use Lloyd's licenses to write insurance from Singapore with the exception of certain compulsory classes and life business. Singapore business may also be written from outside Singapore in certain circumstances where it is placed with a Singapore intermediary licensed by the MAS to place business at Lloyd's or by dealing directly with the insured.

## **Canada**

AXIS Re U.S. conducts insurance and reinsurance business from its branch in Canada, AXIS Reinsurance Company (Canadian Branch), subject to the supervision of the New York State Department of Financial Services and the Office of the Superintendent of Financial Institutions Canada ('OSFI'), the federal regulatory authority that supervises federal Canadian and non-Canadian insurance companies operating in Canada pursuant to the Insurance Companies Act (Canada). The branch is authorized by OSFI to transact insurance and reinsurance. In addition, the branch is subject to the laws and regulations of each of the provinces and territories in which it is licensed.

AXIS Managing Agency Ltd. is eligible to use Lloyd's licenses subject to the laws and regulations of each of the provinces and territories in which it is licensed and to write insurance in or from Canada, with the following exceptions: hail insurance in respect of crop in the province of Quebec; home warranty insurance in the province of British Columbia; life insurance; credit protection insurance; title insurance; surety; and mortgage default insurance. Syndicate 1686, through Lloyd's, is authorized to write reinsurance in or from Canada subject to certain restrictions relating to life reinsurance.

## **Belgium**

AXIS Specialty Europe conducts insurance from its Belgium branch, AXIS Specialty Europe SE (Belgium Branch), which is subject to CBI prudential supervision and limited regulation by the NBB.

AXIS Specialty Europe also has permission to write insurance and reinsurance on a Freedom of Services basis in Belgium.

AXIS Re SE has permission to write reinsurance on a Freedom of Services basis in Belgium. AXIS Managing Agency Ltd. is eligible to write insurance (except permanent health) and reinsurance business in Belgium through Lloyd's Europe (see *Regulatory Impact Due to Brexit* above).

## **Netherlands**

AXIS Specialty Europe (Netherlands Branch) was established as part of the Aviabel merger and commenced trading on January 1, 2019. AXIS Specialty Europe (Netherlands Branch) closed effective December 31, 2021 and has been deregistered from the local commercial register.

AXIS Specialty Europe has permission to write insurance and reinsurance on a Freedom of Services basis in the Netherlands.

AXIS Re SE has permission to write reinsurance on a Freedom of Services basis in the Netherlands.

AXIS Managing Agency Ltd. is eligible to write insurance (except permanent health) and reinsurance business in the Netherlands through Lloyd's Europe (see *Regulatory Impact Due to Brexit* above).

## **Dubai**

AXIS Reinsurance (DIFC) Limited was granted a prudential Category 4 license by the Dubai Financial Services Authority in December 2017 and operated as an intermediary under binding authority granted by the Board of Directors of AXIS Re SE to underwrite accident and health reinsurance. In December 2020, AXIS Reinsurance (DIFC) Limited surrendered its license and was liquidated effective March 8, 2021.

AXIS Managing Agency Ltd. is eligible to use Lloyd's licenses to write reinsurance in or from Dubai with certain exceptions.

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# **Non-Admitted Insurance and Reinsurance**

The Company also insures and reinsures risks in many countries, including the above countries, pursuant to regulatory permissions and exemptions available to non-admitted insurers and reinsurers.

AXIS Managing Agency Ltd. is eligible to use Lloyd's licenses to write insurance and reinsurance business where Lloyd's has authorized status or pursuant to regulatory exemptions available to non-admitted insurers and reinsurers.

# **HUMAN CAPITAL MANAGEMENT**

AXIS Capital's mission is not only to deliver strong financial results, but also to help our clients, brokers and partners navigate the challenges of a volatile world. We believe our employees distinguish us from our competitors and are critical to our success as an insurance and reinsurance company that leads with purpose. Our workforce's strength is grounded in our One AXIS culture, which celebrates collaboration, diversity and integrity, as well as relentless execution and continuous learning, adapting and improving. We recognize that our strength lies in our people, and therefore, one of our core strategies is to invest in and support our employees, including in the following areas of focus:

# **Health, Safety and Wellness**

We are committed to the health, safety and wellness of our workforce and offer our employees a variety of tools to support their physical, emotional and financial well-being. Examples include access to mental health resources, back-up child and elder care and on-demand fertility, maternity, postpartum and return-to-work assistance.

During the COVID-19 pandemic, our successful transition to remote work led us to adopt our current Flex for Your Day policy. Flex for Your Day is a hybrid work model that is designed to provide our employees with flexible working schedules that work best for them and their teams. We strive to be an employer of choice, and we expect this approach will help us recruit and retain talent.

# **Diversity, Equity and Inclusion**

We see diversity, equity and inclusion as a strategic imperative that is core to our business and our culture. We aim to create a culture of inclusion that is grounded in the strength and diversity of our employees. By actively embracing a variety of perspectives, experiences and backgrounds and ensuring equal treatment for all, we strive to make AXIS a more rewarding place to work.

*Our Approach* - AXIS continues to scale up its diversity, equity and inclusion efforts through a formalized approach.

- *Internal Education and Awareness:* AXIS hosted a variety of diversity, equity and inclusion educational initiatives throughout the year, including promotional videos, social media posts, philanthropy campaigns and learning experiences to promote awareness, such as unconscious bias training and the launch of a mental health and wellness series. We also launched new internal sites highlighting our Ethnically Diverse Group of Employees (EDGE) and Women's Employee Resource Groups (ERGs) to build internal awareness and highlight our culture externally. Collectively, our five ERGs hosted over 20 events in 2022 offering education, networking and career development topics. Our annual DEI Forum on allyship featured an external insurance professional who moderated a discussion with representatives from our five ERGs and was attended by nearly half of our workforce.
- *Recruitment and Mobility:* AXIS continues to prioritize diverse interview slates, identify internal career mobility opportunities for existing staff, establish relationships with relevant universities and organizations, and participate in apprenticeship programs. We distributed a toolkit of career and leadership development options for managers to provide during recent talent reviews. This toolkit included resources specifically targeted at gender and ethnically diverse employees and targeted 50% diverse participation for the coaching program. We continued to encourage employee advocacy on diverse recruitment with our Talent Acquisition team's completion of a recruiter certification program focused on finding diverse pools of candidates and developing pipelines for underrepresented groups. We strive to include diverse talent in each of our candidate slates.

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- *Career Development:* AXIS provides resources to help colleagues in their careers such as access to AXIS Academy, our learning and development hub, financing professional development opportunities, early careers programs and mentoring events. We also offer development programming for colleagues worldwide, such as leadership coaching programs and interview guides, materials and toolkits. In addition, the DEI Council sponsored its second annual Mentor Event with over 120 participants.
- *Tools and Measurement:* In an effort to foster transparency and improve our efforts, we invested in tools to establish, report and benchmark progress against our diversity, equity and inclusion goals. We continue to measure diverse hiring, turnover, promotions, succession planning and candidate slates monthly and we conduct regular gender pay equity audits. To continue holding ourselves accountable, we have set goals to increase gender diversity within our organization.
- *Our Voice:* AXIS continues to raise awareness and promote diversity, equity and inclusion issues, policies and initiatives to drive change across the insurance/reinsurance industry.
  - In 2022, AXIS signed the CEO Action for Diversity & Inclusion pledge, reflecting our commitment to fostering a culture of inclusion.
  - AXIS was proud to be a Gold sponsor of Bermuda Pride in an effort to promote inclusivity in Bermuda and at AXIS.
  - AXIS continues to support Dive In, the insurance/reinsurance industry's festival for diversity, equity and inclusion. In 2022, AXIS was a Gold Festival Partner for Dive In and had two colleagues participating as panelists at the Festival.
  - AXIS was also proud to support its colleagues as they continued leadership positions in a variety of industry organizations dedicated to advancing diversity, equity and inclusion, such as Insider Progress, the National African American Insurance Association, the Association of Professional Insurance Women and the WSIA Insurance Industry Diversity Foundation.
  - AXIS sponsored a team that placed 2nd out of 14 at the National African American Insurance Association Talent Competition with St. John's University.
  - AXIS was included in the Bloomberg Gender Equality Index (GEI) for the third year in a row.

Additionally, in our 2022 philanthropy, we supported our global partners, International Medical Corps and Doctors Without Borders, each of whose dedicated staff is on the ground in Ukraine working to provide emergency relief and medical care. In addition, AXIS Parents and Caregivers ERG created a matching drive for Ukraine relief which raised over $30,000 from employee giving, AXIS' matching gift program and additional AXIS funding. In 2022, we also launched a Global Giving tool to make volunteering and giving easier for our AXIS community. Since its launch in May 2022, AXIS has matched $83,000 of employee donations.

### Talent Development

At AXIS, investing in our people is a top priority. We provide our employees with a variety of professional development resources to help them achieve their career goals. Some of our 2022 initiatives in furtherance of this goal are described below:

- *Career Mobility Within the Organization:* In 2022, 18% of our employees progressed in their AXIS careers either through a promotion, transfer or role expansion.
- *AXIS Academy:* We provide our employees access to AXIS Academy, which serves as our learning and development hub and reflects our commitment to continuing education. AXIS Academy includes over 9,400 online training courses.
- *Professional Development:* We offer financial assistance for external professional development opportunities and tuition reimbursement for certain part-time business-related degree programs. Additionally, as noted above, we distributed a toolkit of career and leadership development options to managers to provide during recent talent reviews.
- *Early Careers Program:* Our Early Careers Program aims to build a strong pipeline of early career talent through our internship and development programs.
- *AXIS Careers:* We created AXIS Careers to ensure our people feel empowered to "own their careers." AXIS Careers offers employees a comprehensive suite of professional development tools, resources and training modules to help

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navigate career experiences and upskilling across our global organization. This includes leadership development, mentoring programs, and job secondments, shadows and swaps. In 2022, AXIS employees completed over 13,500 on-demand or instructor-led virtual learning and development courses through AXIS Academy and AXIS Careers.

### **Employee Engagement**

We understand that employee engagement leads to a more satisfying and fulfilling workplace and motivates employees to do their best work. Our employee engagement initiatives include:

- AXIS Applause (our global recognition program to recognize the contributions of other AXIS members and drive strong employee performance);
- Community building events for AXIS employees and their families; and
- Employee-led charitable giving program which helps our employees give back to their communities.

In addition, to provide an open and frequent line of communication between senior management and our employees, we host all-employee calls led by our CEO on a monthly basis and we encourage our people managers to periodically check in with their employees.

Each year, we conduct an enterprise-wide engagement survey to better understand and improve the employee experience and identify opportunities to strengthen our culture. Managers and teams reflect on the survey results and develop enterprise-wide and local action plans to address areas identified for growth. In 2022, on average 80% of employees participated in our biannual employee surveys. We are proud to have maintained strong survey engagement and scores in a year of organizational change.

### **Compensation and Benefits**

To attract and retain our industry's top talent, we offer employees a total rewards program that is designed to incentivize exceptional performance. Our compensation packages align with our pay-for-performance philosophy and are assessed on an annual basis through year-end performance reviews. Our packages are also regularly benchmarked against similarly sized insurance, reinsurance and financial services companies in each of our talent markets. Compensation components include market competitive salaries and short-term annual incentive programs (i.e., bonus payments) and, for senior level employees, long-term incentives such as equity grants. Our comprehensive benefits packages include health and welfare plans for employees and their families, flexible spending accounts, retirement savings plans with employer contributions and work-life benefits, including parental leave policies, flexible work arrangements for eligible employees and charitable matching programs. We offer a 401(k) plan to eligible employees with an annual employer match of up to 4% of eligible earnings and, in 2022, a discretionary employer contribution of an additional 6%.

At AXIS, we are committed to fair pay and delivering equal pay for equal work regardless of gender, race or other personal characteristics. In support of our commitment to equal pay practices, we conduct regular gender pay equity audits, as mentioned above, and take action to address any areas of concern. We have published the results of our global gender pay equity audits in connection with our participation in the Bloomberg Gender Equality Index.

### **Succession Planning**

We have a robust talent and succession planning process. On an annual basis, management conducts a talent and succession plan for each member of our Executive Committee and their direct reports, focusing on high performing and high potential talent, diverse talent and the succession plan for each position. On an annual basis, our Board receives a comprehensive succession plan for each member of our Executive Committee.

### **Employees**

At December 31, 2022, we had 2,064 employees. During 2022, the number of employees decreased by approximately 1% and our voluntary turnover rate was approximately 12.7%.

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Below is a summary of our employees by region at December 31, 2022:

|  | Employees |
| --- | --- |
| North America (including Bermuda) | 1,295 |
| Europe, Middle East and Africa | 747 |
| Asia Pacific | 22 |
| Total employees | 2,064 |

At December 31, 2022, our global employees had approximately the following gender demographics:

|  | Women | Men |
| --- | --- | --- |
| Total employees (1) | 45% | 54% |

(1) <1% of employees did not identify.

At December 31, 2022, our U.S. employees had approximately the following racial and ethnic demographics:

|  | All U.S. Employees (1) |
| --- | --- |
| African American / Black | 16% |
| Asian | 11% |
| Hispanic / Latinx | 5% |
| White | 59% |
| Multiracial, Native American and Pacific Islander | 2% |
| No Response / Not Disclosed | 7% |
| Total employees | 100% |

(1) This information is presented for U.S. employees only. We continue to gather global demographic information in compliance with laws and regulations to demonstrate our racial and ethnic diversity.

## TRADEMARKS

We use our trademarks, including among others, our 'AXIS' trademarks for the global marketing of our products and services, and we believe that we sufficiently safeguard our trademark portfolio to protect our rights.

## INFORMATION SECURITY

Information security is one of our highest priorities. Our information security ecosystem is designed to evolve with the changing security threat environment through ongoing assessment and measurement. We use commercial and proprietary security monitoring technologies and techniques to continuously monitor and respond to cyber threats. We also regularly engage independent third-party security auditors to test our systems and controls against relevant security standards and regulations.

Our employees and contractors are required to comply with our IT End User policy and certify their compliance annually. Information security awareness training is mandatory for all new hires and for existing employees and contractors on a regular basis.

Our Board of Directors, along with the Risk Committee and Audit Committee of the Board of Directors, oversee our information security program. In 2022, our Board of Directors and Risk and Audit Committees received periodic updates throughout the year on cybersecurity matters, and these updates are part of their standing agendas.

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# AVAILABLE INFORMATION

Our Internet website address is www.axiscapital.com. Information contained in our website is not part of this report.

We make available free of charge, through our internet website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.

# RISK AND CAPITAL MANAGEMENT

# Risk Management Framework - Overview

# Mission and Objectives

The mission of Enterprise Risk Management ("ERM") at the Company is to promptly identify, assess, manage, monitor, and report risks that affect the achievement of our strategic, operational, and financial objectives. The key objectives of our risk management framework are to:

- Protect our capital base and earnings by monitoring our risks against our stated risk appetite and limits;
- Promote a sound risk management culture through disciplined and informed risk taking;
- Enhance value creation and contribute to an optimal risk-return profile by providing the basis for efficient capital deployment;
- Support our group-wide decision-making process by providing reliable and timely risk information; and
- Safeguard our reputation.

The risk management framework applies to all lines of business and corporate functions across our Company.

# Risk Governance

At the heart of our risk management framework is a governance process with responsibilities for identifying, assessing, managing, monitoring, and reporting risks. We articulate roles and responsibilities for risk management throughout the organization, from the Board of Directors and the Chief Executive Officer to our business and corporate functions, thus embedding risk management throughout the Company (refer to 'Risk Governance and Risk Management Organization' below).

Our risk policies are a formal set of documents that we use to specify our approach and risk mitigation/control philosophy for managing individual and aggregate risks. Our qualitative and quantitative risk reporting framework provides transparency and early warning indicators to senior management with regard to our overall risk profile, adherence to risk appetite and limits and management actions at the Group and operating entity level.

Various governance and control bodies coordinate to help ensure that objectives are being achieved, risks are identified, and appropriately managed, and internal controls are in place and operating effectively.

# Internal Capital Model

An important aspect of our risk management framework is our internal capital model. Utilizing this modeling framework provides us with a holistic view of the capital we put at risk in any year by allowing us to understand the relative interaction among the known risks impacting us. This integrated approach recognizes that a single risk factor can affect different sub-portfolios and that different risk factors can have different mutual dependencies. We continuously review and update our model and its parameters as our risk landscape and external environment continue to evolve.

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As well as being used to measure internal risk capital (refer to '*Capital Management*' below), our internal capital model is used as a tool in managing our business, specifically to help allocate capital to the businesses that will provide the best returns. We also use the internal model to support portfolio monitoring, reinsurance and retrocession (collectively referred to as 'reinsurance') purchasing, and investment asset allocations.

Our internal capital model is an integral part of the business planning process which provides an assessment as to whether our prospective business and investment strategies are in line with our defined risk appetite and objectives at the Group and operating entity level. The model also provides a basis for optimizing our risk-return profile by providing consistent risk measurement across the Group. The model outputs are reviewed and supplemented with management's judgment and business experience and expertise. The internal capital model is subject to regular updates and validations.

### Risk Diversification

As a global insurer and reinsurer with a wide product offering across different businesses, diversification is a key component of our business model and risk framework. Diversification enhances our ability to manage our risks by limiting the impact of a single event and contributing to relatively stable long-term results and our general risk profile. The degree to which the diversification effect can be realized depends not only on the correlation between risks but also the level of relative concentration of those risks. Therefore, our aim is to maintain a balanced risk profile without any disproportionately large risks. Our internal capital model considers the level of correlation and diversification between individual risks, and we measure concentration risk consistently across our business in terms of pre/post diversified internal risk capital requirements.

### Risk Appetite and Limit Framework

Our integrated risk management framework considers material risks that arise from our operations. Material risks that might accumulate and have the potential to produce substantial losses are subject to our group-wide risk appetite and limit framework. Our risk appetite, as authorized by the Board of Directors, represents the amount of risk that we are willing to accept in pursuit of our strategic objectives, within the constraints imposed by our capital resources as well as the expectations of our stakeholders as to the type of risks we hold within our business. At an annual aggregated level, we also monitor and manage the potential financial loss from the accumulation of risk exposure in any one year.

Specific risk limits are defined and translated into a consistent framework across our identified risk categories and across our operating entities and are intended to limit the impact of individual risk types or accumulations of risk. Individual limits are established through an iterative process to ensure that the overall framework complies with our group-wide requirements on capital adequacy and risk accumulation.

We monitor risk through, for example, risk dashboards and limit consumption reports. These are intended to allow us to detect potential deviations from our internal risk limits at an early stage.

### External Perspectives

Various external stakeholders, among them regulators, rating agencies, investors and accounting bodies, place emphasis on the importance of sound risk management in the insurance/reinsurance industry. We monitor developments in the external environment and evolve our risk management practices accordingly.

### Risk Governance and Risk Management Organization

The key elements of our governance framework, as it relates specifically to risk management, are described below:

#### Board of Directors' Level

The Risk Committee of the Board of Directors ('Risk Committee') assists the directors in overseeing the integrity and effectiveness of our ERM framework and ensuring that our risk mitigation activities are consistent with that framework. The Risk Committee reviews, approves and monitors our overall risk strategy, risk appetite, and key risk limits, and receives regular reports from the Group Risk Management function ('Group Risk') to ensure any significant risk issues are being addressed by management. The Risk Committee further reviews, with management and Internal Audit, the Group's risk policies and satisfies itself that effective systems of risk management and controls are established and maintained.

Among its other responsibilities, the Risk Committee reviews and approves our annual Own Risk and Solvency Assessment ('ORSA') report. The Risk Committee also assesses the independence and objectivity of our Group Risk function, approves its terms of reference, and reviews its ongoing activities. In addition, the Risk Committee conducts a review and provides a

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recommendation to the Board of Directors regarding the appointment and/or removal of the Chief Risk Officer. The Risk Committee meets with the Chief Risk Officer in separate executive sessions on a regular basis.

The Finance Committee of the Board of Directors oversees the Group's investment of funds and adequacy of financing facilities. This includes approval of the Group's strategic asset allocation plan.

The Audit Committee of the Board of Directors, which is supported by Internal Audit, is responsible for overseeing internal controls and compliance procedures, and also reviews with management and the Chair of the Risk Committee the Group's policies regarding risk assessment and risk management.

# Group Executive Level

The Executive Committee formulates our business objectives and risk strategy within the overall risk appetite set by the Board of Directors. It allocates capital resources and sets limits across the Group, with the objective of balancing return and risk. While the Executive Committee is responsible overall for risk management, it has delegated some authority to the executive level Risk Management Committee ("RMC") consisting of the Chief Executive Officer, Chief Financial Officer, Chief Underwriting Officer, Chief Risk Officer, Group Chief Actuary and General Counsel & Corporate Secretary.

The RMC is responsible for overseeing the integrity and effectiveness of the Group's ERM framework and ensuring that the Group's risk mitigation activities are consistent with that framework, including a review of the annual business plan relative to our risk limits. In addition to the RMC, there is an established framework of separate yet complementary management committees and subcommittees, focusing on particular aspects of ERM including the following:

# Management Committees

- The Business Council oversees underwriting strategy and performance, establishes return targets, and manages risk/exposure constraints across each line of business, consistent with the Company's strategic goals.
- The Investment & Finance Committee oversees the Group's investment activities, which includes monitoring market risks, the performance of our investment managers and the Group's asset-liability management, liquidity positions and investment policies and guidelines. The Investment & Finance Committee also prepares the Group's strategic asset allocation and presents it to the Finance Committee of the Board of Directors for approval.
- The Capital Management Committee oversees the integrity and effectiveness of the Company's capital management policy, including the capital management policies of the Company's legal entities and branches, and oversees the availability of capital within the Group.
- The Group Reserving Committee ensures appropriate oversight and validation of the Group loss reserves.

# RMC Sub-Committees

- The Natural Catastrophe Committee oversees the Group's natural catastrophe risk management framework, including the validation of modeling and accumulation practices.
- The Non-Natural Catastrophe Committee oversees the Group's non-natural catastrophe risk management framework, including the validation of modeling and accumulation practices.
- The Reinsurance Security Committee ("RSC") sets out the financial security requirements of our reinsurance counterparties and approves counterparties, as needed.
- The Internal Model Committee oversees the Group's internal model framework, including the key model assumptions, methodology and validation framework.
- The Operational Risk Committee oversees the Group's operational risk framework for identifying, assessing, managing, monitoring, and reporting of operational risk and facilitates the embedding of effective operational risk management practices throughout the Group.
- The Emerging Risks Working Group oversees the processes for identifying, assessing, managing, monitoring, and reporting current and potential emerging risks.

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- The Climate Change Working Group focuses specifically on climate-related risks and oversees the implementation of our climate risk management framework.

### Group Risk Management Organization

As a general principle, management in each of the lines of business and corporate functions is responsible in the first instance for the risks and returns of its decisions. Management is the 'owner' of risk management processes and is responsible for managing our business within defined risk limits.

The Chief Risk Officer, who reports to the Chief Financial Officer and the Chair of the Risk Committee leads our independent Group Risk function, and is responsible for oversight and implementation of the Group's ERM framework, as well as providing guidance and support for risk management practices. Group Risk is responsible for developing methods and processes for identifying, assessing, managing, monitoring, and reporting risk. This forms the basis for informing the Risk Committee and RMC of the Group's risk profile. Group Risk develops our risk management framework and oversees the adherence to this framework at the Group and operating entity level. Our Chief Risk Officer regularly reports risk matters to the Chief Financial Officer, Executive Committee, RMC, and the Risk Committee.

Internal Audit, an independent, objective function, reports to the Audit Committee of the Board of Directors on the effectiveness of our risk management framework. This includes assurance that key business risks have been adequately identified and managed appropriately and that our system of internal control is operating effectively. Internal Audit also provides independent assurance around the validation of our internal capital model and coordinates risk-based audits, compliance reviews and other specific initiatives to evaluate and address risk within targeted areas of our business.

Our risk governance structure is further complemented by our legal team which seeks to mitigate legal and regulatory compliance risks with support from other teams. This includes ensuring that significant developments in law and regulation are observed and that we react appropriately to impending legislative and regulatory changes and applicable court rulings.

### Risk Landscape

Our risk landscape comprises insurance, strategic, market, liquidity, credit, and operational risks that arise as a result of undertaking our business activities. We provide definitions of these risk categories as well as descriptions of management of these risks below. Across these risk categories, we identify and evaluate emerging threats and opportunities through a framework that includes the assessment of potential surprise factors that could affect exposures.

Our risk landscape is reviewed on a regular basis to ensure that it remains up-to-date based on the evolving risk profile of the Company. In addition, we undertake ongoing risk assessments across all enterprise risks, the output of which is captured in our risk register, which is reviewed and reported through our governance structure.

### Insurance Risk

Insurance risk is the inherent uncertainty as to the occurrence, amount and timing of insurance and reinsurance liabilities transferred to us through the underwriting process.

Since our inception in 2001, we have expanded our international presence, with underwriting offices in Bermuda, the U.S., Europe, Singapore, and Canada. Our disciplined underwriting approach coupled with a peer review process has enabled us to manage this growth in a controlled and consistent manner.

A key component of the Group's underwriting risk governance is our peer review processes, which allow for a collaborative review of risk and pricing, and ensure that underwriting is within established guidelines and procedures. Underwriting guidelines are in place to provide a framework for consistent pricing and risk analysis and to ensure alignment to the Group's risk appetite. Limits are set on underwriting capacity and cascade authority to individuals based on their specific roles and expertise.

We also have significant audit coverage across our lines of business, including Management Initiated Audits ('MIAs'). MIAs are audits of underwriting and claims files performed by teams independent of those who originated the transactions, the purpose of which is to test the robustness of our underwriting and claims processes and to recognize any early indicators of future trends in our operational risk environment.

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### *Reinsurance Purchasing*

Another key component of our mitigation of insurance risk is the purchase of reinsurance to protect our short and long-tail lines of business on a treaty (covering a portfolio of risks) and facultative (single risk) basis.

For treaty reinsurance, we purchase proportional and non-proportional cover.

Under proportional reinsurance, we cede an agreed percentage of the premiums and the losses and loss expenses on the policies we underwrite. We primarily use proportional reinsurance on our liability, professional lines and cyber portfolios, as well as on select property portfolios, where we protect against higher loss frequency rather than specific events. We also purchase proportional reinsurance for our casualty and credit and surety portfolios, which includes cessions to our Strategic Capital Partners. In 2022, we also purchased proportional reinsurance on our assumed catastrophe and property reinsurance portfolio, which will not be required in the future due to our exit from these lines of business in June 2022.

We use non-proportional reinsurance, whereby losses up to a certain amount (i.e., our retention) are borne by us. By using non-proportional reinsurance, we can limit our liability with a retention, which reflects our willingness and ability to bear risk, and is therefore in line with our risk appetite. We primarily purchase the following forms of non-proportional reinsurance:

- Excess of loss per risk - the reinsurer indemnifies us for loss amounts of all individual policies effected, defined in the treaty terms and conditions. Per-risk treaties are an effective means of risk mitigation against large single losses (e.g., a large fire claim).
- Catastrophe excess of loss - provides aggregate loss cover for our insurance portfolio against the accumulation of losses incurred from a single event (e.g., windstorm).

We have a centralized risk funding department, which coordinates external treaty reinsurance purchasing (including retrocession) across the Group and a separate AXIS ILS (Insurance Linked Securities) team, which coordinates the sourcing and structuring of third-party capital to support AXIS underwriting. Risk funding and AXIS ILS is overseen by our Reinsurance Purchasing Group ("RPG"). The RPG, which includes, among others, our Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, Chief Underwriting Officer and representatives from the business leadership team, approves each treaty placement and aims to ensure that appropriate diversification exists within our RSC approved counterparty panels.

Facultative reinsurance is case by case risk transfer. In certain circumstances, we use facultative reinsurance to complement treaty reinsurance by covering additional risks above and beyond what is already covered by treaties. Facultative reinsurance is monitored by the risk funding team.

### *Natural Peril Catastrophe Risk*

Natural catastrophes such as hurricanes, windstorms, earthquakes, floods, tornados, hail and fire represent a challenge for risk management due to their accumulation potential and occurrence volatility. In managing natural catastrophe risk, our internal risk limit 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. Within this framework, we have an established risk limit for single event, single zone probable maximum loss ("PML") within defined zones and at various return periods. For example, at the 1-in-250-year return period, we are not willing to expose more than 10% of common equity to a single event within a single zone.

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The table below shows our net PML to a single natural peril catastrophe event within certain defined single zones which correspond to peak industry catastrophe exposures at January 1, 2023 and 2022:

| Estimated Net Exposures (millions of U.S. dollars) |  | January 1, 2023 |  |  | January 1, 2022 |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Territory | Peril | 50 Year Return Period | 100 Year Return Period | 250 Year Return Period | 50 Year Return Period | 100 Year Return Period | 250 Year Return Period |
| Single zone, single event |  |  |  |  |  |  |  |
| Southeast | U.S. Hurricane | $74 | $96 | $125 | $131 | $186 | $262 |
| Northeast | U.S. Hurricane | 11 | 35 | 72 | 39 | 115 | 238 |
| Mid-Atlantic | U.S. Hurricane | 26 | 59 | 99 | 71 | 193 | 362 |
| Gulf of Mexico | U.S. Hurricane | 67 | 86 | 121 | 119 | 164 | 234 |
| Europe | Windstorm | 39 | 57 | 77 | 90 | 124 | 165 |
| Japan | Windstorm | 39 | 106 | 146 | 75 | 144 | 166 |
| Japan | Earthquake | 50 | 115 | 195 | 82 | 204 | 318 |
| California | Earthquake | 65 | 98 | 144 | 123 | 240 | 327 |

The return period refers to the frequency with which losses of a given amount or greater are expected to occur. A zone is a geographic area in which the insurance risks are considered to be correlated to a single catastrophic event. Estimated losses from a modeled event are grouped into a single zone, as shown above, based on where the majority of the total estimated industry loss is expected to occur. In managing zonal concentrations, we aim to ensure that the geography of single events is suitably captured, but distinct enough that they track specific types of events. For example, our definition of Southeast wind encompasses five states, including Florida, while our definition of Gulf Wind encompasses four states, including Texas.

Our PMLs take into account the fact that an event may trigger claims in a number of lines of business. For instance, our U.S. hurricane modeling includes the estimated pre-tax impact to our financial results arising from our catastrophe, property, engineering, energy, marine and aviation lines of business. Our PMLs include assumptions regarding the location, size and magnitude of an event, the frequency of events, the construction type and a property's susceptibility to damage and the cost of rebuilding the property. Loss estimates for non-U.S. zones will be subject to foreign exchange rates, although we may mitigate this currency variability from a book value perspective.

As indicated in the table above, our modeled single occurrence 1-in-100-year return period PML for a Southeast U.S. hurricane, net of reinsurance, is approximately $96 million. According to our modeling, there is a one percent chance that on an annual basis losses incurred from a Southeast U.S. hurricane event could be in excess of $96 million. Conversely, there is a 99% chance that on an annual basis the loss from a Southeast U.S. hurricane will fall below $96 million.

PMLs are based on results of stochastic models that consider a wide range of possible events, their losses and probabilities. It is important to consider that an actual event does not necessarily resemble one of the stochastic events and the specific characteristics of an actual event can lead to substantial differences between actual and modeled loss.

We have developed our PML estimates by combining judgment and experience with the outputs from the catastrophe model, commercially available from Verisk Analytics, Inc., which we also use for pricing catastrophe risk. This model covers the major peril regions where we face potential exposure. Additionally, we have included our estimate of non-modeled perils and other factors, which we believe provides us with a more complete view of catastrophe risk.

Our PML estimates are based on assumptions that are inherently subject to significant uncertainties and contingencies. These uncertainties and contingencies can affect actual losses and could cause actual losses to differ materially from those expressed above. We aim to reduce the potential for model error in a number of ways, the most important of which is by ensuring that management's judgment supplements the model outputs. Models are continuously validated at the line of business and at a group level by our catastrophe model validation team. These validation procedures include sensitivity testing of models to understand their key variables and, where possible, back testing the model outputs to actual results.

Estimated net losses from peak zone catastrophes may change from period to period as a result of several factors, which include but are not limited to, updates to vendor catastrophe models, changes to internal modeling, underwriting portfolios, reinsurance purchasing strategy and foreign exchange rates.

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### ***Man-Made Catastrophe Risk***

Consistent with our management of natural peril catastrophe exposures, we take a similarly focused and analytical approach to the management of man-made catastrophes. Man-made catastrophes, which include such risks as train collisions, airplane crashes or terrorism, and other intentionally destructive acts, including cyber-attacks, are harder to model in terms of assumptions regarding intensity and frequency. For these risks we couple the vendor models, where available with our bespoke modeling and underwriting judgment and expertise. This allows us to take advantage of business opportunities related to man-made catastrophe exposures particularly where we can measure and limit the risk sufficiently as well as obtain risk-adequate pricing.

As an example of our approach, our assessment of terrorism risk is based on a mixture of qualitative and quantitative data (e.g., for estimating property damage, business interruption, mortality and morbidity subsequent to an attack of a predefined magnitude), which we use to limit and manage our aggregate terrorism exposure. We use commercially available vendor modeling and bespoke modeling tools to measure accumulations around potential terrorism accumulation zones on a deterministic and probabilistic basis. We supplement the results of our modeling with underwriting judgment.

### ***Reserving Risk***

The estimation of reserves for losses and loss expenses ('loss reserves') is subject to uncertainty as the settlement of claims that arise before the balance sheet date is dependent on future events and developments. There are many factors that would cause loss reserves to increase or decrease, which include, but are not limited to emerging claims and coverage issues, changes in the legislative, regulatory, social and economic environment and unexpected changes in loss inflation. The estimation of loss reserves could also be adversely affected by the failure of our loss limitation strategy and/or the failure of models used to support key decisions.

We calculate loss reserves in accordance with actuarial best practice based on substantiated methodologies and assumptions. In addition, we have well established processes in place for determining loss reserves, which we ensure are consistently applied. Our loss reserving process demands data quality and reliability and requires a quantitative and qualitative review of overall reserves and individual large claims. Within a structured control framework, claims information is communicated on a regular basis throughout our organization, including to senior management, to provide an increased awareness of losses that have occurred throughout the insurance markets. The detailed and analytical reserving approach that follows is designed to absorb and understand the latest information on reported and unreported claims, to recognize the resultant exposure as quickly as possible, and to record appropriate loss reserves in our consolidated financial statements.

Reserving for long-tail lines of business represents a significant component of reserving risk. When loss trends prove to be higher than those underlying our reserving assumptions, the risk is greater because loss reserves recorded in our consolidated financial statements cover claims arising from several years of underwriting activity and these reserves are likely to be adversely affected by unfavorable loss trends. We manage and mitigate reserving risk on long-tail business in a variety of ways. First, the long-tail business we write is part of a well-balanced and diversified global portfolio of business. In 2022, long-tail net premiums written (namely liability and motor business) represented 22% of total net premiums written, and long-tail net loss reserves represented 35% of total net loss reserves. We also purchase reinsurance on liability business to manage our net positions. Second, we follow a disciplined underwriting process that utilizes available information, including industry trends.

Another significant component of reserving risk relates to the estimation of losses in the aftermath of a major catastrophe event. Refer to Item 7 *Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Reserves for Losses and Loss Expenses* for further details. Refer also to Item 8, Note 8 to the Consolidated Financial Statements *Reserve for Losses and Loss Expenses - Reserving Methodology - Reserving for Catastrophic Events* for further details.

### ***Claims Handling Risk***

In accepting risk, we are committing to the payment of claims and therefore these risks must be understood and controlled. We have claims teams embedded in our main lines of business. Our claim teams include a diverse group of experienced professionals, including claims adjusters and attorneys. We also use approved external service providers, such as independent adjusters and appraisers, surveyors, accountants, investigators, and specialist attorneys, as appropriate.

We maintain claims handling guidelines, which include details on claims reporting controls and claims reporting escalation procedures, for all our claims teams. Large claims matters are reviewed during weekly claims meetings. The minutes from

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each meeting are circulated to our underwriters, senior management and others involved in the reserving process. To maintain communication between underwriting and claims teams, claims personnel regularly report at underwriting meetings and frequently attend client meetings.

We foster a strong culture of review among our claims teams. This includes MIAs, whereby senior claims handlers audit a sample of claim files. The process is designed to ensure consistency between the claims teams and to develop group-wide best practices.

When we receive notice of a claim, regardless of size, it is recorded in our claims and underwriting systems. In addition, we produce alerts regarding significant events and potential losses, regardless of whether we have exposure. These alerts allow a direct notification to be communicated to underwriters and senior management worldwide. Similarly, for natural peril catastrophes, we have developed a catastrophe database, along with catastrophe coding in certain systems, that allows for the gathering, analyzing, and reporting of loss information as it develops from early modeled results to fully adjusted and paid losses.

### *Strategic Risk*

Strategic risks affect or are created by an organization's business strategy and strategic objectives. Our review of strategic risk evaluates not only internal and external challenges that might cause our chosen strategy to fail but also evaluates major risks that could affect our long-term performance and position.

We believe it is imperative that we consider the business risks associated with, and mitigated by, each strategy. We also view strategic risk not only as the negative impact of risk but also the sub-optimization of gain. Fundamentally, we believe that we are set up for success if we analyze both value protection and value creation.

Environmental, Social and Governance (ESG) and sustainability have become major topics that encompass a wide range of issues, including climate change and other environmental risks. In line with our strategy, we have put in place a number of measures in order to identify, assess and manage potential exposure to climate risks, for example physical, transition and liability risks.

At least on a quarterly basis, the Executive Committee meets and receives holistic information about execution against strategy and makes decisions to adjust and/or advance strategy. In addition, strategies employed throughout our business in support of the broader enterprise strategy are reviewed in the context of a broader governance structure by the Business Council and business leadership and are ultimately approved by the Board of Directors.

### *Market Risk*

Market risk is the risk that our financial instruments may be negatively impacted by movements in financial market prices or rates, such as interest rates, credit spreads, equity securities' prices and foreign currency exchange rates. Fluctuations in market prices or rates primarily affect our investment portfolio.

Through asset-liability management, we aim to ensure that market risks influence the economic value of our investments and our loss reserves and other liabilities in the same way, thus mitigating the effect of market fluctuations. For example, we reflect important features of our liabilities, such as maturity patterns and currency structures, on the asset side of the balance sheet by acquiring investments with similar characteristics.

We supplement our asset-liability management with various internal policies and limits. As part of our strategic asset allocation process, different asset strategies are simulated and stressed in order to evaluate the 'optimal' portfolio, given return objectives and risk constraints. Our investments team manages asset classes to control aggregation of risk and provide a consistent approach to constructing portfolios and the selection process of external asset managers. We have limits on the concentration of investments by single issuers and certain asset classes, and we limit the level of illiquid investments (refer to *'Liquidity Risk'* below).

We stress test our investment portfolios using historical and hypothetical scenarios to analyze the impact of unusual market conditions and to ensure potential investment losses remain within our risk appetite. At an annual aggregated level, we manage the total risk exposure of our investment portfolio so that the 'total return' investment loss in any one year is unlikely to exceed a defined percentage of our common equity at a defined return period.

We mitigate foreign currency risk by seeking to match our estimated insurance and reinsurance liabilities payable in foreign currencies with assets, including cash and investments that are denominated in the same currencies. Where necessary, we use

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derivative financial instruments for economic hedging purposes. For example, in certain circumstances, we use forward contracts to economically hedge portions of our un-matched foreign currency exposures.

### *Liquidity Risk*

Liquidity risk is the risk that we may not have sufficient cash to meet our obligations when they are due or would have to incur excessive costs to do so.

As an insurer and reinsurer, our core business generates liquidity primarily through premiums, investment income and the maturity/sale of investments. Our exposure to liquidity risk stems mainly from the need to pay claims on potential extreme loss events and regulatory constraints that limit the flow of funds within the Group. To manage these risks, we have a range of liquidity policies and procedures in place which are described below:

- We maintain cash and cash equivalents and a high quality, liquid investment portfolio to meet expected outflows, as well as those that could result from a range of potential stress events. We place limits on the maximum percentage of cash and investments that may be in an illiquid form as well as on the minimum percentage of unrestricted cash and liquid investment grade fixed maturity securities.
- We maintain committed borrowing facilities, as well as access to diverse funding sources, to cover contingencies. Funding sources include liquid cash and invested assets, external debt issuances and lines of credit.

### *Credit Risk*

Credit risk represents the risk of incurring financial loss due to the diminished creditworthiness (reduced financial strength and, ultimately, possibly default) of our third-party counterparties.

We distinguish between various forms of credit exposure including the risk of issuer default from instruments in which we invest, such as corporate bonds, counterparty exposure in a direct contractual relationship, such as reinsurance, the credit risk related to our premium receivables, including those from brokers and other intermediaries, and the risk we assume through our insurance contracts, such as our credit and political risk, and credit and surety lines of business.

### *Credit Risk Aggregation*

*Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Commitment and Contingencies' - Concentration of Credit Risk - Credit Risk Aggregation*

### *Credit Risk Relating to Cash and Investments*

*Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Commitment and Contingencies' - Concentration of Credit Risk - Cash and Investments*

### *Credit Risk Relating to Reinsurance Recoverable Assets*

*Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Commitment and Contingencies' - Concentration of Credit Risk - Reinsurance Recoverable on Unpaid and Paid Losses and Loss Expenses*

### *Credit Risk Relating to Premium Receivables*

*Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Commitment and Contingencies' - Concentration of Credit Risk - Insurance and Reinsurance Premium Balances Receivable*

### *Credit Risk Relating to our Underwriting Portfolio*

In the insurance segment, we provide credit insurance primarily for lenders (financial institutions) and commodity traders seeking to mitigate the risk of non-payment from their borrowers and trading counterparties. This product complements our traditional political risk insurance business. For the credit insurance contracts, it is necessary for the buyer of the insurance, most often a bank or commodity trader, to hold an insured asset, most often an underlying loan, or sale and purchase contract in order to claim compensation under the insurance contract. The majority of the credit insurance provided is for single-name illiquid risks that can be individually analyzed and underwritten, primarily in the form of senior secured bank loans but also unsecured payment obligations in the case of shorter term trade credit. As part of the underwriting process, an evaluation of creditworthiness and reputation of the obligor is critical. We generally require our clients to retain a share of each transaction

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that we insure. A key element to our underwriting analysis is the assessment of recovery in the event of default, and, accordingly, the strength of the collateral and the enforceability of rights to the collateral are paramount.

Generally, we do not underwrite insurance for structured finance products that would expose us to mark-to-market losses. In addition, our credit insurance contracts typically do not include terms which would introduce liquidity risk, most notably in the form of a collateralization requirement upon a ratings downgrade.

We also provide protection against sovereign default or sovereign actions that result in impairment of cross-border investments for banks and corporations. Our contracts generally include conditions precedent to our liability relating to the enforceability of the insured transaction and restricting amendments to the transaction documentation, obligations on the insured to prevent and minimize losses, subrogation rights, including rights to have the insured asset transferred to us, and waiting periods. Under most of our policies, a loss payment is made in the event that the debtor failed to pay our client when payment is due subject to a waiting period of up to 180 days.

In the reinsurance segment, we provide reinsurance of credit and surety bond insurers exposed to the risks of financial loss arising from non-payment of trade receivables covered by a policy (credit insurance) or non-performance of obligations (surety). Our credit insurance exposures are concentrated primarily within developed economies, while our surety bond exposures are concentrated primarily in Latin America and developed economies. We also provide coverage to the mortgage industry through insurance and reinsurance of mortgage insurance companies and U.S. government-sponsored entity credit risk sharing transactions. We focus on credit risk transfer from Federal Home Loan Mortgage Corporation and Federal National Mortgage Association, in the single-family, fixed rate, conforming mortgage space. We provide this cover globally on a proportional and non-proportional basis. Our exposure to mortgage risk is monitored and managed through robust underwriting within defined parameters for mortgage credit quality and concentration, continuous monitoring of the housing market, as well as limits on our PML resulting from a severe economic downturn in the housing market.

#### *Operational Risk*

Operational risk represents the risk of loss as a result of inadequate processes, system failures, human error or external events, including but not limited to direct or indirect financial loss, reputational damage, customer dissatisfaction, and legal and regulatory penalties.

Group Risk is responsible for coordinating and overseeing a group-wide framework for operational risk management. As part of this oversight, we maintain an operational loss-event database which helps us monitor and analyze potential operational risk issues, identify any trends, and, where necessary, put in place improvement actions to avoid occurrence or recurrence of operational loss events.

We manage transaction type operational risks through the application of process controls throughout our business. In testing these controls, we supplement the work of our internal audit team with regular underwriting and claim MIAs, as discussed above.

We have specific processes and systems in place to focus on high priority operational matters, such as managing business resilience, information security, and third-party vendor risk, which are described below:

- Major failures and disasters that could cause a severe disruption to working environments, facilities, and personnel, represent a significant operational risk to us. Our Business Continuity Management framework strives to protect critical business services and the functions that support these business services from these effects to enable us to carry out our core tasks in time and at the quality required.
- We have developed a number of Information Technology ("IT") platforms, applications and security controls to support our business activities worldwide. Dedicated security standards are in place for our IT systems to ensure the proper use, availability and protection of our information assets.
- Our use of third-party vendors exposes us to a number of increased operational risks, including the risk of security breaches, fraud, non-compliance with laws and regulations or internal guidelines and inadequate service. We manage material third-party vendor risk, by, among other things, performing a thorough risk assessment on potential large vendors, reviewing a vendor's financial stability, ability to provide ongoing service and business resilience planning.

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# **Capital Management**

Our capital management strategy is to maximize long-term shareholder value by, among other things, optimizing capital allocation and minimizing our cost of capital. We manage our capital in accordance with our Target Capital Range ("TCR") concept. The TCR defines the preferred level of capital needed to absorb shock losses and still satisfy our minimum solvency targets in relation to key capital benchmarks including our "own view" of risk from our internal capital model and regulatory and rating agency capital requirements, which are described below:

- Internal risk capital - We use our internal capital model to assess the capital consumption of our business, measuring and monitoring the potential aggregation of risk at extreme return periods.
- Regulatory capital requirements - In each country in which we operate, the local regulator specifies the minimum amount and type of capital that each of the regulated entities must hold in support of their liabilities and business plans. We target to hold, in addition to the minimum capital required to comply with the solvency requirements, an adequate buffer to ensure that each of our operating entities meets its local capital requirements. Refer to Item 8, Note 21 to the Consolidated Financial Statements 'Statutory Financial Information' for further details.
- Rating agency capital requirements - Rating agencies apply their own models to evaluate the relationship between the required risk capital of a company and its available capital resources. The assessment of capital adequacy is usually an integral part of the rating agency process. Meeting rating agency capital requirements and maintaining strong credit ratings are strategic business objectives of the Company. Refer to Item 7 'Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources' for further details.

The TCR identifies the point at which management needs to consider raising capital, amending our business plan or executing capital management activities well before capital approaches the minimum requirements ("early warning indicator"). This allows us to take appropriate measures to ensure the continued strength and appropriateness of our capital and solvency positions, and enables us to take advantage of opportunities as they arise. Such measures are performed as and when required and include traditional capital management tools (e.g., dividends, share buy-backs, issuance of shares or debt) or through changes to our risk exposure (e.g., recalibration of our investment portfolio or changes to our reinsurance purchasing strategy).

The TCR also considers an amount of capital beyond which capital could be considered "excess". Where we do not find sufficiently attractive opportunities and returns for our excess capital, we may return capital to our shareholders through share repurchases and/or dividends. In doing so, we seek to maintain an appropriate balance between higher returns for our shareholders and the security provided by a sound capital position.

# ITEM 1A. RISK FACTORS

# Insurance Risk

Insurance risk is the inherent uncertainty as to the occurrence, amount and timing of insurance and reinsurance liabilities transferred to us through the underwriting process.

The insurance/reinsurance business is historically cyclical, and we expect to experience periods with excess underwriting capacity and unfavorable premium rates.

The insurance/reinsurance business historically has been a cyclical industry characterized by periods of intense price competition due to excess underwriting capacity, as well as periods when shortages of capacity permitted favorable premium levels. An increase in premium rates is often offset by an increased supply of insurance and reinsurance capacity, via capital provided by new entrants, new capital market instruments and structures and/or the commitment of additional capital by existing insurers and reinsurers. Any of these factors could lead to a significant reduction in premium rates, less favorable policy terms and fewer submissions for our underwriting services. In addition to these considerations, changes in the frequency and severity of losses suffered by insureds and insurers may affect the cycles of the insurance/reinsurance business significantly.

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# ***Results of operations, financial condition or liquidity could be adversely affected by the occurrence of natural and man-made disasters, as well as outbreaks of pandemic or contagious diseases.***

While we exited the catastrophe and property reinsurance lines of business in 2022, we continue to have exposure to unexpected losses resulting from natural disasters, man-made catastrophes and other catastrophe events. Catastrophes can be caused by various events, including hurricanes, typhoons, earthquakes, tsunamis, hailstorms, floods, severe winter weather, fires, drought and other natural disasters and outbreaks of pandemic or contagious diseases, including the COVID-19 pandemic. Catastrophes can also be man-made, such as terrorist attacks and other intentionally destructive acts, including those involving nuclear, biological, chemical or radiological events, cyber-attacks, explosions and infrastructure failures. The incidence and severity of catastrophes are inherently unpredictable and losses from catastrophes could be substantial.

Increases in the values and concentrations of insured property, particularly in coastal regions, and increases in the cost of construction materials required to rebuild affected properties, may continue to increase the impact of natural catastrophe events. Changes in global climate conditions may further increase the frequency and severity of natural catastrophe activity and losses. Similarly, changes in global political and economic conditions may increase both the frequency and severity of man-made catastrophe events. Other man-made catastrophes, such as cyber-attacks, are fast-evolving, and therefore the extent of their impact is highly uncertain. The impact of catastrophe events in years 2022, 2021 and 2020 included the recognition of the net losses and loss expenses of:

- $403 million in the aggregate, primarily related to Hurricane Ian, the Russia-Ukraine war, Winter Storm Elliot, June European Convective Storms, and the COVID-19 pandemic in 2022;
- $443 million, in the aggregate, primarily related to Hurricane Ida, U.S. Winter Storms Uri and Viola, and July European Floods in 2021; and
- $774 million, in the aggregate, primarily related to the COVID-19 pandemic, Hurricanes Laura, Sally, Zeta and Delta, Midwest derecho, and wildfires across the West Coast of the United States in 2020.

These events materially reduced net income in the years noted. Although we manage our exposure to such events through the use of underwriting controls and the purchase of third-party reinsurance protection, catastrophe events are inherently unpredictable and the actual nature of such events when they occur could be more frequent or severe than contemplated in our pricing and risk management expectations. As a result, the occurrence of one or more catastrophe events could have a material adverse effect on our results of operations, financial condition or liquidity.

Cyber events are man-made perils and as such the threat landscape is dynamic and evolving. This risk of cyber-attacks could be exacerbated by geopolitical tensions, including hostile actions taken by nation-states and terrorist organizations. There is a risk that increases in the frequency and severity of losses to our clients from cyber events could adversely affect our results of operations, financial condition or liquidity. The losses incurred from this risk are also dependent on our clients' cybersecurity practices and defenses and the interaction of our policy wordings with the evolving threat landscape. In addition, our exposure to cyber events potentially includes exposure through 'non-affirmative' coverages, meaning risks and potential losses associated with policies where cyber risk is not explicitly included or excluded in the policy wording. As this is a relatively new peril, even in cases where losses from cyber events are explicitly excluded, there can be no assurance that a court or arbitration panel will interpret policy language in line with the intention of the exclusion.

# ***We may be adversely impacted by inflation.***

Our operations, like those of other insurers and reinsurers, are susceptible to the effects of inflation because premiums are established before actual losses and loss expenses are known. Although we consider the potential effects of inflation when setting premium rates, premiums may not fully offset the effects of inflation and thereby essentially result in underpricing the risks we insure and reinsure. Loss reserves include assumptions about future payments for settlement of claims and claims-handling expenses, such as the value of replacing property, associated labor costs for the property business we write and litigation costs. To the extent inflation causes costs to increase above loss reserves established for claims, we will be required to increase loss reserves with a corresponding reduction in net income in the period in which the deficiency is identified, which may have a material adverse effect on our results of operations or financial condition. Unanticipated higher inflation could also lead to higher interest rates, which would negatively impact the value of our fixed income securities and potentially other investments.

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*Global climate change, as well as increasing regulation in the area of climate change, may have an adverse effect on our results of operations, financial condition or liquidity.*

We are potentially exposed to different aspects of climate risk, specifically, physical, investment, liability and transition risks, as a result of climate change.

Physical risks describe weather-related events and longer-term shifts in climate and emanate primarily from underwriting of property insurance and reinsurance. Climate change has added to the unpredictability and frequency of natural disasters in certain parts of the world and has created additional uncertainty as to future trends and exposures. Although the loss experience of catastrophe insurers and reinsurers has historically been characterized as low frequency, there is a growing concern today that climate change increases the frequency and severity of severe weather events. In recent years, the frequency of severe weather-related events has increased, and this trend may continue in the future. Climate change is likely to expose us to an increased frequency and/or severity of weather-related losses, and there is a risk that our pricing of these perils or our management of the associated aggregations does not appropriately allow for changes in climate. Over the longer term, climate change may have an impact on the economic viability of certain lines of business if suitable adjustments in price and coverage cannot be achieved.

Additionally, catastrophic events and the effects of climate change could result in increased credit exposure to reinsurers and other counterparties with whom we transact business, declines in the value of investments we hold and disruptions to our physical infrastructure, systems and operations.

Changes in security asset prices such as real estate, stocks and long-term bonds may impact the value of our investments, resulting in realized or unrealized losses on our invested assets. Climate-related risks to security asset prices can include, but are not limited to: (i) changes in supply/demand characteristics for fossil fuels (e.g., coal, oil, natural gas); (ii) advances in low-carbon technology and renewable energy development; (iii) effects of extreme weather events on the physical and operational exposure of issuers; and the (iv) transition that these companies make towards addressing climate risk in their own businesses.

We may also be exposed to liability risks. Liability risks relate to losses or damages suffered by our insureds from physical or transition risks, such as losses stemming from climate-related litigation in liability lines. These risks could arise from management and boards of directors not fully considering or responding to the impacts of climate change, or not appropriately disclosing current and future risks.

There is additionally a risk that certain elements of our business cease to be viable as a result of climate change 'transition' risks, which relate to losses driven by changes in technology, measures adopted by governments and regulators to encourage and support this transition, and society as a whole adapting to a lower-carbon economy. Recognizing the importance of this transition, effective 2020, AXIS Capital ceased underwriting risks for (and investing in the securities of) companies whose primary activity relates to thermal coal mining or power generation, or tar sands extraction, and in 2021, AXIS Capital announced a commitment to not underwrite new insurance or facultative reinsurance contracts, or provide investment support, for projects covering the exploration, production or transportation of oil and gas in the Arctic National Wildlife Refuge. Further, effective 2022, AXIS Capital committed to phasing out of the thermal coal business from its insurance, facultative reinsurance, and investment portfolios, ending all such activities no later than 2040. AXIS Capital has additionally committed to stop insuring any company developing a coal mine, or its dedicated infrastructure. There remains a risk that our financial condition or operating performance may be impacted by changes in our business model arising from climate change transition and by the performance of strategies we put in place to manage this transition.

Environmental, social and governance ('ESG') and sustainability have become major topics that encompass a wide range of issues, including climate change and other environmental risks. We are also subject to complex and changing laws, regulations and public policy debates relating to climate change which are difficult to predict and quantify and may have an adverse impact on our business. Changes in regulations relating to climate change or our own leadership decisions implemented as a result of assessing the impact of climate change on our business may result in an increase in the cost of doing business or a decrease in premiums.

*We could face unanticipated losses from war, terrorism, political unrest, and geopolitical uncertainty, and these or other unanticipated losses could have an adverse effect on our results of operations, financial condition or liquidity.*

We have substantial exposure to unexpected losses resulting from war, acts of terrorism, political unrest and geopolitical instability, including, but not limited to, events related to Russia's invasion of Ukraine and in many regions of the world. Russia's invasion of Ukraine is having a profound impact on energy markets, particularly in Europe, which is impacting and

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may continue to impact economic conditions and investment returns. In certain instances, we specifically insure and reinsure risks resulting from acts of terrorism. Even in cases where we attempt to exclude losses from terrorism and certain other similar risks from some coverages written by us, there can be no assurance that a court or arbitration panel will interpret policy language or otherwise issue a ruling favorable to us. Accordingly, we can offer no assurance that our loss reserves will be adequate to cover losses should they materialize beyond expectation.

We have limited terrorism coverage in our own reinsurance program for our exposure to catastrophe losses related to acts of terrorism. On December 20, 2019, the President of the United States signed the Terrorism Risk Insurance Program Reauthorization Act of 2019 ('TRIP'), extending the program through December 31, 2027. Although TRIP provides benefits in the event of certain acts of terrorism, those benefits are subject to a deductible and to other limitations. Under TRIP, once losses attributable to certain acts of terrorism exceed 20% of direct commercial property and liability insurance premiums for the preceding calendar year, the federal government will reimburse insurers for 80% of losses in excess of this deductible.

Notably, TRIP does not provide coverage for reinsurance losses. Given the unpredictable frequency and severity of terrorism losses, as well as the limited terrorism coverage in our own reinsurance program, future losses from acts of terrorism could materially and adversely affect our results of operations, financial condition or liquidity in future periods.

Our credit and political risk insurance line of business protects insureds with interests in foreign jurisdictions in the event that governmental action prevents them from exercising their contractual rights, and may also protect their assets against physical damage perils. The insurance provided may include cover for losses arising from expropriation, forced abandonment, license cancellation, trade embargo, contract frustration, non-payment, war on land or political violence (including terrorism, revolution, insurrection and civil unrest).

Our credit and political risk line of business also provides non-payment coverage on specific loan obligations. We insure sovereign non-payment and corporate non-payment as a result of commercial as well as political risk events. The vast majority of the corporate non-payment credit insurance provided is for single-named illiquid risks, primarily in the form of senior bank loans that can be individually analyzed and underwritten. We avoid insurance for structured finance products defined by pools of risks and insurance for synthetic products that would expose us to mark-to-market losses. We also avoid terms in our credit insurance contracts that introduce liquidity risk, most notably, in the form of a collateralization requirement upon a ratings downgrade. We also manage our exposure by, among other things, setting credit limits by country, region, industry and individual counterparty, and regularly reviewing our aggregate exposures. However, due to globalization, political instability in one region can spread to other regions. Geopolitical uncertainty regarding a variety of domestic and international matters, such as the U.S. political and regulatory environment, the potential for default by one or more European sovereign debt issuers and the United Kingdom's exit from the European Union, or 'Brexit', could have a material adverse effect on our results of operations, financial condition or liquidity.

#### ***The effects of emerging claim and coverage issues on our business are uncertain.***

As industry practices and legal, judicial, social, political, technological and other environmental conditions change, unexpected issues related to systemic risks, claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the frequency and/or severity of claims. For example, the last global financial crisis resulted in a higher level of claim activity on professional lines insurance and reinsurance business. Moreover, legislative, regulatory, judicial or social influences may impose new obligations on insurers or reinsurers in connection with the COVID-19 pandemic or climate change that extend coverage beyond the intended contractual obligations, or result in an increase in the frequency or severity of claims beyond expected levels, as described in the COVID-19 and the climate change risk factors. In some instances, the effects of these changes may not become apparent until after we have issued the impacted insurance or reinsurance contracts. In addition, actual losses may vary materially from the current estimate of losses based on a number of factors (refer to *'If actual claims exceed our loss reserves, our financial results could be adversely affected'* below). As a result, the full extent of liability under an insurance or reinsurance contract may not be known for many years after the contract is issued and a loss occurs.

#### ***If actual claims exceed loss reserves, our financial results could be adversely affected.***

While we believe that loss reserves at December 31, 2022 are adequate, new information, events or circumstances, unknown at the original valuation date, may lead to future developments in ultimate losses being significantly greater or less than the loss reserves currently provided. The actual final cost of settling claims outstanding at December 31, 2022, as well as claims expected to arise from the unexpired period of risk, is uncertain. For example, our loss reserves recorded in 2022 associated with the COVID-19 pandemic remain subject to significant uncertainty. There are many factors that would cause loss reserves to increase or decrease, which include, but are not limited to changes in claim severity, changes in the expected level

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of reported claims, judicial action changing the scope and/or liability of coverage, changes in the legislative, regulatory, social and economic environment and unexpected changes in loss inflation.

When establishing our single point best estimate of loss reserves at December 31, 2022, management considered actuarial estimates and applied informed judgment regarding qualitative factors that may not be fully captured in actuarial estimates. Such factors included, but were not limited to, the timing of the emergence of claims, volume and complexity of claims, social and judicial trends, potential severity of individual claims and the extent of internal historical loss data versus industry information.

Changes to previous estimates of prior year loss reserves can adversely impact the reported calendar year underwriting results if loss reserves prove to be insufficient or can favorably impact reported results if loss reserves prove to be higher than actual claim payments. If net income is insufficient to absorb a required increase in loss reserves, we would incur a net loss and could incur a reduction in capital.

*The failure of our loss limitation strategy could have an adverse effect on our results of operations, financial condition or liquidity.*

We seek to mitigate loss exposure through multiple methods. For example, we write a number of reinsurance contracts on an excess of loss basis. Excess of loss reinsurance indemnifies the reinsured for losses in excess of a specified amount. We generally limit the line size for each client and line of business on our insurance business and purchase reinsurance for many of our lines of business. In the case of proportional reinsurance treaties, we seek per occurrence limitations or losses and loss expenses ratio caps to limit the impact of losses from any one event. In proportional reinsurance, the reinsurer shares a proportional part of the premiums and losses of the reinsured. We also seek to limit our loss exposure through geographic diversification. Geographic zone limitations involve significant underwriting judgments, including the determination of the area of the zones and the inclusion of a particular policy within a particular zone's limits. In addition, various provisions of our insurance policies and reinsurance contracts, such as limitations or exclusions from coverage or choice of forum negotiated to limit our risks, may not be enforceable in the manner we intend. We cannot be sure that these loss limitation methods will effectively prevent a material loss exposure, which could have a material adverse effect on our results of operations, financial condition or liquidity.

*If we choose to purchase reinsurance, we may be unable to do so.*

We purchase reinsurance for our insurance and reinsurance operations in order to mitigate the volatility of losses on our financial results. From time to time, market conditions have limited, and in some cases have prevented, insurers and reinsurers from obtaining the types and amounts of reinsurance that they consider adequate for their business needs. There is no guarantee that our desired amounts of reinsurance or retrocessional reinsurance will be available in the marketplace in the future. In the current environment, our ability to renew our current reinsurance or retrocessional reinsurance arrangements or obtain desired amounts of new or replacement coverage on favorable terms may be substantially reduced as a result of the impact of inflation, industry catastrophic losses to reinsurer capital and the appetite for certain lines of business. In addition to capacity risk, the remaining capacity may not be on terms we deem appropriate or acceptable or with companies with whom we want to do business. If we are unable to renew our current reinsurance or retrocessional reinsurance or purchase new or replacement coverage, the amount of business we are willing to write may be limited or our protection from losses due to large loss events may be materially reduced.

*We utilize models to assist our decision making in key areas such as underwriting, reserving, investment management, capital assessment, risk management, reinsurance purchasing and the evaluation of our catastrophe risk, and we could be adversely impacted if these models are inadequate or unfit for the purpose for which they are being used.*

We employ various modeling techniques (for example, scenarios, predictive, stochastic and/or forecasting) to analyze and estimate exposures and risks associated with our assets and liabilities. We utilize modeled outputs and related analyses to assist us in decision-making, for example, related to underwriting and pricing, reserving, investment, capital assessment, risk management, reinsurance purchasing and the evaluation of our catastrophe risk through estimates of probable maximum losses, or 'PMLs'. The modeled outputs and related analyses, both from proprietary and third-party models, are subject to various assumptions, professional judgment, uncertainties and the inherent limitations of any statistical analysis, including the use and quality of historical internal and industry data. These models may turn out to be inadequate representations of the underlying subject matter and consequently, actual losses from loss events, whether from individual components (for example, wind, flood, earthquake, etc.) or in the aggregate, may differ materially from modeled results. If, based upon these models or other factors, we misprice our products or underestimate the frequency and/or severity of loss events, our results of operations, financial condition or liquidity may be adversely affected. In addition, PMLs are based on results of stochastic

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models that consider a wide range of possible events, their losses and probabilities. It is important to consider that stochastic events are not an exact representation of actual events. Thus, an actual event does not necessarily resemble one of the stochastic events, and the specific characteristics of the actual event can lead to substantial differences between actual and modelled losses.

With respect to the evaluation of our catastrophe risk, our modeling utilizes a mix of historical data, scientific theory and mathematical methods. Output from multiple commercially available vendor models serves as a key input in our PML estimation process. We believe that there is considerable inherent uncertainty in the data and parameter inputs for these vendor models. In that regard, there is no universal standard in the preparation of insured data for use in the models and the running of modeling software. In our view, the accuracy of the models depends heavily on the availability of detailed insured loss data from actual recent large catastrophes. Due to the limited number of events, there is significant potential for substantial differences between the modeled loss estimate and actual company experience for a single large catastrophe event. This potential difference could be even greater for perils with limited or no modeled annual frequency. We perform our own vendor model validation (including sensitivity analysis and backtesting, where possible) and supplement model output with historical loss information and analysis and management judgment. In addition, we derive our own estimates for non-modeled perils. Despite this, our PML estimates are subject to a high degree of uncertainty, and actual losses from catastrophe events may differ materially.

*We could be adversely affected if managing general agents, general agents, coverholders, other producers and third-party administrators in our program business exceed their underwriting and/or claims settlement authorities or otherwise breach obligations owed to us.*

In program business conducted by the insurance segment, following our underwriting, financial, claims and information technology due diligence reviews, we authorize managing general agents, general agents, coverholders and other producers to write business and settle claims on our behalf within prescribed authorities. Once a program/coverholder commences, we must rely on the underwriting, operational and claims controls of these entities to write business within the authorities provided by us. Although we monitor our programs/coverholders on an ongoing basis, our monitoring efforts may not be adequate or these entities may exceed their underwriting or claims settlement authorities or otherwise breach obligations owed to us. To the extent that these entities exceed their authorities or otherwise breach obligations owed to us in the future, our results of operations or financial condition could be materially adversely affected.

### **Strategic Risk**

Strategic risks affect or are created by an organization's business strategy and strategic objectives. Our review of strategic risk evaluates not only internal and external challenges that might cause our chosen strategy to fail but also evaluates major risks that could affect our long-term performance and position.

*Competition and consolidation in the insurance/reinsurance industry could reduce our growth and profitability.*

The insurance/reinsurance industry is highly competitive. We compete on an international and regional basis with major U.S., Bermuda, European and other international insurers and reinsurers, including Lloyd's syndicates, some of which have greater financial, marketing and management resources. We also compete with new companies that enter the insurance/reinsurance markets. In addition, capital market participants have created alternative products that are intended to compete with insurance and reinsurance products. New and alternative capital inflows in the insurance/reinsurance industry and the retention by insured and cedants of more business may cause an excess supply of insurance and reinsurance capital. There has been a large amount of merger and acquisition activity in the insurance/reinsurance sector in recent years, which may continue; we may experience increased competition as a result of that consolidation with consolidated entities having enhanced market power. Increased competition could result in fewer submissions, lower premium rates, less favorable policy terms and conditions and greater costs of customer acquisition and retention. If industry pricing does not meet our hurdle rate, we may reduce our future underwriting activities. These factors could have a material adverse effect on our growth and profitability.

The insurance industry is undergoing extensive technological change. There is increasing focus by traditional insurance industry participants, technology companies, including new insurance technology companies ('InsurTech') and others on using technology and innovation to disrupt and/or enhance current business models. We expect this trend to enable enhanced customer focus, greater efficiencies, delivery of more relevant products and other sources of competitive advantage. If we do not adapt to these technological changes, it could harm our ability to compete, which could have a material adverse impact on our growth or profitability.

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Furthermore, enhanced competition could drive innovation, technological change and changing customer preferences in the markets in which we operate, and these changes could pose other risks to our businesses. For example, they could result in increasing expenses as we make investments to innovate our products and services.

In addition, certain of our strategic choices, including our exit from catastrophe and property reinsurance lines of business in 2022, could impact our competitive position, which could have an impact on existing relationships and market share.

# ***Global economic conditions could adversely affect our business, results of operations or financial condition.***

Worldwide financial markets can be volatile, and the COVID-19 pandemic has set off a period of increased volatility with respect to global economic conditions. During 2022, inflation reached and stayed unusually high in many parts of the world, and central banks in the U.S. and other countries aggressively raised interest rates to counter inflation by slowing economic activity. Monetary policy tightening actions are ongoing at December 31 2022, and their long-term impact on financial markets and the real economy is still uncertain. Uncertainty and market turmoil has affected and may in the future affect, among other aspects of our business, the demand for and claims made under our products, the ability of customers, counterparties and others to establish or maintain their relationships with us, our ability to access and efficiently use internal and external capital resources and our investment performance and portfolio. We also provide coverage to the mortgage industry through insurance and reinsurance of mortgage insurance companies and U.S. government sponsored entity credit risk sharing transactions, and deteriorating economic conditions could cause mortgage insurance losses to increase and adversely affect our results of operations or financial condition.

In addition, steps taken by central banks to control inflation and/or governments to stabilize financial markets and improve economic conditions may be ineffective, and actual or anticipated efforts to continue to unwind some of such steps could disrupt financial markets and/or could adversely impact the value of our investment portfolio. Further increases in interest rates would decrease unrealized gains and/or increase unrealized losses on our debt securities portfolio, partially offset by our ability to earn higher rates of return on reinvested funds. Higher inflation could lead to even higher interest rates, which would continue to negatively impact the value of our existing fixed income or other investments.

Given the ongoing global economic uncertainties, evolving market conditions may continue to affect our results of operations, financial condition, and capital resources. In the event that there is additional deterioration or volatility in financial markets or general economic conditions, our results of operations, financial condition, capital resources, and competitive landscape could be materially and adversely affected.

# ***Acquisitions that we made or may make could turn out to be unsuccessful.***

As part of our strategy, we have pursued and may continue to pursue growth through acquisitions. For example, as part of our strategy to develop a market leading international specialty insurance business, we acquired Novae, a specialty insurer and reinsurer that operated through Lloyd's in 2017. The negotiation of potential acquisitions as well as the integration of an acquired business or new personnel could result in a substantial diversion of management resources. Successful integration will depend on, among other things, our ability to effectively integrate acquired businesses or new personnel into our existing risk management and financial and operational reporting systems, our ability to effectively manage any regulatory issues created by our entry into new markets and geographic locations, our ability to retain key personnel and other operational and economic factors. There can be no assurance that the integration of acquired businesses or new personnel will be successful, that we will realize anticipated synergies, cost savings and operational efficiencies, or that the business acquired will prove to be profitable or sustainable. The failure to integrate acquired businesses successfully or to manage the challenges presented by the integration process may adversely impact our financial results. Acquisitions could involve numerous additional risks such as potential losses from unanticipated litigation or levels of claims and inability to generate sufficient revenue to offset acquisition costs.

Our ability to grow through acquisitions will depend, in part, on our success in addressing these risks. Any failure by us to effectively implement our acquisitions strategy could have a material adverse effect on our business, results of operations or financial condition.

# ***The exit of the U.K. from the E.U. could adversely affect us.***

On June 23, 2016, the U.K. voted in favor of Brexit and in January 2020, the U.K. left the EU. A Trade and Cooperation Agreement, excluding financial services, was entered into between the E.U. and the U.K. on December 24, 2020. AXIS Managing Agency Ltd. accesses the EEA market through Lloyd's Insurance Company, based in Belgium, an arrangement approved by the National Bank of Belgium and the Financial Services and Markets Authority. An agreement was reached

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between Lloyd's and the Belgian regulators on how London based underwriters, including AXIS Managing Agency Ltd., could access the E.U. market using Lloyd's Insurance Company S.A. (UK Branch). However, there have been discussions recently on whether this model is sustainable. While industry bodies are supportive of the arrangement, it appears that EIOPA, along with certain national regulators, disagree as to its legitimacy. Depending upon the outcome, AXIS Managing Agency Ltd.'s access to the EEA market could be impacted.

Any of these effects of Brexit, and others we cannot anticipate, could adversely affect our business, results of operations, or financial condition.

*Since we depend on a few brokers for a large portion of our revenues, loss of business provided by any one of them could adversely affect us.*

We market our insurance and reinsurance products worldwide primarily through insurance and reinsurance brokers and derive a significant portion of our business from a limited number of brokers. Marsh & McLennan Companies, Inc., including its subsidiary Guy Carpenter & Company, Inc., Aon plc and Arthur J. Gallagher & Co., provided 43% of gross premiums written in 2022. Our relationships with these brokers are based on the quality of our underwriting and claims services, as well as our financial strength ratings. Any deterioration in these factors could result in the brokers advising our clients to place their business with other insurers and reinsurers. In addition, these brokers also have, or may in the future acquire, ownership interests in insurance and reinsurance companies that may compete with us; these brokers may then favor their own insurers and reinsurers over other companies. Loss of all or a substantial portion of the business provided by one or more of these brokers could have a material adverse effect on our business.

*A downgrade in our financial strength or credit ratings by one or more rating agencies could adversely affect our business, results of operations, financial condition or liquidity.*

Claims paying and financial strength ratings are important factors in establishing the competitive position of insurance companies and maintaining customer confidence in us and in our ability to market insurance products. Independent rating agencies analyze the financial performance and condition of insurers on an ongoing basis.

There can be no assurance that we will not experience a ratings downgrade from one of the independent rating agencies. This could arise from a change in our financial performance, our financial condition or a change in ratings methodology. Ratings agencies may also heighten the level of scrutiny they apply when analyzing companies in our industry, adjust upward the capital and other requirements employed in their models and/or discontinue credit and debt instruments or other structures deployed for maintenance of certain rating levels. A downgrade, withdrawal or negative watch/outlook by any independent rating agency could cause our competitive position in the insurance/reinsurance industry to suffer and make it more difficult for us to market our products. In addition, if we experience a credit rating downgrade, withdrawal or negative watch/outlook in the future, we could incur higher borrowing costs and may have more limited means to access capital. A downgrade, withdrawal or negative watch/outlook could also result in a substantial loss of business for us, as ceding companies and brokers that place such business may move to other insurers and reinsurers with higher ratings. We would also be required to post collateral under the terms of certain of our policies of reinsurance.

*We may require additional capital in the future, which may not be available or may only be available on unfavorable terms.*

Our future capital requirements depend on many factors, including rating agency and regulatory requirements, the performance of our investment portfolio, our ability to write new business successfully, the frequency and severity of catastrophe events and our ability to establish premium rates and loss reserves at levels sufficient to cover losses. We may need to raise additional funds through financings. If we are unable to do so, it may curtail our ability to conduct our business. Any equity or debt financing, if available at all, may be on terms that are not favorable to us. As economic and market volatility continues, it is possible that access to the capital markets may become more constrained and cost of capital may increase. Equity financings could be dilutive to our existing shareholders and could result in the issuance of securities that have rights, preferences and privileges that are senior to those of our other securities. If we cannot obtain adequate capital on favorable terms or at all, our business, operating results and financial condition could be adversely affected.

*Our inability to obtain the necessary credit could adversely affect our ability to offer reinsurance in certain markets.*

Neither AXIS Specialty Bermuda nor AXIS Re SE is licensed or admitted as an insurer or reinsurer in any jurisdiction other than Bermuda, Ireland, Singapore and Brazil. Because the U.S. and certain other jurisdictions do not permit insurance companies to take credit on their statutory financial statements for reinsurance obtained from unlicensed or non-admitted

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insurers unless appropriate security mechanisms are in place, our reinsurance clients in these jurisdictions typically require AXIS Specialty Bermuda and AXIS Re SE to provide letters of credit or other collateral. Our credit facilities are used to post letters of credit. However, if our credit facilities are not sufficient or if we are unable to renew our credit facilities or arrange for other types of security on commercially affordable terms, AXIS Specialty Bermuda and AXIS Re SE could be limited in their ability to write business for some of our clients.

*We could be adversely affected by the loss of one or more key executives or by an inability to attract and retain qualified personnel or by the inability of an executive to obtain a Bermuda work permit.*

Our success depends on our ability to retain the services of our existing key executives and to attract and retain additional qualified personnel in the future. The loss of the services of any of our key executives or the inability to hire and retain other highly qualified personnel in the future could adversely affect our ability to conduct our business. Changes in local employment legislation, taxation and the approach of regulatory bodies to compensation practices within our operating jurisdictions may impact our ability to recruit and retain qualified personnel or the cost to us of doing so. In addition, health emergencies or pandemics could impact our ability to attract and retain key personnel. There can be no assurance that we will be successful in identifying, hiring or retaining successors on terms acceptable to us.

With few exceptions, generally only Bermudians, spouses of Bermudians or Permanent Resident Certificate holders (collectively, 'Residents') may engage in any gainful occupation in Bermuda without an appropriate governmental work permit. Work permits may be granted or extended by the Bermuda government only upon showing that, after proper public advertisement (in most cases), no Residents who meet the minimum standard requirements for the advertised position have applied for the position. Work permits are generally granted for one-, three- or five-year durations. Expatriate workers can, subject to the above, continue to be employed in Bermuda indefinitely by reapplying for work permits. All executive officers who work in our Bermuda office and who require work permits have obtained them.

*Increasing scrutiny and evolving expectations from investors, customers, regulators, policymakers and other stakeholders regarding environmental, social and governance matters may adversely affect our reputation or otherwise adversely impact our business and results of operations.*

Shareholders and investors have placed increased importance on how we are addressing ESG issues. In addition, regulators have adopted and likely will continue to adopt ESG-related rules and guidance, which may conflict with one another and impose additional costs on us. ESG encompasses a wide range of issues, including climate change and other environmental risks. Our leadership and Board are actively engaged in understanding the ever-changing ESG landscape and assessing our business operations to ensure that our business strategy reflects our values that our success depends on our commitment to a diverse workforce, an informed and active dialogue about ESG issues with our customers and shareholders and the strength of our ERM framework. We cannot predict whether our business decisions, business strategy and disclosures relating to climate change and other ESG issues will meet the expectations or requirements of relevant stakeholders, including certain key institutional shareholders. If we are unable to meet targets, standards, or expectations, whether established by us or third parties, it could result in adverse publicity, reputational harm, or loss of customer and/or investor confidence, which could adversely affect our business and results of operations.

## **COVID-19**

*The impacts of the novel coronavirus (COVID-19) pandemic may continue to pose a risk to our business, results of operations, financial condition and liquidity could be material.*

The direct and indirect consequences of COVID-19 and related economic conditions are hard to predict and may continue to emerge and evolve for some time. Risks presented by the ongoing effects of COVID-19 and related economic conditions include the following:

- We have substantial exposure to losses resulting from catastrophe events, including pandemics. Losses have been incurred from the COVID-19 pandemic and we remain exposed to additional losses or deterioration. Total losses resulting from the COVID-19 pandemic will ultimately depend on its severity and duration and such losses could have a material adverse effect on our results of operations, financial condition or liquidity. We have identified exposures arising from our underwriting of insurance and reinsurance policies that cover accident and health (including travel), event cancellation, property/business interruption, and potential exposures arising from our underwriting of insurance and reinsurance policies that cover credit and surety (including mortgage) and professional lines (medical malpractice and directors' and officers' liability) among others. These exposures and potential exposures include direct claims relating to COVID-19 (e.g., business interruption following a shelter-in-place order) and indirect exposures arising from an ensuing

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economic downturn. We note that other lines may be affected as the pandemic and associated economic downturn develop and new information is discovered.

- Our exposures are controlled and limited by our insurance and reinsurance contracts, which include specific terms and conditions defining if and how our policies respond to losses arising from the COVID-19 pandemic. However, legislative, regulatory, or judicial actions and social influences could alter the interpretation of our contracts or extend or change coverage (beyond the obligations set forth within those contracts or beyond what was intended by the parties). We set our reserves based on our best interpretation of the current legal position in applicable jurisdictions, but these legislative, regulatory or judicial actions make it difficult to precisely predict the total amount of losses we could incur as a result of the pandemic.
- Actual claims may exceed loss reserves. While we believe that net reserves for losses and loss expenses at December 31, 2022 are adequate, changes in the duration, severity, and scope of the impact of the COVID-19 pandemic from current expectations may result in ultimate losses being materially greater or less than the net reserves for losses and loss expenses currently provided. Among the factors that would cause net reserves for losses and loss expenses to increase or decrease are changes in claim frequency or severity driven by the COVID-19 pandemic or its related impact on the economy.
- Uncertainty and market turmoil caused by the COVID-19 pandemic could continue to affect, among other aspects of our business, the demand for our products and the ability of customers, counterparties and others to establish or maintain their relationships with us. In addition, the market for insurance and reinsurance could be smaller and certain industries for which we write business have been, and will likely continue to be, particularly impacted by the pandemic (such as, aviation and hospitality, among others), resulting in downward pressure on our premium levels.
- The performance of our cash and investments portfolio has a significant impact on our financial results. Government imposed restrictions on movements and/or social distancing practices have led, and if reinstated, could continue to lead, to sharp declines in the revenue of many companies and industries. We have some debt and/or equity exposure to some of these highly impacted sectors. Certain of our policyholders and intermediaries may not pay premiums owed to us due to insolvency or other reasons. Insolvency, liquidity problems, distressed financial condition due to the impact of the COVID-19 pandemic or the general effects of economic recession may increase the risk that policyholders or intermediaries, such as insurance brokers, may not pay a part of or the full amount of premiums owed to us, despite an obligation to do so. The terms of our contracts, or actions by our regulators, may not permit us to cancel our insurance even though we have not received payment. We may further decide (or be obliged by regulation) to refund premiums already paid where it is judged that the COVID-19 pandemic has reduced the customer need for insurance. If refunds or non-payments become widespread, whether as a result of insolvency, lack of liquidity, adverse economic conditions, operational failure or otherwise, it could have a material adverse impact on our revenues and results of operations.
- The COVID-19 pandemic could impact our ability to obtain reinsurance and retrocessional arrangements on favorable terms, which could limit the amount of business we are willing to write or reduce our reinsurance protection for large loss events.
- There is a risk of reputational damage resulting from claims disputes and underwriting renewal actions.

The continuing impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the efficacy of vaccines and boosters, the extent and effectiveness of containment actions and the extent and effectiveness of government actions to support the economy. The duration and severity of the economic downturn is uncertain, as well as the impact of these and other factors on our employees, customers and partners. Such impact on our business, results of operations, financial condition or liquidity could be material.

### **Market Risk**

Market risk is the risk that our financial instruments may be negatively impacted by movements in financial market prices or rates such as equity prices, interest rates, credit spreads and foreign currency exchange rates.

*Our investment and derivative instrument portfolios are exposed to significant capital markets risk related to changes in interest rates, credit spreads and equity prices, as well as other risks, which may adversely affect our results of operations or financial condition.*

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The performance of our cash and investments portfolio has a significant impact on our financial results. A failure to successfully execute our investment strategy could have a significant impact on our results of operations or financial condition.

Our investment portfolio is subject to a variety of market risks, including risks relating to general economic conditions, interest rate fluctuations, equity price risk, foreign currency movements, pre-payment or reinvestment risk, liquidity risk and credit risk. Although we manage market risks through, among other things, stressing diversification and conservation of principal and liquidity in our investment guidelines, the persistency of higher inflation and resulting central bank monetary tightening along with geopolitical conflicts led to poor financial market returns in 2022. The poor global financial market returns in 2022 adversely impacted, and may continue to adversely impact, the value of our investments portfolio.

Our fixed maturities, which represent 84% of our total investments and 77% of total cash and investments at December 31, 2022, may be adversely impacted by changes in interest rates or credit spreads. Increases in yields could cause the fair value of our investment portfolio to decrease, resulting in a lower book value (refer to Item 7A 'Quantitative and Qualitative Disclosure About Market Risk' for further details) and capital resources. A decline in yields may result in reductions in our investment income as new funds and proceeds from sales and maturities of fixed income securities are reinvested at lower rates. This reduces our overall future profitability. Interest rates and credit spreads are highly sensitive to many factors, including governmental and central bank monetary policies, inflation, domestic and international economic and political conditions, corporate profitability and other factors beyond our control. In 2022, the U.S. Federal Reserve and other central banks increased interest rates at various times to stem inflation and may further increase rates in the future.

Our portfolios of 'other investments' and equity securities expose us to market price variability, driven by a number of factors outside of our control including, but not limited to global equity market performance. Given our reliance on external investment managers, we are also exposed to operational risks, which may include, but are not limited to a failure to follow our investment guidelines, technological and staffing deficiencies and inadequate disaster recovery plans.

Our derivative instrument counterparties may default on amounts owed to us due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud or other reasons. Even if we are entitled to collateral in circumstances of default, such collateral may be illiquid or proceeds from such collateral when liquidated may not be sufficient to recover the full amount of the obligation.

# ***Changes in the method for determining LIBOR and the potential replacement of LIBOR may adversely affect our cost of capital and net investment income.***

Effective January 1, 2022, the FCA ceased publication of the one-week and two-month USD LIBOR and will cease publication of the remaining tenors immediately after June 30, 2023. Additionally, the U.S. Federal Reserve Board has advised banks to stop entering into new USD LIBOR based contracts.

The transition to replacements for LIBOR and other interest rate benchmarks, including EONIA and EURIBOR (collectively with LIBOR, the 'IBORs'), is ongoing and the outcome remains uncertain. The Alternative Reference Rates Committee, convened by the Federal Reserve, has identified the Secured Overnight Financing Rate (SOFR) as its preferred alternative rate for USD LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. Uncertainty as to the adoption, market acceptance or availability of SOFR or alternative reference rates or other reforms may adversely affect the trading market for LIBOR-based and alternative-based securities, including those held in our investment portfolio. Changes or reforms to the determination or supervision of LIBOR, SOFR or any other successor reference rate may result in a sudden or prolonged increase or decrease in reported LIBOR, SOFR or to a successor, which could have an adverse impact on the market for floating rate securities and the value of our investment portfolio and insurance products which directly or indirectly reference LIBOR, SOFR or its successor.

At December 31, 2022, our investment portfolio included $2.4 billion of floating rate investments, of which over 75% were tied to LIBOR. The instruments and agreements governing our investments generally provide for appropriate fall-back language to select an alternative index and spread adjustment if the current index is no longer available, however there is no assurance that the alternative index will provide comparable returns. The potential effect of any such event on net investment income cannot yet be determined and any changes to benchmark interest rates could decrease net investment income, which could impact our results of operations, liquidity, or the market value of our investments.

The Company continues to develop and implement plans to mitigate the risks associated with the discontinuation of the IBORs. In particular, the Company has ceased offering and purchasing IBOR-linked securities and has included fallback

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language or designated an alternate benchmark rate in IBOR-linked material instruments and agreements, including interest rate swap agreements.

# ***Our operating results may be adversely affected by currency fluctuations.***

Our reporting currency is the U.S. dollar. However, a portion of gross premiums are written and ceded in currencies other than the U.S. dollar and a portion of gross and ceded loss reserves are in non-U.S. currencies. In addition, a portion of our investment portfolio is denominated in currencies other than the U.S. dollar. We may experience losses or gains resulting from fluctuations in the values of these non-U.S. currencies. Although we manage our foreign currency exposure through matching of our major foreign-denominated assets and liabilities, as well as through use of currency derivatives, there is no guarantee that we will successfully mitigate our exposure to foreign exchange losses due to unfavorable currency fluctuations. Political unrest, sovereign debt concerns or other economic factors in jurisdictions in which we operate may magnify these risks.

# **Liquidity Risk**

Liquidity risk is the risk that we may not have sufficient cash to meet our obligations when they are due, or would have to incur excessive costs to do so.

# ***Our underwriting activities may expose us to liquidity risks.***

Our exposure to liquidity risk stems mainly from the need to pay claims on potential extreme loss events and regulatory constraints that limit the flow of funds within the Group. We maintain cash and cash equivalents and high quality, liquid securities to meet expected outflows, as well as those that could result from a range of potential stress events. We place internal limits on the maximum percentage of cash and investments that may be in an illiquid form as well as on the minimum percentage of our asset portfolio that must be invested in unrestricted cash and liquid investment grade fixed income securities.

Additionally, we have access to diverse funding sources to cover contingencies. Funding sources include asset sales and external debt issuances, and we may seek to establish additional borrowing facilities to cover such contingencies. We conduct stress tests to ensure the sufficiency of these funding sources in extreme scenarios; however, there remains a risk that in certain circumstances, our results of operations or financial condition may be adversely impacted by our inability to access appropriate liquidity or the cost of doing so.

# **Credit Risk**

Credit risk represents the risk of incurring financial loss due to the diminished creditworthiness (reduced financial strength and, ultimately, possibly default) and concentration of our third-party counterparties (refer to *Market Risk* above for a discussion of credit risk as it relates to the investment portfolio).

# ***If we successfully purchase reinsurance, we may be unable to collect amounts due to us.***

A reinsurer's insolvency, or inability or refusal to make payments under the terms of its reinsurance agreement with us, could have a material adverse effect on our business because we remain liable to the insured. We face counterparty risk whenever we purchase reinsurance or retrocessional reinsurance, and inflation and industry catastrophic losses have heightened this risk as counterparties experience economic strains and uncertainty. Consequently, the insolvency, inability or unwillingness of any of our present or future reinsurers to make timely payments to us under the terms of our reinsurance or retrocessional agreements could have a material adverse effect on our results of operations, financial condition, or liquidity.

# ***Our reliance on brokers subjects us to credit risk.***

In accordance with industry practice, we pay amounts owed on claims under our insurance and reinsurance contracts to brokers, and these brokers pay these amounts over to the clients that have purchased insurance and reinsurance from us. Although the law is unsettled and depends upon the facts and circumstances of the particular case, in some jurisdictions, if a broker fails to make such a payment, we might remain liable to the insured or ceding insurer for the deficiency.

Conversely, in certain jurisdictions, when the insured or ceding insurer pays premiums for these policies to brokers for payment over to us, these premiums might be considered to have been paid to us and the insured or ceding insurer will no longer be liable to us for those amounts, whether or not we have actually received the premiums from the broker. Consequently, we assume a degree of credit risk associated with brokers with whom we transact business. These risks are heightened during periods characterized by financial market instability and/or an economic downturn or recession.

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# ***Certain of our policyholders and intermediaries may not pay premiums owed to us due to insolvency or other reasons.***

Insolvency, liquidity problems, distressed financial condition or the general effects of economic recession, including due to the effects of the COVID-19 pandemic, may increase the risk that policyholders or intermediaries, such as insurance brokers, may not pay a part of or the full amount of premiums owed to us, despite an obligation to do so. The terms of our contracts may not permit us to cancel our insurance even though we have not received payment. If non-payment becomes widespread, whether as a result of insolvency, lack of liquidity, adverse economic conditions, operational failure or otherwise, it could have a material adverse impact on our revenues and results of operations.

# **Operational Risk**

Operational risk represents the risk of loss as a result of inadequate processes, system failures, human error or external events, including but not limited to direct or indirect financial loss, reputational damage, customer dissatisfaction, and legal and regulatory penalties.

# ***If we experience difficulties with technology and/or data security, our ability to conduct our business might be adversely affected.***

While technology can streamline many business processes and ultimately reduce the cost of operations, technology initiatives present certain risks. Our business is dependent upon our employees' and outsourcers' ability to perform, in an efficient and uninterrupted fashion, necessary business functions such as processing policies and paying claims. A shutdown or inability to access one or more of our outsourcers' facilities, a power outage, or a failure of one or more of our outsourcers' information technology, telecommunications or other systems could significantly impair our ability to perform such functions on a timely basis. If sustained or repeated, such a business interruption, system failure or service denial could result in a deterioration of our ability to write and process business, provide customer service, pay claims in a timely manner or perform other necessary business functions. Despite our robust business continuity plan, which addresses the risk of such business interruption, system failure or service denial with input from both internal and external stakeholders, our systems may still be impacted. Unauthorized access, computer viruses, deceptive communications (phishing), malware, hackers and other external hazards including catastrophe events could expose our data systems to security breaches. These risks could expose us to data loss and damages.

Like other global companies, we are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of threats to our data and systems. These attacks and incidents have included, or may in the future include: unauthorized access, viruses, malware or other malicious code, ransomware, deceptive social engineering campaigns (also known as 'phishing' or 'spoofing'), loss or theft of assets, employee errors or malfeasance, third-party errors or malfeasance, as well as system failures and other security events. Over time, and particularly recently, the sophistication of these threats continues to increase. While administrative and technical controls, along with other preventive actions, reduce the risk of cyber incidents and protect our information technology, they may be insufficient to thwart cyber-attacks and/or prevent other security breaches to our systems.

While we have not experienced a recent disruption or security breach, to the extent any such disruption or breach results in a loss or damage to our data, or inappropriate disclosure of our confidential information or that of others, it could impact our operations, cause significant damage to our reputation, affect our relationships with our customers and clients, lead to claims against us under various data privacy laws, result in regulatory action and ultimately have a material adverse effect on our business or operations. In addition, although we purchase limited cyber insurance, we may be required to incur significant costs to mitigate the damage caused by any security breach, to address any interruptions in our business or to protect against future damage, which costs may not be covered by our cyber insurance.

We also operate in a number of jurisdictions with strict data privacy and other related laws, which could be violated in the event of a significant cybersecurity incident, or by personnel. Failure to comply with these obligations can give rise to monetary fines and other penalties that could be material.

# ***Our business may be adversely affected if third-party outsourced service providers fail to satisfactorily perform certain technology and business process functions.***

We outsource certain technology and business process functions to third parties. If we do not effectively develop and implement our outsourcing strategy, third-party providers do not perform as anticipated or we experience technological or

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other problems with a transition, we may not realize productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and a loss of business. Our outsourcing of certain technology and business process functions to third parties may expose us to enhanced risk related to data security, which could result in monetary and reputational damages. The COVID-19 pandemic may have increased the strain on business processes and technology at our third-party partners. In addition, our ability to receive services from third-party providers might be impacted by political instability or unanticipated regulatory requirements. As a result, our ability to conduct our business might be materially adversely affected.

*We rely on internal processes to maintain our operations and manage the operational risks inherent to our business, and any errors, omissions or employee misconduct in the execution of these processes may result in financial losses.*

We rely on the execution of internal processes to maintain and execute our operations. We seek to monitor and control our exposure to risks arising from these processes through an enterprise risk management framework, internal controls, management review and other processes. We cannot provide total assurance that these processes will effectively identify or control all risks, or that our employees and third-party agents will effectively execute them. Loss may result from, among other things, actual or alleged fraud; errors; or failure to document transactions properly, obtain proper internal authorization, comply with underwriting or other internal guidelines, or comply with regulatory requirements. These risks could result in losses that adversely affect our business, results of operations, or financial condition. An extended period of remote work arrangements could increase or introduce new operational risk and adversely affect our ability to manage our exposure to risks arising from our internal processes. Furthermore, insurance policies provided by third parties may not cover us if we experience a significant loss from these risks.

### **Regulatory Risk**

Regulatory risk represents the risk arising from our failure to comply with legal, statutory or regulatory obligations.

*Compliance with data protection and privacy laws and regulations governing the processing of personal data and information is a legal requirement, and non-compliance may impede our services or result in increased costs. Failure to comply could result in material fines and/or penalties imposed by data protection and/or financial services regulators. In addition, any data breach may have an adverse effect on our reputation, results of operations or financial condition, or have other adverse consequences.*

Our business relies on the processing of data in many jurisdictions and the movement of data across national borders. The collection, storage, handling, disclosure, use, transfer and security of personal information that occurs in connection with our business is subject to federal, state and foreign data privacy laws. These legal requirements are not uniform and continue to evolve, and regulatory scrutiny in this area is increasing around the world. In many cases, these laws apply not only to third-party transactions, but also to transfers of information within the Group. Privacy and data protection laws may be interpreted and applied differently from country to country and may create inconsistent or conflicting requirements.

The General Data Privacy Regulation ('GDPR') has extra-territorial effect. It requires all companies processing data of E.U. citizens to comply with the GDPR, regardless of the company's location, and also imposes obligations on E.U. companies processing data of non-E.U. citizens. In particular, the GDPR imposes requirements regarding the processing of personal data and confers new rights on data subjects, including rights of access to their personal data, deletion of their personal data, the 'right to be forgotten' and the right to 'portability' of personal data. In the U.K., the Data Protection Act 2018 and the U.K. General Data Protection Regulation, which is the retained E.U. law version of the GDPR by virtue of the European Union (Withdrawal) Act 2018 and as amended by the Data Protection, Privacy and Electronic Communications (Amendments etc.) (E.U. Exit) Regulations 2019 (collectively, 'U.K. GDPR'), regulates data protection for all individuals within the U.K. and applies to all our subsidiaries operating in the U.K.

The California Consumer Privacy Act ('CCPA') effective on January 1, 2020 confers rights on California residents including rights to know what personal information is collected about them and whether their personal information is sold (and if so, to whom), to access any personal information that has been collected and to require a business to delete their personal information. The California Privacy Rights Act ('CPRA') took effect on January 1, 2023 and becomes fully enforceable on July 1, 2023. There will be a 'look back' to January 1, 2022, meaning that data collected in the 2022 calendar year is subject to the terms of the CPRA beginning on January 1, 2023. The CPRA will work as an addendum to the CCPA, strengthening the rights of California residents, tightening business regulations on the use of personal information and establishing a new government agency for state-wide data privacy enforcement. The CPRA may increase our compliance burden.

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Compliance with the enhanced obligations imposed by data protection and other legislation, including Singapore's amended Personal Data Protection Act and Bermuda's Personal Information Protection Act, requires investment in appropriate technical or organizational measures to safeguard the rights and freedoms of data subjects. Such investment may result in significant costs to our business and may require us to modify certain of our business practices. In addition, enforcement actions, investigations and the imposition of substantial fines and penalties by regulatory authorities as a result of data security incidents and privacy violations have increased dramatically over the past several years. The enactment of more restrictive laws, rules, regulations or future enforcement actions or investigations could impact us through increased costs or restrictions on our business, and noncompliance could result in regulatory penalties and significant legal liability.

Unauthorized disclosure or transfer of sensitive or confidential client or Company data, whether through systems failure, employee negligence, fraud or misappropriation, by the Company or other parties with whom we do business, could also subject us to significant litigation, monetary damages, regulatory enforcement actions, fines and criminal prosecution in one or more jurisdictions. Such events could also result in negative publicity and damage to our reputation and cause us to lose business, which could therefore have a material adverse effect on our results of operations or financial condition.

*The regulatory system under which we operate, and potential changes thereto, could have an adverse effect on our business.*

Our insurance and reinsurance subsidiaries conduct business globally and are subject to varying degrees of regulation and supervision in multiple jurisdictions. In the U.K., Lloyd's has supervisory powers that pose unique regulatory risks. The laws and regulations of the jurisdictions and markets, including Lloyd's, in which our insurance and reinsurance subsidiaries are domiciled or operate require, among other things, that our subsidiaries maintain minimum levels of statutory capital and liquidity, meet solvency standards, participate in guaranty funds and submit to periodic examinations of their financial condition and compliance with underwriting and other regulations. These laws and regulations also limit or restrict payments of dividends and reductions in capital. Statutes, regulations and policies may also restrict the ability of these subsidiaries to write insurance and reinsurance contracts, make certain investments and distribute funds. The purpose of insurance laws and regulations generally is to protect insureds and ceding insurance companies, not our shareholders. We may not be able to comply fully with, or obtain appropriate exemptions from, these statutes and regulations, which could result in restrictions on our ability to do business or undertake activities that are regulated in one or more of the jurisdictions in which we conduct business and could subject us to fines and other sanctions. In addition, changes in the laws or regulations to which our insurance and reinsurance subsidiaries are subject or in the interpretation thereof by enforcement or regulatory agencies could have a material adverse effect on our business.

*Potential government intervention in our industry as a result of recent events and instability in the marketplace for insurance products could hinder our flexibility and negatively affect the business opportunities that may be available to us in the market.*

Government intervention and the possibility of future government intervention have created uncertainty in insurance and reinsurance markets. Government and regulators are generally concerned with having insurers and reinsurers with high solvency ratios and localized capital to ensure the protection of policyholders to the possible detriment of other constituents, including shareholders of insurers and reinsurers. Government, regulatory and judicial actions across multiple jurisdictions in relation to business interruption insurance have exacerbated the uncertainty by altering the interpretation of our contracts or extending or changing coverage (beyond the obligations set forth within those contracts or beyond what was intended by the parties).

Certain U.S. and non-U.S. judicial and regulatory authorities, including U.S. Attorney's Offices and certain state attorneys general, occasionally commence investigations into business practices in the insurance industry. In addition, although the U.S. federal government has not historically regulated insurance, there have been proposals from time to time to impose federal regulation on the U.S. insurance industry. In 2010, Dodd-Frank established a Federal Insurance Office ('FIO') within the U.S. Treasury. The FIO has limited regulatory authority to gather data and information regarding the insurance industry and has conducted and submitted a study to the U.S. Congress on how to modernize and improve insurance regulation in the U.S. This study's findings are not expected to have a significant impact on the Company. Further, Dodd-Frank gives the Federal Reserve supervisory authority over certain U.S. financial services companies, including insurance companies, if they are designated as 'systemically important' by a two-thirds vote of a Financial Stability Oversight Council. While we do not believe that we are systemically important, as defined in Dodd-Frank, Dodd-Frank or additional federal or state regulation that is adopted in the future could impose significant burdens on us, impact the ways in which we conduct our business and govern our subsidiaries, increase compliance costs, increase the levels of capital required to operate our subsidiaries, duplicate state regulation and/or result in a competitive disadvantage.

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Certain of our European legal entities are subject to local laws that implement the Solvency II Directive. Solvency II covers three main areas: (i) the valuation of assets and liabilities on a Solvency II economic basis and risk-based solvency and capital requirements; (ii) governance requirements including requirements relating to the key functions of compliance, internal audit, actuarial and risk management; and (iii) new supervisory legal entity and group reporting and disclosure requirements including public disclosures. The BMA is fully equivalent under the Solvency II Directive for Bermuda's commercial insurance sector, including Class 4 insurers. In the lead-up to Brexit, the U.K. government onshored all Solvency II legislation into U.K. law. However, the U.K. is now seeking to make wholesale changes to its Solvency II regime, and is consulting with the industry on these proposed changes. The European Commission has not granted the U.K. Solvency II equivalence and is unlikely to do so in light of upcoming changes.

While we cannot predict the exact nature, timing or scope of possible governmental initiatives, such proposals could materially adversely affect our business by, among other things:

- Providing reinsurance capacity in markets and to consumers that we target;
- Requiring our further participation in industry pools and guaranty associations;
- Expanding the scope of coverage under existing policies; e.g., following large disasters;
- Further regulating the terms of insurance and reinsurance contracts; or
- Disproportionately benefiting the companies of one country over those of another.

*Our international business is subject to applicable laws and regulations relating to sanctions and foreign corrupt practices, the violation of which could adversely affect our operations.*

We must comply with all applicable economic and financial sanctions, other trade controls and anti-bribery laws and regulations of the U.S. and other foreign jurisdictions where we operate, including Bermuda, the U.K. and the European Community. U.S. laws and regulations applicable to us include the economic trade sanctions laws and regulations administered by the U.S. Department of Treasury's Office of Foreign Assets Control as well as certain laws administered by the U.S. Department of State. These laws and regulations are complex, frequently changing, and increasing in number, and they may impose additional prohibitions or compliance obligations on our dealings in certain countries and territories, including sanctions imposed on Russia and certain Ukraine territories. In addition, we are subject to the Foreign Corrupt Practices Act and other anti-bribery laws, such as the Irish Criminal Justice (Corruption Offences) Act, the Bermuda Bribery Act and the U.K. Bribery Act, which generally bar corrupt payments or unreasonable gifts. Although we have policies and controls in place that are designed to ensure compliance with these laws and regulations, it is possible that an employee or an agent acting on our behalf could fail to comply with applicable laws and regulations and, due to the complex nature of the risks, it may not always be possible for us to ascertain compliance with such laws and regulations. In such event, we could be exposed to civil penalties, criminal penalties and other sanctions, including fines or other unintended punitive actions. In addition, such violations could damage our business and/or our reputation. All of the foregoing could have a material adverse effect on our financial condition and operating results.

#### **Risks Related to the Ownership of our Securities**

In addition to the risks to our business listed above, there are certain other risks related to the ownership of our securities.

*The price of our common shares may be volatile.*

There has been significant volatility in the market for equity securities in recent years. During 2022, 2021, and 2020 the closing price of our common shares fluctuated from a low of $48.77 to a high of $60.66, a low of $44.93 to a high of $57.93, and a low of $33.29 to a high of $65.80, respectively. The price of our common shares may not remain at or exceed current levels. The following factors, in addition to those described in other risk factors above, may have a material adverse effect on the market price of our common stock:

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- actual or anticipated variations in our quarterly results, including as a result of catastrophes or our investment performance;
- any share repurchase program;
- changes in market valuation of companies in the insurance/reinsurance industry;
- changes in expectations of future financial performance or changes in estimates of securities analysts;
- fluctuations in stock market processes and volumes;
- issuances or sales of common shares or other securities in the future;
- the addition or departure of key personnel;
- changes in tax law; and
- announcements by us or our competitors of acquisitions, investments or strategic alliances.

Stock markets in the U.S. continue to experience volatile price and volume fluctuations. Such fluctuations, as well as the general political situation, current economic conditions or interest rate or currency rate fluctuations, could materially adversely affect the market price of our stock.

*Our ability to pay dividends and to make payments on indebtedness may be constrained by our holding company structure.*

AXIS Capital is a holding company and has no direct operations of its own. AXIS Capital has no significant operations or assets other than its ownership of the shares of its operating insurance and reinsurance subsidiaries, AXIS Specialty Bermuda, AXIS Re SE, AXIS Specialty Europe SE, the Members of Lloyd's (AXIS Corporate Capital UK Limited and AXIS Corporate Capital UK II Limited), AXIS Re U.S., AXIS Specialty U.S., AXIS Surplus and AXIS Insurance Co. (collectively, our "Insurance Subsidiaries"). Dividends and other permitted distributions from our Insurance Subsidiaries (in some cases through our subsidiary holding companies) are our primary source of funds to meet ongoing cash requirements, including debt service payments and other expenses, and to pay dividends to our shareholders. Our Insurance Subsidiaries are subject to significant regulatory restrictions limiting their ability to declare and pay dividends and make distributions. The inability of our Insurance Subsidiaries to pay dividends in an amount sufficient to enable us to meet our cash requirements at the holding company level could have a material adverse effect on our business and our ability to pay dividends and make payments on our indebtedness.

*AXIS Capital is a Bermuda company and it may be difficult to enforce judgments against it or its directors and executive officers.*

AXIS Capital is incorporated pursuant to the laws of Bermuda, and our business is based in Bermuda. In addition, some of our directors and officers reside outside the U.S., and all or a substantial portion of our assets and the assets of such persons are located in jurisdictions outside the U.S. As a result, it may be difficult or impossible to effect service of process within the U.S. upon us or those persons or to recover against us or them on judgments of U.S. courts, including judgments predicated upon civil liability provisions of the U.S. federal securities laws. Further, it may not be possible to bring a claim in Bermuda against us or our directors and officers for violation of U.S. federal securities laws because these laws may not have extraterritorial effect and/or may not be enforceable in Bermuda. A Bermuda court may, however, impose civil liability, including the possibility of monetary damages, on us or our directors and officers in a suit brought in the Supreme Court of Bermuda if the Bermuda court considers that it has jurisdiction to hear and decide any such claim.

*There are provisions in our organizational documents that may reduce or increase the voting rights of our shares.*

Our bye-laws generally provide that shareholders have one vote for each common share held by them and are entitled to vote, on a non-cumulative basis, at all meetings of shareholders. However, the voting rights exercisable by a shareholder may be limited so that certain persons or groups are not deemed to hold 9.5% or more of the voting power conferred by our shares. Under these provisions, some shareholders may have the right to exercise their voting rights limited to less than one vote per share. Moreover, these provisions could have the effect of reducing the voting power of some shareholders who would not otherwise be subject to the limitation by virtue of their direct share ownership. In addition, our Board of Directors may limit a shareholder's exercise of voting rights where it deems it necessary to do so to avoid adverse tax, legal or regulatory consequences.

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We also have the authority under our bye-laws to request information from any shareholder for the purpose of determining whether a shareholder's voting rights are to be limited pursuant to the bye-laws. If a shareholder fails to respond to our request for information or submits incomplete or inaccurate information in response to a request by us, we may, in our sole discretion, eliminate the shareholder's voting rights.

*There are provisions in our bye-laws that may restrict the ability to transfer common shares and which may require shareholders to sell their common shares.*

Our Board of Directors may decline to register a transfer of any common shares under some circumstances, including if they have reason to believe that any non-de minimis adverse tax, regulatory or legal consequences to us, any of our subsidiaries or any of our shareholders may occur as a result of such transfer. Our bye-laws also provide that if our Board of Directors determines that share ownership by a person may result in non-de minimis adverse tax, legal or regulatory consequences to us, any of our subsidiaries or any of our shareholders, then we have the option, but not the obligation, to require that shareholder to sell to us or to third parties to whom we assign the repurchase right for fair value the minimum number of common shares held by such person that is necessary to eliminate the non-de minimis adverse tax, legal or regulatory consequences.

*Applicable insurance laws may make it difficult to effect a change of control of our company.*

Before a person can acquire control of a U.S. insurance company, prior written approval must be obtained from the insurance commissioner of the state where the domestic insurer is domiciled. Prior to granting approval of an application to acquire control of a domestic insurer, the state insurance commissioner will consider such factors as the financial strength of the acquirer, the integrity and management of the acquirer's board of directors and executive officers, the acquirer's plans for the future operations of the domestic insurer and any anti-competitive results that may arise from the consummation of the acquisition of control. Generally, state statutes provide that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, 10% or more of the voting securities of the domestic insurer. Because a person acquiring 10% or more of our common shares would indirectly control the same percentage of the stock of the AXIS U.S. Subsidiaries, the insurance change of control laws of Connecticut, Illinois and New York would likely apply to such a transaction.

The Insurance Act in Bermuda requires that where the shares of a registered insurer or reinsurer, or the shares of its parent, are traded on a recognized stock exchange, and a person becomes a 10%, 20%, 33% or 50% shareholder controller of that insurer or reinsurer, that person shall, within 45 days, notify the BMA in writing that they have become such a controller. In addition, a person who is a shareholder controller of a Class 4 insurer or reinsurer (such as AXIS Specialty Bermuda) whose shares or shares of its parent company are traded on a recognized stock exchange must serve the BMA with a notice in writing that they have reduced or disposed of their holding in the insurer or reinsurer where the proportion of voting rights in the insurer or reinsurer held by them will have reached or has fallen below 10%, 20%, 33% or 50%, as the case may be, not later than 45 days after such reduction or disposal. The definition of shareholder controller is set out in the Insurance Act but generally refers to a person who (i) holds 10% or more of the shares carrying rights to vote at a shareholders' meeting of the registered insurer or reinsurer or its parent; (ii) is entitled to exercise, or control the exercise of, 10% or more of the voting power at any shareholders meeting of the registered insurer or reinsurer or its parent; or (iii) is able to exercise significant influence over the management of the registered insurer or reinsurer or its parent by virtue of its shareholding or its entitlement to exercise, or control the exercise of, the voting power at any shareholders' meeting of the registered insurer or reinsurer or its parent company. The BMA may object to any person holding 10% or more of our common shares if it appears to the BMA that such person is not, or is no longer, a fit and proper person to be such a holder. In such a case, the BMA may require the shareholder to reduce its holding of common shares or direct, among other things, that voting rights attaching to the common shares shall not be exercisable. A person who does not comply with such a notice or direction from the BMA will be guilty of an offense.

In addition, the Insurance Acts and Regulations in Ireland require that anyone acquiring or disposing of a direct or indirect holding in an Irish authorized insurance or reinsurance company (such as AXIS Specialty Europe or AXIS Re SE) that represents 10% or more of the capital or of the voting rights of such company or that makes it possible to exercise a significant influence over the management of such company, or anyone who proposes to decrease or increase that holding to specified levels, must first notify the Central Bank of Ireland ('CBI') of their intention to do so. They also require any Irish authorized insurance or reinsurance company that becomes aware of any acquisitions or disposals of its capital involving the specified levels to notify the CBI. The specified levels are 20%, 33% and 50% or such other level of ownership that results in the company becoming the acquirer's subsidiary within the meaning of article 20 of the European Communities (Non-Life Insurance) Framework Regulations 1994.

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The CBI has three months from the date of submission of a notification within which to oppose the proposed transaction if the CBI is not satisfied as to the suitability of the acquirer in view of the necessity 'to ensure prudent and sound management of the insurance or reinsurance undertaking concerned'. Any person owning 10% or more of the capital or voting rights or an amount that makes it possible to exercise a significant influence over the management of AXIS Capital would be considered to have a 'qualifying holding' in AXIS Specialty Europe SE and AXIS Re SE.

In the U.K., the Prudential Regulation Authority ('PRA') and the Financial Conduct Authority ('FCA') regulate the acquisition of 'control' of any U.K. insurance companies and Lloyd's managing agents that are authorized under the Financial Services and Markets Act 2000 ('FSMA'). Any legal entity or individual that (together with any person with whom it or they are 'acting in concert') directly or indirectly acquires 10% or more of the shares in a U.K. authorized insurance company or Lloyd's managing agent, or their parent company, or is entitled to exercise or control the exercise of 10% or more of the voting power in such authorized insurance company or Lloyd's managing agent or their parent company, would be considered to have acquired 'control' for the purposes of the relevant legislation, as would a person who had significant influence over the management of such authorized insurance company or their parent company by virtue of their shareholding or voting power in either. A purchase of 10% or more of the ordinary shares of the Company would therefore be considered to have acquired 'control' of AXIS Managing Agency Ltd. Under FSMA, any person proposing to acquire 'control' over a U.K. authorized insurance company must give prior notification to the PRA of their intention to do so. The PRA, which will consult with the FCA, would then have 60 working days to consider that person's application to acquire 'control' (although this 60 working day period can be extended by up to 30 additional working days in certain circumstances where the regulators have questions relating to the application). Failure to make the relevant prior application could result in action being taken against AXIS Managing Agency Ltd. by the PRA.

A person who is already deemed to have 'control' will require prior approval of the PRA if such person increases their level of 'control' beyond certain percentages. These percentages are 20%, 30% and 50%. Similar requirements apply in relation to the acquisition of control of a U.K. authorized person which is an insurance intermediary (such as AXIS Underwriting Limited) except that the approval must be obtained from the FCA rather than the PRA and the threshold triggering the requirement for prior approval is 20% of the shares or voting power in the insurance intermediary or its parent company. The approval of the Council of Lloyd's is also required in relation to the change of control of a Lloyd's managing agent or member. Broadly, Lloyd's applies the same tests in relation to control as are set out in the FSMA (see above) and in practice coordinates its approval process with that of the PRA.

While our bye-laws limit the voting power of any shareholder to less than 9.5%, there can be no assurance that the applicable regulatory body would agree that a shareholder who owned 10% or more of our shares did not, because of the limitation on the voting power of such shares, control the applicable Insurance Subsidiary. These laws may discourage potential acquisition proposals and may delay, deter or prevent a change of control of the Company, including transactions that some or all of our shareholders might consider to be desirable.

*Anti-takeover provisions in our bye-laws could impede an attempt to replace our directors or to effect a change in control, which could diminish the value of our common shares.*

Our bye-laws contain provisions that may make it more difficult for shareholders to replace directors and could delay or prevent a change of control that a shareholder might consider favorable. These provisions include a staggered board of directors, limitations on the ability of shareholders to remove directors other than for cause, limitations on voting rights and restrictions on transfer of our common shares. These provisions may prevent a shareholder from receiving the benefit from any premium over the market price of our shares offered by a bidder in a potential takeover. Even in the absence of an attempt to effect a change in management or a takeover attempt, these provisions may adversely affect the prevailing market price of our shares if they are viewed as discouraging takeover attempts in the future.

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## Risks Related to Taxation

### ***Changes in tax laws resulting from the recommendations of the Organization for Economic Corporation and Development ('OECD') could materially adversely affect us.***

The OECD launched a global initiative among member and non-member countries on measures to limit harmful tax competition, known as the 'Base Erosion and Profit Shifting' ('BEPS') project and, in 2015, published reports containing a suite of recommended actions. These measures are largely directed at counteracting the effects of low-tax and preferential tax regimes in countries around the world, including expanding the definition of permanent establishment and updating the rules for attributing profits to permanent establishments, tightening transfer pricing rules to ensure that outcomes are in line with value creation, neutralizing the effect of hybrid financial instruments and limiting the deductibility of interest costs for tax purposes and preventing double tax treaty abuse. Many countries have changed or announced future changes to their tax laws in response to the BEPS project. In particular, the E.U. has sought to harmonize the response of member states to the BEPS reports via the Anti-Tax Avoidance Directives ('the ATAD and the ATAD II'). The ATAD and the ATAD II require all E.U. member states to apply certain specified anti-avoidance measures, including a controlled foreign companies regime, limitations on interest deduction and anti-hybrid rules. On December 22, 2021, the European Commission proposed a third Anti-Tax Avoidance Directive ('ATAD III'), which aims to combat the abuse of investment structures that do not carry out actual economic activities, specifically 'shell companies'. ATAD III proposes to introduce a minimum substance test and reporting requirements for multinational groups to identify 'shell companies'. However, ATAD III must be unanimously agreed between E.U. Member States and remains subject to negotiation and opposition by certain E.U. Member States. Changes to tax laws and additional reporting requirements could increase the tax burden and the complexity and cost of tax compliance.

On May 31, 2019, the OECD published a 'Programme of Work', designed to address the tax challenges created by an increasingly digitalized economy. This was divided into two pillars. Pillar One addresses the broader challenge of a digitalized economy and focuses on the allocation of group profits among taxing jurisdictions, based on a market-based concept rather than the historical 'permanent establishment' concept. Pillar Two addresses the remaining BEPS risk of profit shifting to entities in low tax jurisdictions by introducing a global minimum tax. On December 20, 2021, the OECD released proposed model legislation for Pillar Two which was approved by 135 countries. The Pillar Two legislation would impose a minimum tax rate of 15% on each jurisdiction that has an effective tax rate less than the minimum. The model rules now need to be implemented through domestic legislation. It is expected that 2024 is the earliest that such legislation will come into effect in any of our jurisdictions. If enacted these rules may have a material impact on our effective tax rate.

On December 22, 2021, the European Commission proposed a Directive to effect a global minimum tax rate of 15% for any large group with combined financial revenues of more than 750 million euros a year and either a parent company or a subsidiary situated in an EU Member State. This delivers on the E.U.'s pledge to implement global tax reform agreed by the OECD/G20 Inclusive Framework on BEPS. Importantly, the proposal sets out how the effective tax rate will be calculated per jurisdiction and incorporates legal requirements to ensure that large groups in the E.U. pay a 15% minimum rate of tax for every jurisdiction in which they operate. On December 12, 2022, the EU Member States reached unanimous agreement to implement the OECD/G20 Inclusive Framework's Pillar Two proposals effective 2024. It is anticipated that these rules may have a material impact on our effective tax rates.

### ***We may become subject to taxes in Bermuda after March 31, 2035, which may have an adverse effect on our results of operations.***

The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, as amended, has given each of our Bermuda resident companies an assurance that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to our Bermuda resident companies or any of their respective operations, shares, debentures or other obligations until March 31, 2035. Given the limited duration of the Minister of Finance's assurance, we cannot be certain that we will not be subject to any Bermuda tax after March 31, 2035. However, as noted above, if the Pillar Two rules are adopted in our relevant jurisdictions, the profits earned in Bermuda would nonetheless be subject to taxation up to the minimum tax rate of 15%.

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# ***Our non-U.S. companies may be subject to U.S. tax that may have an adverse effect on our results of operations.***

We intend to manage our business so that each of our non-U.S. companies, apart from our Lloyd's operations with U.S. effectively connected income, will operate in such a manner that none of these companies should be subject to U.S. tax (other than U.S. excise tax on insurance or reinsurance premiums attributable to insuring or reinsuring U.S. risks and U.S. withholding tax on some types of U.S. source investment income), because none of these companies should be treated as engaged in a trade or business within the U.S. However, because there is considerable uncertainty as to the activities that constitute being engaged in a trade or business within the U.S., we cannot be certain that the U.S. Internal Revenue Service will not contend successfully that any of our non-U.S. companies is/are engaged in a trade or business in the U.S. If any of our non-U.S. companies were considered to be engaged in a trade or business in the U.S., it could be subject to U.S. corporate income and additional branch profits taxes on the portion of its earnings effectively connected to such U.S. business. If this were to be the case, our results of operations could be materially adversely affected.

# ***Changes in U.S. tax law could adversely affect us.***

The tax treatment of non-U.S. companies and their U.S. and non-U.S. subsidiaries may be the subject of future legislation. We cannot predict the particulars of any proposed legislation, or whether such legislation would have any effect on us. Future legislation in the U.S. may arise in an effort to harmonize US tax law with OECD Pillar Two initiatives. No assurance may be given that future legislative, administrative, or judicial developments will not produce an adverse U.S. tax consequence to us. If any such adverse developments do occur, our results of operations may be materially adversely affected.

# ***Our non-U.K. companies may be subject to U.K. tax that may have an adverse effect on our results of operations.***

We intend to operate in such a manner so that none of our non-U.K. companies are resident in the U.K. for tax purposes and that none of our non-U.K. resident companies, other than AXIS Specialty Europe and AXIS Specialty U.S. Services, Inc., have a permanent establishment in the U.K. Accordingly, we expect that none of our non-U.K. resident companies, other than AXIS Specialty Europe and AXIS Specialty U.S. Services, Inc., will be subject to U.K. tax. Nevertheless, because neither case law nor U.K. statutes conclusively define the activities that constitute trading in the U.K. through a permanent establishment, the U.K. tax authority might contend successfully that one or more of our non-U.K. companies, in addition to AXIS Specialty Europe and AXIS Specialty U.S. Services, Inc., is trading in the U.K. through a permanent establishment in the U.K. and therefore subject to U.K. tax.

In addition, there are circumstances in which companies that are neither resident in the U.K., nor entitled to the protection afforded by a double tax treaty between the U.K. and the jurisdiction in which they are resident, may be exposed to income tax in the U.K. (other than by deduction or withholding) on the profits of a trade carried on there even if that trade is not carried on through a permanent establishment. We intend to operate in such a manner that none of our companies will be subject to U.K. income tax in this respect.

If any of our non-U.K. resident companies were treated as being resident in the U.K. for U.K. corporation tax purposes, or if any of our non-U.K. companies, other than AXIS Specialty Europe or AXIS Specialty U.S. Services, Inc., were to be treated as carrying on a trade in the U.K., whether or not through a permanent establishment, our results of operations could be materially adversely affected.

The U.K. diverted profits tax ('DPT') is separate from U.K. corporation tax and is charged at a higher rate. It is an anti-avoidance measure aimed at protecting the U.K. tax base against the artificial diversion of profits that are being earned by activities carried out in the U.K. but which are not otherwise being taxed in the U.K., in particular as a result of arrangements between companies in the same multinational group. The U.K. network of double tax treaties does not offer protection from a DPT charge. In the event that the rules apply to certain arrangements, upfront payment of the U.K. tax authority's estimate of the deemed tax liability may be required. If any of our non-U.K. companies is liable to DPT, our results could be materially adversely affected.

# ***Changes in U.K. tax law could adversely affect us.***

AXIS Specialty Europe, AXIS Specialty U.S. Services, Inc. and our U.K. resident companies are treated as taxable in the U.K. On October 14, 2022, the U.K. government reaffirmed plans to increase its corporate tax rate from 19% to 25% with effect from April 1, 2023. Future changes in the basis or rate of U.K. corporation tax could materially adversely affect the operations of these companies.

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# ***Our non-Irish companies may be subject to Irish tax that may have an adverse effect on our results of operations.***

We intend to operate our non-Irish resident companies in such a manner so that none of our non-Irish resident companies are resident in Ireland for tax purposes and are not treated as carrying on a trade through a branch or agency in Ireland.

Accordingly, we expect that none of our non-Irish resident companies will be subject to Irish corporation tax. Nevertheless, since the determination as to whether a company is resident in Ireland is a question of fact to be determined based on a number of different factors and since neither case law nor Irish legislation conclusively defines the activities that constitute trading in Ireland through a branch or agency, the Irish Revenue Commissioners might contend successfully that one or more of our non-Irish companies is resident in or otherwise trading through a branch or agency in Ireland and therefore subject to Irish corporation tax. If this were the case, our results of operations could be materially adversely affected.

# ***Changes in Irish tax law could adversely affect us.***

Trading income derived from the insurance and reinsurance business carried on in Ireland by AXIS Specialty Europe and AXIS Re SE is generally taxed in Ireland at a rate of 12.5%. Over the past number of years, various E.U. member states have, from time to time, called for harmonization of the corporate tax base within the E.U. Ireland, along with other member states, has consistently resisted any movement towards standardized corporate tax rates or tax base in the E.U. The Government of Ireland has also made clear its commitment to retain the 12.5% rate of corporation tax. If, however, tax laws in Ireland change so as to increase the general corporation tax rate, our results of operations could be materially adversely affected. Irish profits would become subject to the 15% global minimum tax rate pursuant to the European Commission Directive discussed above.

# ***If investments held by AXIS Specialty Europe SE or AXIS Re SE are determined not to be integral to the insurance and reinsurance business carried on by those companies, additional Irish tax could be imposed and our business and financial results could be adversely affected.***

Based on administrative practice, taxable income derived from investments made by AXIS Specialty Europe and AXIS Re SE is generally taxed in Ireland at the rate of 12.5% on the grounds that such investments either form part of the permanent capital required by regulatory authorities, or are otherwise integral to the insurance and reinsurance business carried on by those companies. AXIS Specialty Europe and AXIS Re SE intend to operate in such a manner so that the level of investments held by such companies does not exceed the amount that is integral to the insurance and reinsurance business carried on by AXIS Specialty Europe and AXIS Re SE. If, however, investment income earned by AXIS Specialty Europe or AXIS Re SE is deemed to be non-trading income, Irish corporation tax could apply to such investment income at a rate higher than the general 12.5% rate, and our results of operations could be materially adversely affected.

# ***Our operations may be adversely affected by a transfer pricing adjustment in computing taxable profits.***

Any affiliated arrangements between contracting parties established in different jurisdictions are subject to transfer pricing regimes. Consequently, if any arrangement (including any reinsurance or financing arrangements) is found not to be on arm's length terms, an adjustment will be required to compute taxable profits as if the arrangement were on arm's length terms. Any transfer pricing adjustment could materially adversely impact the tax charge suffered by the relevant tax-paying company.

Effective January 1, 2016, Bermuda implemented country by country reporting ('CBCR') whereby multinational groups are required to report details of their operations and intra-group transactions in each jurisdiction. It is possible that our approach to transfer pricing may become subject to greater scrutiny from the tax authorities in the jurisdictions in which we operate, which may lead to transfer pricing audits in the future.

# **General Risk Factors**

# ***Future changes in current accounting practices may adversely impact our reported financial results.***

Future changes in accounting practices may result in significant additional expenses and may affect the calculation of financial statement line items. For example, this could occur if we are required to prepare information relating to prior periods or if we are required to apply new requirements retroactively.

53

# ITEM 1B. UNRESOLVED STAFF COMMENTS

At December 31, 2022, we had no outstanding, unresolved comments from the SEC staff.

# ITEM 2. PROPERTIES

We maintain leased office facilities in Bermuda, the U.S., Europe, Singapore, and Canada. In 2022, we owned the building in which our office in Dublin, Ireland was located. In January 2023, we sold this building. We renew and enter into leases in the ordinary course of business as required. Our global headquarters is located at 92 Pitts Bay Road, AXIS House, Pembroke HM 08, Bermuda. We believe that our office space is sufficient for us to conduct our operations for the foreseeable future.

# ITEM 3. LEGAL PROCEEDINGS

From time to time, we are subject to routine legal proceedings, including arbitrations, arising in the ordinary course of business. These legal proceedings generally relate to claims asserted by or against us in the ordinary course of its insurance or reinsurance operations. Estimated amounts payable related to these proceedings are included in reserve for losses and loss expenses in our consolidated financial statements.

We are not party to any material legal proceedings arising outside the ordinary course of business.

# ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

54

## PART II

### ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common shares are listed on the New York Stock Exchange under the symbol 'AXS'.

On February 22, 2023, the number of holders of record of our common shares was 20. This figure does not represent the actual number of beneficial owners of our common shares because shares are frequently held in 'street name' by securities dealers and others for the benefit of beneficial owners who may vote the shares.

We have a history of paying quarterly cash dividends. While we expect to continue paying comparable cash dividends in the foreseeable future, the declaration and payment of future dividends 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 Item 7 *Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources* for further details.

#### Issuer Purchases of Equity Securities

##### Common Shares

The following table shows information regarding the number of common shares repurchased in the quarter ended December 31, 2022:

| Period | Total number of shares purchased (a) (b) | Average price paid per share | Total number of shares purchased as part of publicly announced programs | Maximum number (or approximate dollar value) of shares that may yet be purchased under the programs (c) |
| --- | --- | --- | --- | --- |
| October 1-31, 2022 | 1 | $49.15 | - | $65 million |
| November 1-30, 2022 | 4 | $54.12 | - | $65 million |
| December 1-31, 2022 | 1 | $56.96 | - | $65 million |
| Total | 6 |  | - | $65 million |

(a) In thousands.

(b) Includes shares repurchased from employees to facilitate the satisfaction of their personal withholding tax liabilities that arise on the vesting of share-settled restricted stock units and shares repurchased as part of our publicly announced program, described below.

(c) 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. Share repurchases may be effected from time to time in the open market or privately negotiated transactions, depending on market conditions.

### ITEM 6. [RESERVED]

55

# **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.

|  | Page |
| --- | --- |
| 2022 Financial Highlights | 57 |
| Overview | 58 |
| Consolidated Results of Operations | 61 |
| Results by Segment: |  |
| i) Insurance Segment | 63 |
| ii) Reinsurance Segment | 66 |
| Net Investment Income and Net Investment Gains (Losses) | 70 |
| Other Expenses (Revenues), Net | 72 |
| Financial Measures | 74 |
| Non-GAAP Financial Measures Reconciliation | 76 |
| Cash and Investments | 79 |
| Liquidity and Capital Resources | 86 |
| Critical Accounting Estimates | 92 |
| i) Reserve for Losses and Loss Expenses | 93 |
| ii) Reinsurance Recoverable on Unpaid Losses and Loss Expenses | 100 |
| iii) Gross Premiums Written | 101 |
| iv) Net Premiums Earned | 103 |
| v) Fair Value Measurements of Financial Assets and Liabilities | 103 |
| vi) Impairment Losses and the Allowance for Expected Credit Losses - Fixed Maturities, Available for Sale | 105 |
| Recent Accounting Pronouncements | 106 |

56

# 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 off $8.2 billion
- Net premiums written off $5.3 billion
- Net premiums earned off $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.

57

# 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.

58

# 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.

59

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.

60

## CONSOLIDATED RESULTS OF OPERATIONS

| Year ended December 31, | 2022 | % Change | 2021 | % Change | 2020 |
| --- | --- | --- | --- | --- | --- |
| Underwriting revenues: |  |  |  |  |  |
| Gross premiums written | $8,214,595 | 7% | $7,685,984 | 13% | $6,826,938 |
| Net premiums written | 5,263,056 | 7% | 4,926,624 | 14% | 4,336,409 |
| Net premiums earned | 5,160,326 | 10% | 4,709,850 | 8% | 4,371,309 |
| Other insurance related income (loss) | 13,073 | (44%) | 23,295 | nm | (8,089) |
| Underwriting expenses: |  |  |  |  |  |
| Net losses and loss expenses | (3,242,410) | 8% | (3,008,783) | (8%) | (3,281,252) |
| Acquisition costs | (1,022,017) | 11% | (921,834) | (1%) | (929,517) |
| Underwriting-related general and administrative expenses (1) | (550,289) | 3% | (536,834) | 12% | (477,968) |
| Underwriting income (loss) (2) | 358,683 |  | 265,694 |  | (325,517) |
| Net investment income | 418,829 | (8%) | 454,301 | 30% | 349,601 |
| Net investment gains (losses) | (456,789) | nm | 134,279 | 4% | 129,133 |
| Corporate expenses (1) | (130,054) | 3% | (126,470) | 24% | (101,822) |
| Foreign exchange (losses) gains | 157,945 | nm | (315) | nm | (81,069) |
| Interest expense and financing costs | (63,146) | 1% | (62,302) | (17%) | (75,049) |
| Reorganization expenses | (31,426) | nm | - | nm | (7,881) |
| Amortization of value of business acquired | - | nm | (3,854) | (25%) | (5,139) |
| Amortization of intangible assets | (10,917) | (12%) | (12,424) | 9% | (11,390) |
| Income (loss) before income taxes and interest in income (loss) of equity method investments | 243,125 |  | 648,909 |  | (129,133) |
| Income tax (expense) benefit | (22,037) | (65%) | (62,384) | nm | 12,321 |
| Interest in income (loss) of equity method investments | 1,995 | (94%) | 32,084 | nm | (3,612) |
| Net income (loss) | 223,083 |  | 618,609 |  | (120,424) |
| Preferred share dividends | (30,250) | -% | (30,250) | -% | (30,250) |
| Net income (loss) available (attributable) to common shareholders | $192,833 |  | $588,359 |  | $(150,674) |

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.

61

## Underwriting Revenues

Underwriting revenues by segment were as follows:

| Year ended December 31, | 2022 | % Change | 2021 | % Change | 2020 |
| --- | --- | --- | --- | --- | --- |
| Gross premiums written: |  |  |  |  |  |
| Insurance | $5,585,581 | 15% | $4,863,232 | 21% | $4,018,399 |
| Reinsurance | 2,629,014 | (7%) | 2,822,752 | 1% | 2,808,539 |
| Total gross premiums written | $8,214,595 | 7% | $7,685,984 | 13% | $6,826,938 |
| Percent of gross premiums written ceded: |  |  |  |  |  |
| Insurance | 40% | - pt | 40% | (1 pt) | 41% |
| Reinsurance | 28% | - pt | 28% | (2 pts) | 30% |
| Total percent of gross premiums written ceded | 36% | - pt | 36% | - pt | 36% |
| Net premiums written: |  |  |  |  |  |
| Insurance | $3,377,906 | 17% | $2,894,885 | 23% | $2,357,501 |
| Reinsurance | 1,885,150 | (7%) | 2,031,739 | 3% | 1,978,908 |
| Total net premiums written | $5,263,056 | 7% | $4,926,624 | 14% | $4,336,409 |
| Net premiums earned: |  |  |  |  |  |
| Insurance | $3,134,155 | 18% | $2,651,339 | 15% | $2,299,038 |
| Reinsurance | 2,026,171 | (2%) | 2,058,511 | (1%) | 2,072,271 |
| Total net premiums earned | $5,160,326 | 10% | $4,709,850 | 8% | $4,371,309 |

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:

| Year ended December 31, | 2022 | % Point Change | 2021 | % Point Change | 2020 |
| --- | --- | --- | --- | --- | --- |
| Current accident year loss ratio, excluding catastrophe and weather-related losses | 55.5% | 0.4 | 55.1% | (2.6) | 57.7% |
| Catastrophe and weather-related losses ratio | 7.8% | (1.7) | 9.5% | (8.2) | 17.7% |
| Current accident year loss ratio | 63.3% | (1.3) | 64.6% | (10.8) | 75.4% |
| Prior year reserve development ratio | (0.5%) | 0.2 | (0.7%) | (0.4) | (0.3%) |
| Net losses and loss expenses ratio | 62.8% | (1.1) | 63.9% | (11.2) | 75.1% |
| Acquisition cost ratio | 19.8% | 0.2 | 19.6% | (1.7) | 21.3% |
| General and administrative expense ratio (1) | 13.2% | (0.8) | 14.0% | 0.8 | 13.2% |
| Combined ratio | 95.8% | (1.7) | 97.5% | (12.1) | 109.6% |

(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.

62

# RESULTS BY SEGMENT

# Insurance Segment

Results for the insurance segment were as follows:

| Year ended December 31, | 2022 | % Change | 2021 | % Change | 2020 |
| --- | --- | --- | --- | --- | --- |
| Revenues: |  |  |  |  |  |
| Gross premiums written | $5,585,581 | 15% | $4,863,232 | 21% | $4,018,399 |
| Net premiums written | 3,377,906 | 17% | 2,894,885 | 23% | 2,357,501 |
| Net premiums earned | 3,134,155 | 18% | 2,651,339 | 15% | 2,299,038 |
| Other insurance related income | 559 | (66%) | 1,662 | (37%) | 2,647 |
| Expenses: |  |  |  |  |  |
| Current accident year net losses and loss expenses | (1,802,204) |  | (1,533,358) |  | (1,705,951) |
| Prior year reserve development | 16,350 |  | 18,360 |  | 8,937 |
| Acquisition costs | (577,838) |  | (484,344) |  | (461,533) |
| Underwriting-related general and administrative expenses | (443,704) |  | (429,282) |  | (378,839) |
| Underwriting income (loss) | $327,318 |  | $224,377 |  | $(235,701) |
| Ratios: |  |  |  |  |  |
|  |  | % Point Change |  | % Point Change |  |
| Current accident year loss ratio, excluding catastrophe and weather-related losses | 51.0% | (0.4) | 51.4% | (3.7) | 55.1% |
| Catastrophe and weather-related losses ratio | 6.5% | 0.1 | 6.4% | (12.7) | 19.1% |
| Current accident year loss ratio | 57.5% | (0.3) | 57.8% | (16.4) | 74.2% |
| Prior year reserve development ratio | (0.5%) | 0.2 | (0.7%) | (0.3) | (0.4%) |
| Net losses and loss expenses ratio | 57.0% | (0.1) | 57.1% | (16.7) | 73.8% |
| Acquisition cost ratio | 18.4% | 0.1 | 18.3% | (1.8) | 20.1% |
| Underwriting-related general and administrative expense ratio | 14.2% | (2.0) | 16.2% | (0.3) | 16.5% |
| Combined ratio | 89.6% | (2.0) | 91.6% | (18.8) | 110.4% |

63

### Gross Premiums Written

Gross premiums written by line of business were as follows:

| Year ended December 31, | 2022 |  | 2021 |  | 2020 |  | % Change |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  | 2021 to 2022 | 2020 to 2021 |
| Professional lines | $1,322,966 | 24% | $1,290,767 | 26% | $944,856 | 23% | 2% | 37% |
| Property | 1,357,489 | 24% | 1,192,981 | 25% | 1,053,541 | 26% | 14% | 13% |
| Liability | 1,138,645 | 20% | 930,999 | 19% | 764,407 | 19% | 22% | 22% |
| Cyber | 644,746 | 12% | 525,349 | 11% | 433,519 | 11% | 23% | 21% |
| Marine and aviation | 652,687 | 12% | 580,635 | 12% | 507,076 | 13% | 12% | 15% |
| Accident and health | 258,399 | 5% | 178,899 | 4% | 158,586 | 4% | 44% | 13% |
| Credit and political risk | 210,649 | 3% | 163,602 | 3% | 156,414 | 4% | 29% | 5% |
| Total | $5,585,581 | 100% | $4,863,232 | 100% | $4,018,399 | 100% | 15% | 21% |

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.

64

### Net Premiums Earned

Net premiums earned by line of business were as follows:

| Year ended December 31, | 2022 |  | 2021 |  | 2020 |  | % Change |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  | 2021 to 2022 | 2020 to 2021 |
| Professional lines | $817,924 | 26% | $646,390 | 23% | $509,448 | 22% | 27% | 27% |
| Property | 755,986 | 24% | 711,297 | 27% | 653,186 | 28% | 6% | 9% |
| Liability | 459,775 | 15% | 354,787 | 13% | 315,434 | 14% | 30% | 12% |
| Cyber | 309,004 | 10% | 252,077 | 10% | 206,720 | 9% | 23% | 22% |
| Marine and aviation | 479,499 | 15% | 439,050 | 17% | 364,656 | 16% | 9% | 20% |
| Accident and health | 209,548 | 7% | 151,133 | 6% | 143,725 | 6% | 39% | 5% |
| Credit and political risk | 102,419 | 3% | 96,605 | 4% | 105,869 | 5% | 6% | (9%) |
| Total | $3,134,155 | 100% | $2,651,339 | 100% | $2,299,038 | 100% | 18% | 15% |

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:

| Year ended December 31, | 2022 | % Point Change | 2021 | % Point Change | 2020 |
| --- | --- | --- | --- | --- | --- |
| Current accident year loss ratio | 57.5% | (0.3) | 57.8% | (16.4) | 74.2% |
| Prior year reserve development ratio | (0.5%) | 0.2 | (0.7%) | (0.3) | (0.4%) |
| Loss ratio | 57.0% | (0.1) | 57.1% | (16.7) | 73.8% |

### 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.

65

## 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:

| Year ended December 31, | 2022 | % Change | 2021 | % Change | 2020 |
| --- | --- | --- | --- | --- | --- |
| Revenues: |  |  |  |  |  |
| Gross premiums written | $2,629,014 | (7%) | $2,822,752 | 1% | $2,808,539 |
| Net premiums written | 1,885,150 | (7%) | 2,031,739 | 3% | 1,978,908 |
| Net premiums earned | 2,026,171 | (2%) | 2,058,511 | (1%) | 2,072,271 |
| Other insurance related income (loss) | 12,514 | (42%) | 21,633 | nm | (10,736) |
| Expenses: |  |  |  |  |  |
| Current accident year net losses and loss expenses | (1,465,739) |  | (1,507,835) |  | (1,591,210) |
| Prior year reserve development | 9,183 |  | 14,049 |  | 6,972 |
| Acquisition costs | (444,179) |  | (437,490) |  | (467,984) |
| Underwriting-related general and administrative expenses | (106,585) |  | (107,552) |  | (99,129) |
| Underwriting income (loss) | $31,365 |  | $41,317 |  | $(89,816) |
| Ratios: |  |  |  |  |  |
|  |  | % Point Change |  | % Point Change |  |
| Current accident year loss ratio, excluding catastrophe and weather-related losses | 62.6% | 2.7 | 59.9% | (0.7) | 60.6% |
| Catastrophe and weather-related losses ratio | 9.7% | (3.6) | 13.3% | (2.9) | 16.2% |
| Current accident year loss ratio | 72.3% | (0.9) | 73.2% | (3.6) | 76.8% |
| Prior year reserve development ratio | (0.4%) | 0.2 | (0.6%) | (0.2) | (0.4%) |
| Net losses and loss expenses ratio | 71.9% | (0.7) | 72.6% | (3.8) | 76.4% |
| Acquisition cost ratio | 21.9% | 0.6 | 21.3% | (1.3) | 22.6% |
| Underwriting-related general and administrative expense ratio | 5.3% | 0.2 | 5.1% | 0.3 | 4.8% |
| Combined ratio | 99.1% | 0.1 | 99.0% | (4.8) | 103.8% |

nm - not meaningful

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# Gross Premiums Written:

Gross premiums written by line of business were as follows:

| Year ended December 31, | 2022 |  | 2021 |  | 2020 |  | % Change |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  | 2021 to 2022 | 2020 to 2021 |
| Liability | $719,831 | 27% | $722,931 | 26% | $619,998 | 22% | -% | 17% |
| Accident and health | 411,891 | 16% | 398,641 | 14% | 371,828 | 13% | 3% | 7% |
| Professional lines | 400,807 | 15% | 353,671 | 13% | 312,935 | 11% | 13% | 13% |
| Credit and surety | 298,565 | 11% | 208,108 | 7% | 232,699 | 8% | 43% | (11%) |
| Motor | 239,794 | 9% | 279,966 | 10% | 304,601 | 11% | (14%) | (8%) |
| Agriculture | 128,012 | 5% | 86,128 | 3% | 70,500 | 3% | 49% | 22% |
| Marine and aviation | 93,371 | 4% | 73,968 | 3% | 73,102 | 3% | 26% | 1% |
| Run-off lines |  |  |  |  |  |  |  |  |
| Catastrophe | 222,810 | 9% | 492,397 | 16% | 551,144 | 19% | (55%) | (11%) |
| Property | 103,492 | 4% | 213,406 | 8% | 245,846 | 9% | (52%) | (13%) |
| Engineering | 10,441 | -% | (6,464) | -% | 25,886 | 1% | nm | nm |
| Total run-off lines | 336,743 | 13% | 699,339 | 24% | 822,876 | 29% | (52%) | (15%) |
| Total | $2,629,014 | 100% | $2,822,752 | 100% | $2,808,539 | 100% | (7%) | 1% |

nm - not meaningful

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.

67

### 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:

| Year ended December 31, | 2022 |  | 2021 |  | 2020 |  | % Change |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  | 2021 to 2022 | 2020 to 2021 |
| Liability | $484,681 | 24% | $431,596 | 21% | $397,894 | 19% | 12% | 8% |
| Accident and health | 368,747 | 18% | 361,196 | 18% | 333,997 | 16% | 2% | 8% |
| Professional lines | 250,911 | 12% | 220,448 | 11% | 207,605 | 10% | 14% | 6% |
| Credit and surety | 192,926 | 10% | 158,549 | 8% | 187,722 | 9% | 22% | (16%) |
| Motor | 205,774 | 10% | 247,099 | 12% | 256,064 | 12% | (17%) | (4%) |
| Agriculture | 122,289 | 6% | 82,743 | 4% | 73,697 | 4% | 48% | 12% |
| Marine and aviation | 78,504 | 4% | 58,775 | 3% | 53,513 | 3% | 34% | 10% |
| Run-off lines |  |  |  |  |  |  |  |  |
| Catastrophe | 156,232 | 7% | 238,775 | 11% | 244,934 | 12% | (35%) | (3%) |
| Property | 135,480 | 7% | 231,092 | 11% | 256,324 | 12% | (41%) | (10%) |
| Engineering | 30,627 | 2% | 28,238 | 1% | 60,521 | 3% | 8% | (53%) |
| Total run-off lines | 322,339 | 16% | 498,105 | 23% | 561,779 | 27% | (35%) | (11%) |
| Total | $2,026,171 | 100% | $2,058,511 | 100% | $2,072,271 | 100% | (2%) | (1%) |

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.

68

### Loss Ratio

The components of the loss ratio were as follows:

| Year ended December 31, | 2022 | % Point Change | 2021 | % Point Change | 2020 |
| --- | --- | --- | --- | --- | --- |
| Current accident year loss ratio | 72.3% | (0.9) | 73.2% | (3.6) | 76.8% |
| Prior year reserve development ratio | (0.4%) | 0.2 | (0.6%) | (0.2) | (0.4%) |
| Loss ratio | 71.9% | (0.7) | 72.6% | (3.8) | 76.4% |

### *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.

69

## 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:

| Year ended December 31, | 2022 | % Change | 2021 | % Change | 2020 |
| --- | --- | --- | --- | --- | --- |
| Fixed maturities | $329,858 | 26% | $262,049 | (17%) | $317,121 |
| Other investments | 57,043 | (69%) | 181,906 | nm | 16,059 |
| Equity securities | 10,390 | (19%) | 12,752 | 37% | 9,328 |
| Mortgage loans | 23,407 | 34% | 17,427 | 13% | 15,432 |
| Cash and cash equivalents | 20,273 | nm | 4,454 | (67%) | 13,582 |
| Short-term investments | 3,535 | nm | 664 | (76%) | 2,749 |
| Gross investment income | 444,506 | (7%) | 479,252 | 28% | 374,271 |
| Investment expense | (25,677) | 3% | (24,951) | 1% | (24,670) |
| Net investment income | $418,829 | (8%) | $454,301 | 30% | $349,601 |
| Pre-tax yield: (1) |  |  |  |  |  |
| Fixed maturities | 2.6% |  | 2.2% |  | 2.6% |

nm - not meaningful

(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:

| Year ended December 31, | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Hedge, direct lending, private equity and real estate funds | $39,151 | $133,923 | $16,267 |
| Other privately held investments | 14,931 | 44,482 | 5,809 |
| CLO-Equities | 2,961 | 3,501 | (6,017) |
| Total net investment income from other investments (1) | $57,043 | $181,906 | $16,059 |
| Pre-tax return on other investments (2) | 5.9% | 21.4% | 2.2% |

(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.

70

## **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:

| Year ended December 31, | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| On sale of investments: |  |  |  |
| Fixed maturities and short-term investments | $(311,822) | $95,116 | $92,119 |
| Equity securities | 7,281 | 4,717 | 19,808 |
|  | (304,541) | 99,833 | 111,927 |
| Change in allowance for expected credit losses | (11,421) | 11 | (323) |
| Impairment losses (1) | (12,568) | (22) | (1,486) |
| Change in fair value of investment derivatives | 7,656 | 4,346 | (2,434) |
| Net unrealized gains (losses) on equity securities | (135,915) | 30,111 | 21,449 |
| Net investment gains (losses) | $(456,789) | $134,279 | $129,133 |

(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.

71

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:

| Year ended December 31, | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Net investment income | $418,829 | $454,301 | $349,601 |
| Net investments gains (losses) | (456,789) | 134,279 | 129,133 |
| Change in net unrealized gains (losses) on fixed maturities (1) | (909,150) | (405,378) | 269,937 |
| Interest in income (loss) of equity method investments | 1,995 | 32,084 | (3,612) |
| Total | $(945,115) | $215,286 | $745,059 |
| Average cash and investments (2) | $15,963,535 | $16,107,523 | $15,562,097 |
| Total return on average cash and investments, pre-tax: |  |  |  |
| Including investment related foreign exchange movements | (5.9%) | 1.3% | 4.8% |
| Excluding investment related foreign exchange movements (3) | (5.2%) | 1.6% | 4.4% |

(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:

| Year ended December 31, | 2022 | % Change | 2021 | % Change | 2020 |
| --- | --- | --- | --- | --- | --- |
| Corporate expenses | $130,054 | 3% | $126,470 | 24% | $101,822 |
| Foreign exchange losses (gains) | (157,945) | nm | 315 | nm | 81,069 |
| Interest expense and financing costs | 63,146 | 1% | 62,302 | (17%) | 75,049 |
| Income tax expense (benefit) | 22,037 | (65%) | 62,384 | nm | (12,321) |
| Total | $57,292 |  | $251,471 |  | $245,619 |

nm - not meaningful

### 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.

72

### **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:

| Year ended and at December 31, | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Return on average common equity (1) | 4.3% | 12.2% | (3.2%) |
| Operating return on average common equity (2) | 11.1% | 9.1% | (3.7%) |
| Book value per diluted common share (3) | $46.95 | $55.78 | $55.09 |
| Cash dividends declared per common share | $1.73 | $1.69 | $1.65 |
| Increase (decrease) in book value per diluted common share adjusted for dividends | $(7.10) | $2.38 | $0.95 |

(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**

| Years ended December 31, | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Net income (loss) available (attributable) to common shareholders | $192,833 | $588,359 | $(150,674) |
| Net investment (gains) losses (1) | 456,789 | (134,279) | (129,133) |
| Foreign exchange losses (gains) (2) | (157,945) | 315 | 81,069 |
| Reorganization expenses (3) | 31,426 | - | 7,881 |
| Interest in (income) loss of equity method investments (4) | (1,995) | (32,084) | 3,612 |
| Income tax expense (benefit) | (23,177) | 14,166 | 13,023 |
| Operating income (loss) | $497,931 | $436,477 | $(174,222) |
| Earnings (loss) per diluted common share (5) | $2.25 | $6.90 | $(1.79) |
| Net investment (gains) losses | 5.33 | (1.57) | (1.53) |
| Foreign exchange losses (gains) | (1.84) | - | 0.96 |
| Reorganization expenses | 0.37 | - | 0.09 |
| Interest in (income) loss of equity method investments | (0.02) | (0.38) | 0.04 |
| Income tax expense (benefit) | (0.28) | 0.17 | 0.15 |
| Operating income (loss) per diluted common share (5) | $5.81 | $5.12 | $(2.08) |
| Weighted average diluted common shares outstanding (6) | 85,669 | 85,291 | 84,262 |
| Average common shareholders' equity | $4,475,283 | $4,803,175 | $4,757,351 |
| Return on average common equity | 4.3% | 12.2% | (3.2%) |
| Operating return on average common equity | 11.1% | 9.1% | (3.7%) |

(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:

|  | December 31, 2022 | December 31, 2021 |
| --- | --- | --- |
|  | Fair value | Fair value |
| Fixed maturities, available for sale | $11,326,894 | $12,313,200 |
| Fixed maturities, held to maturity (1) | 674,743 | 445,033 |
| Equity securities | 485,253 | 655,675 |
| Mortgage loans | 627,437 | 594,088 |
| Other investments | 996,751 | 947,982 |
| Equity method investments | 148,288 | 146,293 |
| Short-term investments | 70,310 | 31,063 |
| Total investments | $14,329,676 | $15,133,334 |
| Cash and cash equivalents (2) | $1,174,653 | $1,317,690 |

(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:

|  | December 31, 2022 |  | December 31, 2021 |  |
| --- | --- | --- | --- | --- |
|  | Fair value | % of total | Fair value | % of total |
| Fixed maturities: |  |  |  |  |
| U.S. government and agency | $2,639,330 | 22% | $2,682,448 | 21% |
| Non-U.S. government | 562,029 | 5% | 795,178 | 6% |
| Corporate debt | 4,329,328 | 36% | 4,532,884 | 36% |
| Agency RMBS | 1,202,785 | 10% | 1,074,589 | 8% |
| CMBS | 947,778 | 8% | 1,248,191 | 10% |
| Non-agency RMBS | 133,534 | 1% | 186,164 | 1% |
| ABS | 2,030,498 | 17% | 2,029,941 | 16% |
| Municipals (1) | 156,355 | 1% | 208,838 | 2% |
| Total | $12,001,637 | 100% | $12,758,233 | 100% |
| Credit ratings: |  |  |  |  |
| U.S. government and agency | $2,639,330 | 22% | $2,682,448 | 21% |
| AAA (2) | 4,189,661 | 36% | 4,491,643 | 34% |
| AA | 871,966 | 7% | 981,837 | 8% |
| A | 1,835,746 | 15% | 1,917,006 | 15% |
| BBB | 1,377,638 | 11% | 1,595,285 | 13% |
| Below BBB (3) | 1,087,296 | 9% | 1,090,014 | 9% |
| Total | $12,001,637 | 100% | $12,758,233 | 100% |

(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:

| Country | December 31, 2022 |  |  | December 31, 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Fair value | % of total | Weighted average credit rating | Fair value | % of total | Weighted average credit rating |
| Eurozone countries: |  |  |  |  |  |  |
| Supranationals (1) | $16,867 | 3% | AAA | $16,799 | 2% | AAA |
| Netherlands | 9,512 | 2% | AA+ | 10,065 | 1% | AA+ |
| Germany | 5,037 | 1% | AAA | 5,083 | 1% | AAA |
| Austria | 2,346 | -% | AA+ | 2,317 | -% | AA+ |
| France | 1,061 | -% | AA | 1,303 | -% | AA |
| Total eurozone | 34,823 | 6% | AA+ | 35,567 | 4% | AA+ |
| Other concentrations: |  |  |  |  |  |  |
| Canada | 300,674 | 53% | AA+ | 372,333 | 47% | AAA |
| United Kingdom | 168,068 | 30% | AA- | 248,601 | 31% | AA- |
| Mexico | 10,151 | 2% | BBB | 19,839 | 2% | BBB |
| Other | 48,313 | 9% | AA | 118,838 | 16% | AA+ |
| Total other concentrations | 527,206 | 94% | AA | 759,611 | 96% | AAA |
| Total non-U.S. government | $562,029 | 100% | AA | $795,178 | 100% | AA |

(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:

|  | December 31, 2022 |  |  | December 31, 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Fair value | % of total | Weighted average credit rating | Fair value | % of total | Weighted average credit rating |
| Financial institutions: |  |  |  |  |  |  |
| U.S. banks | $786,541 | 18% | A | $821,650 | 18% | A |
| Corporate/commercial finance | 445,524 | 10% | BBB | 380,558 | 8% | BBB- |
| Non-U.S. banks | 346,176 | 8% | A- | 383,360 | 8% | A |
| Insurance | 162,107 | 4% | A | 155,735 | 3% | A+ |
| Investment brokerage | 117,706 | 3% | A | 87,923 | 2% | A- |
| Total financial institutions | 1,858,054 | 43% | A- | 1,829,226 | 39% | A- |
| Consumer non-cyclicals | 533,543 | 12% | BBB- | 597,163 | 13% | BBB- |
| Consumer cyclical | 411,559 | 10% | BB | 435,314 | 10% | BB |
| Communications | 369,295 | 9% | BB+ | 406,700 | 9% | BB+ |
| Industrials | 407,318 | 9% | BB | 390,674 | 9% | BB- |
| Technology | 211,740 | 5% | BBB- | 288,754 | 6% | BB+ |
| Utilities | 166,481 | 4% | BBB+ | 198,387 | 4% | BBB+ |
| Energy | 164,770 | 4% | BBB- | 173,606 | 4% | BBB |
| Other | 206,568 | 4% | A | 213,060 | 6% | A |
| Total | $4,329,328 | 100% | BBB | $4,532,884 | 100% | BBB |
| Credit quality summary: |  |  |  |  |  |  |
| Investment grade | $3,308,131 | 76% | A- | $3,501,370 | 77% | A- |
| Non-investment grade | 1,021,197 | 24% | B+ | 1,031,514 | 23% | B |
| Total | $4,329,328 | 100% | BBB | $4,532,884 | 100% | BBB |

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:

|  | December 31, 2022 |  | December 31, 2021 |  |
| --- | --- | --- | --- | --- |
|  | RMBS | CMBS | RMBS | CMBS |
| Government agency | $1,202,785 | $48,805 | $1,074,589 | $83,936 |
| AAA | 121,188 | 833,850 | 166,553 | 1,069,276 |
| AA | 4,192 | 60,207 | 3,601 | 89,813 |
| A | 3,682 | 4,916 | 9,936 | 5,166 |
| BBB | 122 | - | 621 | - |
| Below BBB (1) | 4,350 | - | 5,453 | - |
| Total | $1,336,319 | $947,778 | $1,260,753 | $1,248,191 |

(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:

|  | Asset-backed securities |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | AAA | AA | A | BBB | Below BBB | Total |
| At December 31, 2022 |  |  |  |  |  |  |
| CLO - debt tranches | $994,961 | $306,934 | $72,319 | $26,257 | $25,650 | $1,426,121 |
| Auto loans | 237,884 | 4,728 | - | - | - | 242,612 |
| Student loans | 104,023 | 4,401 | - | - | - | 108,424 |
| Credit card receivables | 38,848 | 534 | - | - | - | 39,382 |
| Other | 178,447 | 12,351 | 16,803 | 6,017 | 341 | 213,959 |
| Total | $1,554,163 | $328,948 | $89,122 | $32,274 | $25,991 | $2,030,498 |
| % of total | 77% | 16% | 4% | 2% | 1% | 100% |
| At December 31, 2021 |  |  |  |  |  |  |
| CLO - debt tranches | $953,731 | $251,204 | $73,595 | $33,343 | $31,707 | $1,343,580 |
| Auto loans | 245,653 | 4,938 | - | - | - | 250,591 |
| Student loans | 149,801 | 5,166 | 2,476 | - | - | 157,443 |
| Credit card receivables | 12,977 | - | - | - | - | 12,977 |
| Other | 224,348 | 11,893 | 23,311 | 5,394 | 404 | 265,350 |
| Total | $1,586,510 | $273,201 | $99,382 | $38,737 | $32,111 | $2,029,941 |
| % of total | 78% | 13% | 5% | 2% | 2% | 100% |

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 | Revenue | Total | % of total fair value | Gross unrealized gains | Gross unrealized losses | Weighted average credit rating |
| --- | --- | --- | --- | --- | --- | --- | --- |
| At December 31, 2022 |  |  |  |  |  |  |  |
| New York | $3,199 | $17,098 | $20,297 | 13% | $ - | $(1,234) | AA+ |
| California | 2,049 | 39,143 | 41,192 | 26% | 93 | (5,418) | AA- |
| Texas | 7,387 | 11,151 | 18,538 | 12% | 5 | (2,464) | AA |
| Louisiana | - | 11,082 | 11,082 | 7% | - | (628) | AAA |
| Massachusetts | 5,635 | 1,836 | 7,471 | 5% | - | (559) | AA |
| Other | 10,200 | 47,575 | 57,775 | 37% | 41 | (5,902) | A+ |
|  | $28,470 | $127,885 | $156,355 | 100% | $139 | $(16,205) | AA- |
| At December 31, 2021 |  |  |  |  |  |  |  |
| New York | $798 | $31,900 | $32,698 | 16% | $1,416 | $(2) | AA+ |
| California | 2,472 | 43,945 | 46,417 | 22% | 1,118 | (223) | A+ |
| Texas | 9,327 | 16,587 | 25,914 | 12% | 677 | (238) | AA |
| Massachusetts | 12,511 | 2,577 | 15,088 | 7% | 403 | (5) | AA |
| Michigan | - | 14,894 | 14,894 | 7% | 460 | (31) | AA- |
| Other | 7,612 | 66,215 | 73,827 | 36% | 1,854 | (147) | A+ |
|  | $32,720 | $176,118 | $208,838 | 100% | $5,928 | $(646) | AA- |

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:

| Severity of Unrealized Loss | December 31, 2022 |  |  | December 31, 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Fair value | Gross unrealized losses | % of total gross unrealized losses | Fair value | Gross unrealized losses | % of total gross unrealized losses |
| 0-10% | $6,176,828 | $(265,175) | 33% | $6,172,912 | $(83,380) | 96% |
| 10-20% | 2,315,291 | (372,213) | 47% | 10,127 | (1,639) | 2% |
| 20-30% | 520,482 | (147,575) | 19% | 3,576 | (1,138) | 1% |
| 30-40% | 15,622 | (6,948) | 1% | 1,188 | (539) | 1% |
| 40-50% | 1,002 | (735) | -% | - | - | -% |
| > 50% | 4 | (27) | -% | 6 | (25) | -% |
| Total | $9,029,229 | $(792,673) | 100% | $6,187,809 | $(86,721) | 100% |

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:

| Severity of Unrealized Loss | December 31, 2022 |  |  | December 31, 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Fair value | Gross unrealized losses | % of total gross unrealized losses | Fair value | Gross unrealized losses | % of total gross unrealized losses |
| 0-10% | $644,995 | $(28,536) | 44% | $396,033 | $(6,493) | 85% |
| 10-20% | 179,291 | (26,642) | 42% | 3,085 | (448) | 6% |
| 20-30% | 28,414 | (6,649) | 10% | 209 | (38) | 1% |
| 30-40% | 1,393 | (495) | 1% | - | - | -% |
| 40-50% | 738 | (410) | 1% | 267 | (194) | 3% |
| > 50% | 652 | (1,183) | 2% | 427 | (352) | 5% |
| Total | $855,483 | $(63,915) | 100% | $400,021 | $(7,525) | 100% |

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:

|  | December 31, 2022 |  | December 31, 2021 |  |
| --- | --- | --- | --- | --- |
| Hedge funds |  |  |  |  |
| Long/short equity funds | $ - | -% | $3,476 | -% |
| Multi-strategy funds | 32,616 | 3% | 56,012 | 6% |
| Total hedge funds | 32,616 | 3% | 59,488 | 6% |
| Direct lending funds | 258,626 | 26% | 289,867 | 31% |
| Private equity funds | 265,836 | 27% | 249,974 | 26% |
| Real estate funds | 298,499 | 30% | 238,222 | 25% |
| Total hedge, direct lending, private equity and real estate funds | 855,577 | 86% | 837,551 | 88% |
| CLO-Equities | 5,016 | -% | 5,910 | 1% |
| Other privately held investments | 136,158 | 14% | 104,521 | 11% |
| Total other investments | $996,751 | 100% | $947,982 | 100% |

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:

| Total cash provided by (used in) (1) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Operating activities | $692,216 | $1,114,822 | $343,503 |
| Investing activities | (655,798) | (1,114,195) | 489,921 |
| Financing activities | (149,622) | (186,095) | (908,803) |
| Effect of exchange rate changes on cash | (29,833) | (74) | 2,154 |
| Decrease in cash and cash equivalents | $(143,037) | $(185,542) | $(73,225) |

(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:

| At December 31, | 2022 | 2021 |
| --- | --- | --- |
| Debt | $1,312,314 | $1,310,975 |
| Preferred shares | 550,000 | 550,000 |
| Common equity | 4,089,910 | 4,860,656 |
| Shareholders' equity | 4,639,910 | 5,410,656 |
| Total capital | $5,952,224 | $6,721,631 |
| Ratio of debt to total capital | 22.0% | 19.5% |

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:

| Year ended December 31, | 2022 | 2021 |
| --- | --- | --- |
| Common equity - opening | $4,860,656 | $4,745,694 |
| Share-based compensation expense | 51,249 | 40,780 |
| Change in unrealized gains (losses) on available for sale investments, net of tax | (805,850) | (358,480) |
| Foreign currency translation adjustment | (10,986) | 621 |
| Net income (loss) | 223,083 | 618,609 |
| Preferred share dividends | (30,250) | (30,250) |
| Common share dividends | (150,556) | (147,221) |
| Treasury shares repurchased | (48,981) | (10,242) |
| Treasury shares reissued | 1,545 | 1,145 |
| Common equity - closing | $4,089,910 | $4,860,656 |

### **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:

| Rating agency | Agency's description of rating | Rating and outlook | Agency's rating definition | Ranking of rating |
| --- | --- | --- | --- | --- |
| Standard & Poor's | An 'opinion about the financial security characteristics of an insurance organization, with respect to its ability to pay under its insurance policies and contracts, in accordance with their terms'. | A+ (Stable) (1) | 'Strong capacity to meet its financial commitments' | The 'A' category is the third highest out of ten major rating categories. The second through eighth major rating categories may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. |
| A.M. Best | An 'opinion of an insurer's financial strength and ability to meet its ongoing insurance policy and contract obligations'. | A (Stable) (2) | 'Excellent ability to meet ongoing insurance obligations' | The 'A' category is the third highest rating out of fourteen. Ratings outlooks ('Positive', 'Negative' and 'Stable') are assigned to indicate a rating's potential direction over an intermediate term, generally defined as 36 months. |
| Moody's Investors Service | 'Opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations.' | A2 (Stable) (3) | 'Offers good financial security' | The 'A' category is the third highest out of nine rating categories. Each of the second through seventh categories are subdivided into three subcategories, as indicated by an appended numerical modifier of '1', '2' and '3'. The '1' modifier indicates that the obligation ranks in the higher end of the rating category, the '2' modifier indicates a mid-category ranking and the '3' modifier indicates a ranking in the lower end of the rating category. |

(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:

| Contractual obligations and commitments | Payment due by period |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years |
| Operating activities |  |  |  |  |  |
| Estimated gross losses and loss expenses payments (1) | $15,168,863 | $3,943,790 | $4,972,993 | $2,677,508 | $3,574,572 |
| Operating lease obligations (2) | 102,577 | 15,930 | 20,684 | 15,477 | 50,486 |
| Investing activities |  |  |  |  |  |
| Unfunded investment commitments (3) | 551,835 | 188,295 | 210,504 | 50,803 | 102,233 |
| Financing activities |  |  |  |  |  |
| Debt (principal payments) (4) | 1,325,000 | - | - | 350,000 | 975,000 |
| Debt (interest payments) (4)(5) | 591,311 | 60,800 | 121,796 | 121,115 | 287,600 |
| Total | $17,739,586 | $4,208,815 | $5,325,977 | $3,214,903 | $4,989,891 |

(1) We are obligated to pay claims for specified loss events covered by the insurance and reinsurance contracts that we write. Loss payments represent our most significant future payment obligation. In contrast to our other contractual obligations, cash payments are not determinable from the terms specified within the underlying contracts. Our best estimate of reserve for losses and loss expenses is reflected in the table above. Actual amounts and timing may differ materially from our best estimate (refer to 'Critical Accounting Estimates - Reserve for Losses and Loss Expenses' for further details). We have not taken into account corresponding reinsurance recoverable on unpaid amounts that would be due to us.
(2) In the ordinary course of business, we renew and enter into new leases for office space which expire at various dates (refer to Item 8, Note 13 to the Consolidated Financial Statements 'Leases' for further details).
(3) We have $508 million of unfunded investment commitments related to our other investments portfolio, which are callable by our investment managers (refer to Item 8, Note 5(e) to the Consolidated Financial Statements 'Investments' for further details). In addition, we have $25 million of unfunded commitments related to our commercial mortgage loans portfolio and $20 million of unfunded commitments related to our corporate debt portfolio.
(4) Refer to Item 8, Note 10(a) to the Consolidated Financial Statements 'Debt and Financing Arrangements' for further details.
(5) Debt (interest payments) includes $13 million of unamortized discount and debt issuance expenses.

## CRITICAL ACCOUNTING ESTIMATES

The consolidated financial statements include certain amounts that are inherently uncertain and judgmental in nature. As a result, we are required to make assumptions and best estimates in order to determine the reported values. We consider an accounting estimate to be critical if: (1) it requires that significant assumptions be made in order to deal with uncertainties and (2) changes in the estimate could have a material impact on our results of operations, financial condition or liquidity.

We believe that the material items requiring such subjective and complex estimates are:

- reserves for losses and loss expenses;
- reinsurance recoverable on unpaid losses and loss expenses, including the allowance for expected credit losses;
- gross premiums written and net premiums earned;
- fair value measurements of financial assets and liabilities; and
- the allowance for credit losses associated with fixed maturities, available for sale.

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

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

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# Reserve for Losses and Loss Expenses

## Overview

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

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

## Case Reserves

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

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

## IBNR

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

## Reserving Methodology

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

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

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Refer to Item 8, Note 8 to the Consolidated Financial Statements *'Reserve for Losses and Loss Expenses - Reserving Methodology - Key Actuarial Assumptions'*, which notes that the most significant assumptions used in our quarterly loss reserving process are expected loss ratios ('ELRs') and loss development patterns and that the weight given to our experience differs for each of the three claim tail classes (refer to *'Claim Tail Analysis'* below for further details).

### Claim Tail Analysis

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

| At December 31, | 2022 |  |  | 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Case reserves | IBNR | Total | Case reserves | IBNR | Total |
| Insurance segment: |  |  |  |  |  |  |
| Property | $565,954 | $487,681 | $1,053,635 | $596,704 | $487,478 | $1,084,181 |
| Accident and health | 22,770 | 60,795 | 83,565 | 15,906 | 42,891 | 58,797 |
| Marine and aviation | 490,895 | 419,712 | 910,606 | 386,303 | 403,700 | 790,003 |
| Cyber | 158,449 | 559,561 | 718,010 | 203,327 | 486,591 | 689,918 |
| Professional lines | 681,053 | 2,325,695 | 3,006,748 | 800,333 | 2,090,430 | 2,890,763 |
| Credit and political risk (1) | (38,293) | 181,538 | 143,246 | (105,469) | 146,175 | 40,708 |
| Liability | 466,527 | 1,999,256 | 2,465,783 | 408,444 | 1,840,716 | 2,249,159 |
| Total Insurance | 2,347,355 | 6,034,238 | 8,381,593 | 2,305,548 | 5,497,981 | 7,803,529 |
| Reinsurance segment: |  |  |  |  |  |  |
| Accident and health | 64,949 | 207,953 | 272,902 | 70,078 | 202,518 | 272,596 |
| Agriculture | 40,598 | 95,645 | 136,243 | 37,577 | 70,430 | 108,007 |
| Marine and aviation | 99,019 | 115,582 | 214,601 | 112,680 | 85,256 | 197,936 |
| Professional lines | 550,786 | 761,575 | 1,312,361 | 559,204 | 670,305 | 1,229,509 |
| Credit and surety | 133,710 | 169,759 | 303,469 | 134,615 | 170,024 | 304,640 |
| Motor | 753,053 | 367,504 | 1,120,556 | 737,097 | 486,978 | 1,224,075 |
| Liability | 696,220 | 1,353,846 | 2,050,067 | 611,597 | 1,245,103 | 1,856,700 |
| Run-off lines |  |  |  |  |  |  |
| Catastrophe | 498,604 | 328,723 | 827,327 | 510,865 | 423,401 | 934,266 |
| Property | 273,607 | 124,253 | 397,860 | 334,390 | 202,541 | 536,930 |
| Engineering | 97,964 | 53,920 | 151,884 | 126,320 | 58,586 | 184,906 |
| Total run-off lines | 870,175 | 506,896 | 1,377,071 | 971,575 | 684,528 | 1,656,102 |
| Total Reinsurance | 3,208,510 | 3,578,760 | 6,787,270 | 3,234,423 | 3,615,142 | 6,849,565 |
| Total | $5,555,865 | $9,612,998 | $15,168,863 | $5,539,971 | $9,113,123 | $14,653,094 |

(1) During 2022 and 2021, significant gross claims associated with certain credit and political risk contracts were paid in advance of recoveries being received from the corresponding security which resulted in negative case reserves of $(55) million (2021: $(128) million) and related negative reinsurance recoverable on unpaid losses and loss expenses of $(15) million (2021: $(56) million). Refer to *Reserving for Credit and Political Risk Business* below for further details.

Refer to Item 8, Note 8 to the Consolidated Financial Statements *'Reserve for Losses and Loss Expenses'* for the mapping of our lines of business to expected claim tails.

In order to capture the key dynamics of loss reserve development and potential volatility, lines of business should be considered according to their potential expected length of loss emergence and settlement, generally referred to as the 'tail'. We consider our business to consist of three claim tail classes, short-tail, medium-tail and long-tail. Favorable development on prior accident year reserves indicates that current estimates are lower than previous estimates, while adverse development on prior accident year reserves indicates that current estimates are higher than previous estimates. Below is a discussion of the specifics of our loss reserve process as it applies to each claim tail class.

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# Short-tail Business

Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses - Reserving Methodology - Claim Tail Analysis' for details of the lines of business included in short-tail business and the associated key actuarial assumptions.

Although estimates of ultimate losses for short-tail business are inherently more certain than for medium and long-tail business, significant judgment is still required. For example, much of our excess insurance and excess of loss reinsurance business has high attachment points. Therefore, it is often difficult to estimate whether claims will exceed those attachment points. In addition, the inherent uncertainties relating to catastrophe events further add to the complexity of estimating potential exposure. Further, we use managing general agents ("MGAs") and other producers for certain business in the insurance segment, which can delay the reporting of loss information. We expect the majority of development for an accident year or underwriting year to be recognized in the subsequent one to three years.

Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses - Reserve for Losses and Loss Expenses - Prior Year Reserve Development' for a detailed discussion of prior year reserve development by line of business and see further details below.

# Medium-tail Business

Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses - Reserving Methodology - Claim Tail Analysis' for details of the lines of business included in medium-tail business and the associated key actuarial assumptions.

Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses - Reserve for Losses and Loss Expenses - Prior Year Reserve Development' for a detailed discussion of prior year reserve development by line of business.

Refer to 'Reserving for Credit and Political Risk Business' below for a detailed discussion of specific loss reserve issues related to the credit and political risk line of business.

# Long-tail Business

Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses - Reserving Methodology - Claim Tail Analysis' for details of the lines of business included in long-tail business and the associated key actuarial assumptions.

Factors that contribute additional uncertainty to estimates for long-tail business include, but are not limited to:

- potential volatility of actuarial estimates, given the number of years of development it takes to produce a significant incurred loss as a percentage of ultimate losses;
- inherent uncertainties about loss trends, claims inflation (e.g., medical, judicial, social) and general economic conditions; and
- the possibility of future litigation, legislative or judicial change that may impact future loss experience relative to prior industry loss experience relied on in reserve estimation.

Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses - Reserve for Losses and Loss Expenses - Prior Year Reserve Development' for a detailed discussion of prior year reserve development by line of business and see further details below.

# Reserving for Credit and Political Risk Business

Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses - 'Net incurred and Paid Claims Development Tables by Accident Year - Insurance segment - Insurance Credit and Political Risk' for details of this line of business and the associated key actuarial assumptions.

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An important and distinguishing feature of many of these contracts is the contractual right, subsequent to payment of a claim to an insured, to be subrogated to, or otherwise have an interest in, the insured's rights of recovery under an insured loan or facility agreement. These estimated recoveries are recorded as an offset to credit and political risk gross loss reserves. The lag between the date of a claim payment and the ultimate recovery from the corresponding security can result in negative case reserves at a point in time. During 2022 and 2021, significant gross claims associated with certain credit and political risk contracts were paid in advance of recoveries being received from the corresponding security which resulted in negative case reserves of $(55) million (2021: $(128) million) and related negative reinsurance recoverable on unpaid losses and loss expenses of $(15) million (2021: $(56) million). Refer to *'Critical Accounting Estimates - Reinsurance Recoverable on Unpaid Losses and Loss Expenses'* for further details.

The nature of the underlying collateral is specific to each transaction. Therefore, we estimate the value of this collateral on a contract-by-contract basis. This valuation process is inherently subjective and involves the application of management's judgment because active markets for the collateral often do not exist. Estimates of values are based on numerous inputs, including information provided by our insureds, as well as third-party sources including rating agencies, asset valuation specialists and other publicly available information. We also assess any post-event circumstances, including restructurings, liquidations and possession of asset proposals/agreements.

In some instances, on becoming aware of a loss event related to credit and political risk business, we negotiate a final settlement of all of our policy liabilities for a fixed amount. In most circumstances, this occurs when the insured moves to realize the benefit of the collateral that underlies the insured loan or facility and presents us with a net settlement proposal that represents a full and final payment by us under the terms of the policy. In consideration for this payment, we secure a cancellation of the policy, or a release of all claims, and waive our right to pursue a recovery of these settlement payments against the collateral that may have been available to us under the insured loan or facility agreement. In certain circumstances, cancellation by way of net settlement or full payment can result in an adjustment to the premium associated with the policy.

Additionally, when we consider prior year reserve development for the credit and political risk line of business, it is important to note that the multi-year nature of this business distorts loss ratios when a single accident year is considered in isolation. Premiums for these contracts generally earn evenly over the contract term, therefore, are reflected in multiple accident years. In contrast, losses incurred on these contracts, which can be characterized as low in frequency and high in severity, are reflected in a single accident year.

Refer to Item 8, Note 8 to the Consolidated Financial Statements *'Reserve for Losses and Loss Expenses - Reserve for Losses and Loss Expenses - Prior Year Reserve Development'* for further details.

### ***Reserving for Catastrophic Events***

Refer to Item 8, Note 8 to the Consolidated Financial Statements *'Reserve for Losses and Loss Expenses - Reserving Methodology - Reserving for Catastrophic Events'* for further details.

In addition to those noted in Item 8, Note 8 to the Consolidated Financial Statements *'Reserve for Losses and Loss Expenses - Reserving Methodology - Reserving for Catastrophic Events'* there are additional risks that affect our ability to accurately estimate ultimate losses for catastrophic events. For example, the estimates of loss reserves related to hurricanes and earthquakes can be affected by factors including, but not limited to, the inability to access portions of impacted areas, infrastructure disruptions, the complexity of factors contributing to losses, legal and regulatory uncertainties, complexities involved in estimating business interruption losses and additional living expenses, the impact of demand surge, fraud and the limited nature of information available. For hurricanes, additional complex coverage factors may include determining whether damage was caused by flooding or wind, evaluating general liability and pollution exposures, and mold damage. The timing of a catastrophe, for example, near the end of a reporting period, can also affect the level of information available to us to estimate loss reserves for that reporting period.

Results of operations for 2022 were impacted by natural and man-made catastrophe activity (refer to *'Underwriting Results - Insurance segment - Current Accident Year Loss Ratio'* and *'Underwriting Results - Reinsurance segment - Current Accident Year Loss Ratio'* for further details).

### ***Selection of Reported Reserves - Management's Best Estimate***

Refer to Item 8, Note 8 to the Consolidated Financial Statements *'Reserve for Losses and Loss Expenses - Reserving Methodology - Selection of Reported Reserves - Management's Best Estimate'* for further details.

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### Independent Actuarial Review

On an annual basis, we use an independent actuarial firm to provide an actuarial opinion on the reasonableness of loss reserves for each of our operating subsidiaries and statutory reporting entities as these actuarial opinions are required to meet various insurance regulatory requirements. The actuarial firm also discusses its conclusions from the annual review with management and presents its findings to the Audit Committee of the Board of Directors.

### Sensitivity Analysis

While we believe that loss reserves at December 31, 2022 are adequate, new information, events or circumstances may result in ultimate losses that are materially greater or less than provided for in our loss reserves. As previously noted, there are many factors that may cause reserves to increase or decrease, particularly those related to catastrophe losses and long-tail lines of business.

Expected loss ratios are a key assumption in estimates of ultimate losses for business at an early stage of development. A higher expected loss ratio results in a higher ultimate loss estimate, and vice versa.

Assumed loss development patterns are another significant assumption in estimating loss reserves. Accelerating a loss reporting pattern (i.e., shortening the claim tail) results in lower ultimate losses, as the estimated proportion of losses already incurred would be higher.

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The effect on estimates of gross loss reserves of reasonably likely changes in the two key assumptions used to estimate gross loss reserves at December 31, 2022 was as follows:

| INSURANCE |  |  |  |
| --- | --- | --- | --- |
| Development pattern | Expected loss ratio |  |  |
|  | Higher Loss Reserves (Lower Loss Reserves) |  |  |
| Professional lines | 10% lower | Unchanged | 10% higher |
| 6 months shorter | $(238,760) | $(52,645) | $135,299 |
| Unchanged | (182,792) | - | 192,068 |
| 6 months longer | (106,514) | 80,650 | 273,585 |
| Property | 5% lower | Unchanged | 5% higher |
| 3 months shorter | $(84,008) | $(50,836) | $(45,192) |
| Unchanged | (6,777) | - | 7,536 |
| 3 months longer | 81,362 | 90,306 | 100,449 |
| Liability | 10% lower | Unchanged | 10% higher |
| 6 months shorter | $(215,696) | $(54,796) | $106,950 |
| Unchanged | (156,873) | - | 162,311 |
| 6 months longer | (82,737) | 73,033 | 233,329 |
| Cyber | 10% lower | Unchanged | 10% higher |
| 6 months shorter | $(55,759) | $(19,580) | $16,598 |
| Unchanged | (37,799) | - | 40,784 |
| 6 months longer | 25,710 | 50,288 | 90,806 |
| Marine and aviation | 5% lower | Unchanged | 5% higher |
| 3 months shorter | $(39,610) | $(22,408) | $(5,018) |
| Unchanged | (18,183) | - | 18,180 |
| 3 months longer | 27,454 | 46,040 | 64,626 |
| Accident and health | 5% lower | Unchanged | 5% higher |
| 3 months shorter | $(11,854) | $(8,792) | $(5,730) |
| Unchanged | (2,831) | - | 2,831 |
| 3 months longer | 10,303 | 13,311 | 16,319 |
| Credit and political risk | 10% lower | Unchanged | 10% higher |
| 6 months shorter | $(22,538) | $ - | $22,538 |
| Unchanged | (22,538) | - | 22,538 |
| 6 months longer | (22,538) | - | 22,538 |

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| REINSURANCE |  |  |  |
| --- | --- | --- | --- |
| Development pattern | Expected loss ratio |  |  |
|  | Higher Loss Reserves (Lower Loss Reserves) |  |  |
| Liability | 10% lower | Unchanged | 10% higher |
| 6 months shorter | $(218,785) | $(63,722) | $98,869 |
| Unchanged | (151,428) | - | 161,708 |
| 6 months longer | (67,782) | 87,120 | 246,522 |
| Accident and health | 5% lower | Unchanged | 5% higher |
| 3 months shorter | $(9,109) | $(6,490) | $(3,870) |
| Unchanged | (2,349) | - | 2,349 |
| 3 months longer | 6,282 | 8,732 | 11,182 |
| Professional lines | 10% lower | Unchanged | 10% higher |
| 6 months shorter | $(124,894) | $(48,882) | $27,970 |
| Unchanged | (78,217) | - | 79,941 |
| 6 months longer | (18,849) | 60,811 | 144,679 |
| Credit and surety | 10% lower | Unchanged | 10% higher |
| 6 months shorter | $(25,617) | $(9,531) | $6,889 |
| Unchanged | (16,549) | - | 16,423 |
| 6 months longer | (3,930) | 13,328 | 30,095 |
| Motor | 10% lower | Unchanged | 10% higher |
| 6 months shorter | $(64,670) | $(17,823) | $33,737 |
| Unchanged | (34,827) | - | 46,351 |
| 6 months longer | 16,728 | 55,864 | 97,964 |
| Agriculture | 5% lower | Unchanged | 5% higher |
| 3 months shorter | $(9,904) | $ - | $9,904 |
| Unchanged | (9,904) | - | 9,904 |
| 3 months longer | (9,904) | - | 9,904 |
| Marine and aviation | 5% lower | Unchanged | 5% higher |
| 3 months shorter | $(9,395) | $(7,155) | $(4,915) |
| Unchanged | (2,526) | - | 2,526 |
| 3 months longer | 4,891 | 7,685 | 10,493 |
| Catastrophe | 5% lower | Unchanged | 5% higher |
| 3 months shorter | $(1,872) | $(1,235) | $(599) |
| Unchanged | (278) | - | 298 |
| 3 months longer | 1,581 | 1,957 | 2,333 |
| Property | 5% lower | Unchanged | 5% higher |
| 3 months shorter | $(11,695) | $(10,082) | $(8,468) |
| Unchanged | (2,017) | - | 1,990 |
| 3 months longer | 11,066 | 13,534 | 16,025 |
| Engineering | 5% lower | Unchanged | 5% higher |
| 3 months shorter | $(5,636) | $(3,098) | $(559) |
| Unchanged | (2,693) | - | 2,693 |
| 3 months longer | 575 | 3,441 | 6,306 |

The results show the cumulative increase (decrease) in loss reserves across all accident years.

For example, if assumed loss development pattern for insurance property business was three months shorter with no accompanying change in ELR assumption, loss reserves may decrease by approximately $51 million. Each of the impacts set forth in the tables is estimated individually, without consideration for any correlation among key assumptions or among reserve classes. Therefore, it would be inappropriate to take each of the amounts and add them together in an attempt to

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estimate total volatility. Additionally, it is noted that in some instances, for example the projection of catastrophe estimates or credit and political risks estimates, development patterns are not appropriate as more bespoke techniques are used. While we believe the variations in the expected loss ratios and loss development patterns presented could be reasonably expected, our historical loss data regarding variability is generally limited and actual variations may be greater or less than these amounts.

It is also important to note that the variations are not meant to be a 'best-case' or 'worst-case' series of scenarios and, therefore, it is possible that future variations in loss reserves may be more or less than the amounts presented. While we believe that these are reasonably likely scenarios, we do not believe this sensitivity analysis should be considered an actual reserve range.

### Reinsurance Recoverable on Unpaid Losses and Loss Expenses

In the normal course of business, we purchase facultative and treaty reinsurance protection to limit ultimate losses from catastrophic events and to reduce loss aggregation risk. To the extent that reinsurers do not meet their obligations under the reinsurance agreements, we remain liable. Consequently, we are exposed to credit risk associated with reinsurance recoverable on unpaid losses and loss expenses ('reinsurance recoverables') to the extent that any of our reinsurers are unable or unwilling to pay claims.

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

| At December 31, | 2022 |  |  | 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Case reserves | IBNR | Total | Case reserves | IBNR | Total |
| Insurance segment: |  |  |  |  |  |  |
| Property | $221,616 | $177,210 | $398,826 | $200,190 | $211,657 | $411,847 |
| Accident and health | 820 | 5,698 | 6,518 | 1,088 | 4,879 | 5,967 |
| Marine and aviation | 195,845 | 83,131 | 278,976 | 149,586 | 91,065 | 240,651 |
| Cyber | 92,219 | 301,217 | 393,436 | 134,235 | 250,102 | 384,338 |
| Professional lines | 403,078 | 1,071,461 | 1,474,539 | 302,668 | 807,483 | 1,110,150 |
| Credit and political risk (1) | (18,990) | 53,382 | 34,391 | (53,763) | 30,382 | (23,381) |
| Liability | 258,072 | 1,288,447 | 1,546,520 | 188,705 | 1,132,764 | 1,321,469 |
| Total Insurance | 1,152,660 | 2,980,546 | 4,133,206 | 922,709 | 2,528,332 | 3,451,041 |
| Reinsurance segment: |  |  |  |  |  |  |
| Accident and health | 7,303 | 31,344 | 38,647 | 7,675 | 24,558 | 32,232 |
| Agriculture | 8,600 | 1,418 | 10,018 | 9,952 | 1,977 | 11,929 |
| Marine and aviation | 27,209 | 30,484 | 57,692 | 34,753 | 26,155 | 60,908 |
| Professional lines | 81,413 | 222,436 | 303,849 | 67,453 | 183,888 | 251,341 |
| Credit and surety | 27,097 | 52,212 | 79,309 | 22,022 | 44,943 | 66,965 |
| Motor | 131,630 | 126,853 | 258,483 | 104,500 | 124,695 | 229,195 |
| Liability | 136,016 | 391,496 | 527,513 | 104,914 | 329,954 | 434,868 |
| Run-off lines |  |  |  |  |  |  |
| Catastrophe | 245,250 | 163,925 | 409,175 | 243,049 | 216,269 | 459,317 |
| Property | 12,942 | 72 | 13,014 | 19,670 | (212) | 19,458 |
| Engineering | 131 | 135 | 266 | 137 | 218 | 357 |
| Total run-off lines | 258,323 | 164,132 | 422,455 | 262,856 | 216,275 | 479,132 |
| Total Reinsurance | 677,591 | 1,020,375 | 1,697,966 | 614,125 | 952,445 | 1,566,570 |
| Total | $1,830,251 | $4,000,921 | $5,831,172 | $1,536,834 | $3,480,777 | $5,017,611 |

(1) During 2022 and 2021, significant gross claims associated with certain credit and political risk contracts were paid in advance of recoveries being received from the corresponding security which resulted in negative case reserves of $(55) million (2021: $(128) million) and related negative reinsurance recoverables related to case reserves of $(15) million (2021: $(56) million). Refer to *Critical Accounting Estimates - Reserve for Losses and Loss Expenses - Reserving for Credit and Political Risk Business* for further details.

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Refer to Item 8, Note 8 to the Consolidated Financial Statements 'Reserve for Losses and Loss Expenses' for the mapping of our lines of business to expected claim tails.

At December 31, 2022, reinsurance recoverables as a percentage of loss reserves was 38% (2021: 34%). At December 31, 2022, reinsurance recoverables that were collectible from reinsurers rated A- or better by A.M Best were 81.8% (2021: 85.7%). Refer to Item 8, Note 12 to the Consolidated Financial Statements 'Commitments and Contingencies' for an analysis of the credit risk associated with reinsurance recoverables at December 31, 2022.

The recognition of reinsurance recoverables requires two key estimates as follows:

- The first estimate is the amount of loss reserves to be ceded to our reinsurers. This amount consists of amounts related to case reserves and amounts related to IBNR. Refer to Item 8, Note 2 to the Consolidated Financial Statements 'Basis of Presentation and Significant Accounting Policies' for further details.
- The second estimate is the amount of the reinsurance recoverable balance that we believe ultimately will not be collected from reinsurers. We are selective in choosing reinsurers, buying reinsurance principally from reinsurers with a strong financial condition and industry ratings. The amount we ultimately collect may differ from our estimate due to the ability and willingness of reinsurers to pay claims, which may be negatively impacted by factors such as insolvency, contractual disputes over contract language or coverage and/or other reasons. In addition, economic conditions and/or operational performance of a particular reinsurer may deteriorate, and this could also affect the ability and willingness of a reinsurer to meet their contractual obligations.

Consequently, we review reinsurance recoverables at least quarterly to estimate an allowance for expected credit losses. Refer to Item 8, Note 2 to the Consolidated Financial Statements 'Basis of Presentation and Significant Accounting Policies' for further details.

At December 31, 2022, the allowance for expected credit losses was $31 million (2021: $30 million). We have not written off any significant reinsurance recoverable balances in the last three years.

At December 31, 2022, the use of different assumptions could have a material effect on the allowance for expected credit losses. To the extent the creditworthiness of our reinsurers deteriorates due to an adverse event affecting the reinsurance industry, such as a large number of catastrophes, uncollectible amounts could be significantly greater than the allowance for expected credit losses. Given the various considerations used to estimate the allowance for expected credit losses, we cannot precisely quantify the effect a specific industry event may have on the allowance for expected credit losses.

### **Gross Premiums Written**

Revenues primarily relate to premiums generated by our underwriting operations. The basis for recognizing gross premiums written varies by policy or contract type. Refer to Item 8, Note 2 to the Consolidated Financial Statements 'Basis of Presentation and Significant Accounting Policies' for further details.

### **Insurance Segment**

For the majority of our insurance business, a fixed premium that is identified in the policy is recorded at the inception of the policy. This premium is adjusted if underlying insured values change. We actively monitor underlying insured values, and any adjustments to premiums are recognized in the period in which they are determined. Gross premiums written on a fixed premium basis accounted for 85% and 87% of the segment's gross premiums written for the years ended December 31, 2022 and 2021, respectively. Some of this business is written through MGAs, third parties granted authority to bind risks on our behalf in accordance with our underwriting guidelines. For this business, premiums are recorded based on monthly statements received from MGAs or best estimates based on historical experience.

The remainder of our insurance business is written on a line slip or proportional basis, where we assume an agreed proportion of the premiums and losses of a particular risk or group of risks along with other unrelated insurers. As premiums for this business are not identified in the policy, premiums are recognized at the inception of the policy based on estimates provided by clients through brokers (refer to 'Reinsurance Segment' below for further details). We review these premium estimates on a quarterly basis and any adjustments to premium estimates are recognized in the period in which they are determined. Gross premiums written on a line slip or proportional basis accounted for 15% and 13% of the segment's gross premiums written for the years ended December 31, 2022 and 2021, respectively.

For the credit and political risk line of business, we write certain policies on a multi-year basis. Premiums in respect of these policies are recorded at the inception of the policy based on management's best estimate of premiums to be received, including

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assumptions relating to prepayments/refinancing. At December 31, 2022, the average duration of unearned premiums for credit and political risk line of business was 5.4 years (2021: 5.2 years).

### *Reinsurance Segment*

The reinsurance segment provides cover to cedants (i.e., insurance companies) on an excess of loss or on a proportional basis. In most cases, cedants seek protection from us for business that they have not yet written at the time they enter into agreements with us. Therefore, cedants must estimate their underlying premiums when purchasing reinsurance cover from us.

Excess of loss reinsurance contracts with cedants typically include minimum or deposit premium provisions. For excess of loss reinsurance contracts, minimum or deposit premiums are generally considered to be the best estimate of premiums at the inception of the contract. The minimum or deposit premium is normally adjusted at the end of the contract period to reflect changes in the underlying risks in force during the contract period. Any adjustments to minimum or deposit premiums are recognized in the period in which they are determined. Gross premiums written for excess of loss reinsurance contracts accounted for 43% and 49% of the reinsurance segment's gross premiums written for the years ended December 31, 2022 and 2021, respectively.

Many of our excess of loss reinsurance contracts also include provisions for automatic reinstatement of coverage in the event of a loss. In a year of significant loss events, reinstatement premiums will be higher than in a year in which there are no large loss events. Refer to Item 8, Note 2 to the Consolidated Financial Statements '*Basis of Presentation and Significant Accounting Policies*' and '*Critical Accounting Estimates - Reserve for Losses and Loss Expenses*' above for further details.

For proportional reinsurance contracts, premiums are recognized at the inception of the contract based on estimates to be received from ceding companies. We review these premium estimates on a quarterly basis and evaluate their reasonability in light of premiums reported by cedants. Factors contributing to changes in initial premium estimates may include:

- changes in renewal rates or rates of new business accepted by cedants (changes could result from changes in the relevant insurance market that could affect more than one of our cedants or could be a consequence of changes in the marketing strategy or risk appetite of an individual cedant);
- changes in underlying exposure values; and/or
- changes in rates being charged by cedants.

As a result of this review process, any adjustments to premium estimates are recognized in the period in which they are determined. Changes in premium estimates could be material to gross premiums written in the period. Changes in premium estimates could be also material to net premiums earned in the period in which they are determined, as any adjustment may be substantially or fully earned. Gross premiums written for proportional reinsurance contracts, including adjustments to premium estimates established in prior years, accounted for 57% and 51% of the reinsurance segment's gross premiums written for the years ended December 31, 2022 and 2021, respectively.

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Gross premiums written for proportional reinsurance contracts incepting during the year were as follows:

| Year ended December 31, | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Liability | $376,462 | $383,232 | $265,358 |
| Accident and health | 307,082 | 302,520 | 300,646 |
| Professional lines | 236,454 | 205,305 | 156,643 |
| Credit and surety | 133,853 | 93,638 | 91,940 |
| Motor | 135,954 | 187,569 | 228,754 |
| Agriculture | 112,452 | 72,897 | 52,682 |
| Marine and aviation | 22,081 | 23,912 | 19,065 |
| Run-off lines |  |  |  |
| Catastrophe | 3,463 | 12,733 | 13,863 |
| Property | 60,204 | 117,397 | 135,312 |
| Engineering | - | - | 15,472 |
| Total run-off lines | 63,667 | 130,130 | 164,647 |
| Total estimated premiums | $1,388,005 | $1,399,203 | $1,279,735 |
| Gross premiums written (reinsurance segment) | $2,629,014 | $2,822,752 | $2,808,539 |
| As a % of total gross premiums written | 53% | 50% | 46% |

Historical experience has shown that cumulative adjustments to initial premium estimates for proportional reinsurance contracts have ranged from 0% to 7% over the last 5 years.

We believe that a reasonably likely change to 2022 initial premium estimates for proportional reinsurance contracts would be 4% in either direction. A change in initial premium estimates of this magnitude would result in a change in gross premiums written of approximately $56 million. A change in initial premium estimates of this magnitude would not have a material impact on pre-tax net income, after considering current losses and loss expenses ratios together with acquisition cost ratios.

However, larger variations, positive or negative, are possible.

### Net Premiums Earned

Premiums are earned evenly over the period during which we are exposed to the underlying risk. Changes in circumstances subsequent to the inception of contracts can impact the earning periods. For example, when exposure limits for a contract are reached, any associated unearned premiums are fully earned. This can have a significant impact on net premiums earned, particularly for multi-year contracts such as those in the credit and political risk line of business.

Fixed premium insurance policies and excess of loss reinsurance contracts are generally written on a 'losses occurring' or 'claims made' basis over the term of the contract. Consequently, premiums are earned evenly over the contract term, which is generally 12 months.

Line slip or proportional insurance policies and proportional reinsurance contracts are generally written on a 'risks attaching' basis, covering claims that relate to the underlying policies written during the terms of these contracts. As the underlying business incepts throughout the contract term which is typically one year, and the underlying business typically has a one year coverage period, these premiums are generally earned evenly over a 24-month period.

### Fair Value Measurements of Financial Assets and Liabilities

Fair value is defined as the price to sell an asset or transfer a liability (i.e., the 'exit price') in an orderly transaction between market participants. Refer to Item 8, Note 6 to the Consolidated Financial Statements '*Fair Value Measurements*' for information on the valuation techniques, including significant inputs and assumptions generally used in estimating the fair values of our financial instruments.

#### Fixed Maturities and Equity Securities

At December 31, 2022, the fair values of 93% (2021: 94%) of total fixed maturities and equity securities were based on prices provided by globally recognized independent pricing services where we have a current and detailed understanding of how their prices were derived. The remaining securities were priced by either non-binding broker quotes or internal valuation models.

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Generally, we obtain quotes directly from broker-dealers who are active in the corresponding markets when prices are unavailable from independent pricing services. This may also be the case if the pricing from pricing services is not reflective of current market levels, as detected by our pricing control tolerance procedures. Generally, broker-dealers value securities through their trading desks based on observable market inputs. Their pricing methodologies include mapping securities based on trade data, bids or offers, observed spreads and performance on newly issued securities. They may also establish pricing through observing secondary trading of similar securities.

At December 31, 2022 and 2021, we did not adjust any pricing provided by independent pricing services.

### Management Pricing Validation

While we obtain pricing from independent pricing services and/or broker-dealers, management is ultimately responsible for determining the fair value measurements of all securities. To ensure fair value measurement is applied consistently and in accordance with U.S. GAAP, annually, we update our understanding of the pricing methodologies used by the pricing services and broker-dealers.

We also challenge any prices we believe may not be representative of fair value under current market conditions. Our review process includes, but is not limited to:

- initial and ongoing evaluation of the pricing methodologies and valuation models used by outside parties to calculate fair value;
- quantitative analysis;
- a review of multiple quotes obtained in the pricing process and the range of resulting fair values for each security, if available; and
- randomly selecting purchased or sold securities and comparing the executed prices to the fair value estimates provided by the independent pricing sources and broker-dealers.

### Other Investments

#### Hedge Funds, Direct Lending Funds, Private Equity Funds and Real Estate Funds

The fair values of hedge funds, direct lending funds, private equity funds and real estate funds are estimated using net asset values (NAVs) as advised by external fund managers or third-party administrators. At December 31, 2022, the estimated fair value of our investments in these funds was $856 million (2021: $838 million). Refer to Item 8, Note 6 to the Consolidated Financial Statements 'Fair Value Measurements' for further details.

#### CLO-Equity Securities

The fair values of CLO-Equities are estimated using a discounted cash flow model prepared by an external investment manager. At December 31, 2022, the estimated fair value of our indirect investment in CLO-Equities was $5 million (2021: $6 million). Refer to Item 8, Note 6 to the Consolidated Financial Statements 'Fair Value Measurements' for further details.

#### Other Privately Held Investments

Other privately held investments include convertible preferred shares, preferred shares, common shares, convertible notes, investments in limited partnership and a variable yield security. These investments are initially valued at cost, which approximates fair value. In subsequent measurement periods, the fair values of these investments are derived from one or a combination of valuation methodologies, which consider factors including recent capital raises by the investee companies, comparable precedent transaction multiples, comparable publicly traded multiples, third-party valuations, discounted cash-flow models, and other techniques that consider the industry and development stage of each investee company. The fair value of the variable yield security was determined using an externally developed discounted cash flow model. At December 31, 2022, the estimated fair value of these investments was $136 million (2021: $105 million). Refer to Item 8, Note 6 to the Consolidated Financial Statements 'Fair Value Measurements' for further details.

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## **Impairment Losses and the Allowance for Expected Credit Losses - Fixed Maturities, Available for Sale**

Fixed maturities classified as available for sale are reported at fair value at the balance sheet date and are presented net of an allowance for expected credit losses. Our available for sale ('AFS') investment portfolio is the largest component of consolidated total assets, and it is a multiple of shareholders' equity. As a result, impairment losses could be material to our results of operations and financial condition particularly during periods of dislocation in financial markets.

A fixed maturity, available for sale security is impaired if the fair value of the investment is below amortized cost. On a quarterly basis, the Company evaluates all fixed maturities, available for sale for impairment losses.

Details regarding our processes for the identification of impairments of fixed maturities, available for sale and the recognition of the related impairment losses are disclosed in Item 8, Note 2 to the Consolidated Financial Statements '*Basis of Presentation and Significant Accounting Policies*'.

In addition, the methodologies and significant inputs used to estimate the allowance for expected credit losses are disclosed in Item 8, Note 5 (i) to the Consolidated Financial Statements '*Investments*'.

At December 31, 2022, we recorded an allowance for expected credit losses of $11.7 million (2021: $0.3 million) and for the year ended December 31, 2022, we recorded impairment losses of $12.6 million (2021: $nil) (refer to '*Net Investment Income and Net Investment Gains (Losses)*' for further details). The allowance for expected credit loss is charged to net income (loss) and is included in net investment gains (losses) in the consolidated statements of operations.

### *Intent or Requirement to Sell*

From time to time, we may sell fixed maturities, available for sale subsequent to the balance sheet date that we did not intend to sell at the balance sheet date. Conversely, we may not sell fixed maturities, available for sale that we intended to sell at the balance sheet date. These changes in intent may arise due to events occurring subsequent to the balance sheet date. The types of events that may result in a change in intent include, but are not limited to, significant changes in the economic facts and circumstances related to the specific issuer, changes in liquidity needs, or changes in tax laws or the regulatory environment.

### *U.S. Treasury Securities and Other Highly Rated Debt Instruments*

Our credit impairment review process excludes fixed maturities, available for sale guaranteed, either explicitly or implicitly, by the U.S. government and its agencies (*U.S. Government, U.S. Agency and U.S. Agency RMBS*) because we anticipate these securities will not be settled below amortized cost. These securities are evaluated for intent or requirement to sell at a loss.

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# ---## RECENT ACCOUNTING PRONOUNCEMENTS---

At December 31, 2022, there were no recently issued accounting pronouncements that we have not yet adopted that we expect could have a material impact on our results of operations, financial condition or liquidity.

# ---## ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK---

Market risk is the risk that our financial instruments may be negatively impacted by movements in financial market prices or rates such as interest rates, credit spreads, equity securities' prices, and foreign currency exchange rates (refer to Item 1 *Risk and Capital Management* for further details).

We own a substantial amount of assets whose fair values are subject to market risks.

At December 31, 2022, 94% (2021: 97%) of fixed maturities are classified as available for sale, therefore changes in fair values caused by changes in interest rates and foreign currency exchange rates have an immediate impact on other comprehensive income (loss), total shareholders' equity and book value per common share but do not have an immediate impact on net income (loss). Changes in these market risks impact net income (loss) when, and if, securities are sold, or an impairment charge or an allowance for expected credit losses is recorded.

Equity securities are reported at fair value, with changes in fair values recognized in net income (loss).

At December 31, 2022 and 2021, we also invested in alternative investments including hedge funds, direct lending funds, private equity funds, real estate funds, CLO-Equities and other privately held investments. These investments are also exposed to market risks, with the changes in fair values immediately reported in net income (loss).

### Sensitivity Analysis

The following is a sensitivity analysis of our primary market risk exposures at December 31, 2022 and 2021.

Our policies to address these risks in 2022 were not materially different from 2021. We do not currently anticipate significant changes in our primary market risk exposures or in how those exposures are managed in future reporting periods based on what is known or expected to be in effect in future reporting periods.

### Interest Rate and Credit Spread Risk

Interest rate risk includes fluctuations in interest rates and credit spreads that have a direct impact on the fair values of fixed maturities. As interest rates rise and credit spreads widen, the fair value of fixed maturities falls.

We monitor sensitivity to interest rate and credit spread changes by revaluing fixed maturities using a variety of different interest rates (inclusive of credit spreads). We use duration and convexity at the security level to estimate the change in fair value that would result from a change in each security's yield. Duration measures the price sensitivity of an asset to changes in yield rates. Convexity measures how the duration of the security changes with interest rates. The duration and convexity analysis take into account changes in prepayment expectations for MBS and ABS. The analysis is performed at the security level and aggregated to the asset category levels.

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The following table presents the estimated pre-tax impact on the fair value of fixed maturities classified as available for sale due to an instantaneous increase in the U.S. yield curve of 100 basis points and an additional 100 basis point credit spread widening for corporate debt, non-agency residential MBS and commercial MBS, ABS and municipal bond securities:

|  | Fair value | Potential adverse change in fair value |  |  |
| --- | --- | --- | --- | --- |
|  |  | Increase in interest rate by 100 basis points | Widening of credit spreads by 100 basis points | Total |
| At December 31, 2022 |  |  |  |  |
| U.S. government and agency | $2,639,330 | $(78,870) | $ - | $(78,870) |
| Non-U.S. government | 562,029 | (15,428) | - | (15,428) |
| Agency RMBS | 1,202,785 | (68,760) | - | (68,760) |
| Securities exposed to credit spreads: |  |  |  |  |
| Corporate debt | 4,255,556 | (149,860) | (160,439) | (310,299) |
| CMBS | 947,778 | (23,016) | (29,792) | (52,808) |
| Non-agency RMBS | 133,534 | (6,086) | (5,779) | (11,865) |
| ABS | 1,429,527 | (9,673) | (47,191) | (56,864) |
| Municipals | 156,355 | (6,814) | (7,197) | (14,011) |
|  | $11,326,894 | $(358,507) | $(250,398) | $(608,905) |
| At December 31, 2021 |  |  |  |  |
| U.S. government and agency | $2,682,448 | $(85,129) | $ - | $(85,129) |
| Non-U.S. government | 795,178 | (22,607) | - | (22,607) |
| Agency RMBS | 1,074,589 | (47,406) | - | (47,406) |
| Securities exposed to credit spreads: |  |  |  |  |
| Corporate debt | 4,495,312 | (163,656) | (172,830) | (336,486) |
| CMBS | 1,248,191 | (38,536) | (49,568) | (88,104) |
| Non-agency RMBS | 186,164 | (3,927) | (5,036) | (8,963) |
| ABS | 1,622,480 | (14,552) | (62,633) | (77,185) |
| Municipals | 208,838 | (8,941) | (9,593) | (18,534) |
|  | $12,313,200 | $(384,754) | $(299,660) | $(684,414) |

U.S. government agencies have a limited range of spread widening. Therefore, 100 basis points of spread widening for these securities is highly improbable in normal market conditions. Our non-U.S. government debt obligations are highly-rated, and we believe the potential for future widening of credit spreads would also be limited for these securities. Certain of our holdings in non-agency RMBS and ABS have floating interest rates, which mitigate interest rate risk exposure.

The above sensitivity analysis should not be construed as our prediction of future market events, but rather an illustration of the impact of such events.

In addition, our investment in bond mutual funds is exposed to interest rate risk. However, this exposure is largely mitigated by the short duration of the underlying securities.

Our investment in CLO-Equities is also exposed to interest rate risk, but an increase in the risk-free yield curve of 100 basis points would have an insignificant impact on its fair value.

#### *Equity Price Risk*

Our portfolio of equity securities, excluding the bond mutual funds, has exposure to equity price risk. This risk is defined as the potential loss in fair value resulting from adverse changes in stock prices. The global equity portfolio is managed to a benchmark composite index, which consists of a blend of the S&P 500 and MSCI World indices. Changes in the underlying indices have a corresponding impact on the overall portfolio. At December 31, 2022, the fair value of equity securities was

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