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AXIS Capital Announces Record Second Quarter Net Income of $223.4 Million; An Increase of 29% over Prior Quarter

Company Release - 8/7/2006 4:16 PM ET

PEMBROKE, Bermuda--(BUSINESS WIRE)--Aug. 7, 2006--

AXIS Capital Holdings Limited ("AXIS Capital") (NYSE: AXS) today reported net income available to common shareholders for the quarter ended June 30, 2006 of $223.4 million, or $1.37 per diluted common share, compared with $172.8 million, or $1.13 per diluted common share, for the quarter ended June 30, 2005. Net income for the six months ended June 30, 2006 was $418.6 million, or $2.56 per diluted share, compared with $324.6 million, or $2.07 per diluted share, for the corresponding period in 2005. Financial results for the second quarter and first six months of 2006 benefited from increased investment income.

Operating income for the second quarter of 2006 was $232.2 million, or $1.42 per diluted share, compared with $170.9 million, or $1.12 per diluted common share, for the quarter ended June 30, 2005. This same item excluding foreign exchange gains (losses), net of tax, for the second quarter of 2006 was $214.2 million, or $1.31 per diluted common share, compared with $197.4 million, or $1.29 per diluted common share, for the quarter ended June 30, 2005.

Operating income for the six months ended June 30, 2006 was $437.4 million, or $2.68 per diluted share, compared with $323.7 million, or $2.07 per diluted common share, for the six months ended June 30, 2005. This same item excluding foreign exchange gains (losses), net of tax, for the six months ended June 30, 2006 was $ 410.4 million, or $2.52 per diluted common share, compared with $373.1 million, or $2.38 per diluted common share, for the six months ended June 30, 2005.

Operating income and operating income excluding foreign exchange gains (losses), net of tax, are non-GAAP financial measures. Reconciliations of these measures to net income are presented at the end of this release.

Operating highlights for the first half of the year included the following:

    --  Gross premiums written increased by 9.9% to $2,160.1 million;

    --  Net premiums written increased by 8.1% to $1,813.1 million;

    --  Net premiums earned increased by 5.0% to $1,312.7 million;

    --  Combined ratio of 78.9% included net favorable prior period
        reserve development of $125.5 million, or 9.6 percentage
        points;

    --  Pre-tax net investment income increased by 67.2% to $185.2
        million;

    --  Annualized return on average common shareholders' equity of
        26.4%; and

    --  Total shareholders' equity increased from December 31, 2005 by
        8.6% to $3.8 billion and diluted book value per common share
        increased 7.8% to $20.68.

Operating highlights for the second quarter included the following:

    --  Gross premiums written increased by 29.7% to $995.4 million;

    --  Net premiums written increased by 33.2% to $820.7 million;

    --  Net premiums earned increased by 8.8% to $679.1 million;

    --  Combined ratio of 78.3% included net favorable prior period
        reserve development of $64.5 million, or 9.5 percentage
        points;

    --  Pre-tax net investment income increased by 58.0% to $91.7
        million primarily due to a combination of higher investment
        balances, higher investment yields and increasing contribution
        from other investments; and

    --  Annualized return on average common shareholders' equity of
        27.6%.

Commenting on the second quarter 2006 results, John Charman, Chief Executive Officer and President of AXIS Capital, stated: "We are pleased to report an annualized return on average common equity in the quarter of 27.6% and an increase in diluted book value per share relative to year-end of 7.8% despite the mark-to-market impact of rising interest rates on book value. Our results in the quarter reflect strong and stable underwriting results, increasing investment income and low large loss activity.

At the end of last year, we positioned ourselves tactically for trading in the first half-year of 2006. Our goal was to substantially reduce catastrophe exposures whilst, at the same time, achieving solid growth in better-rated business. In the non-property areas of our insurance and reinsurance businesses, our specialist focus has allowed us ample access to risks at stable, attractive rating levels. We have achieved all of this without compromising our appropriate risk tolerance levels in both our insurance and reinsurance segments."

Operating Results

Gross premiums written, during the second quarter of 2006, increased by 29.7%, or $228.1 million to $995.4 million, compared to the second quarter of 2005 and were derived 63.3% from our insurance segment and 36.7% from our reinsurance segment compared to 66.9% and 33.1%, respectively, for the second quarter of 2005. The increase was attributable to significant improvement in price in catastrophe-exposed lines of business in both our insurance and reinsurance segments, increased penetration of the U.S. casualty reinsurance marketplace and new opportunities. Our combined ratio increased to 78.3% from 74.5% in the second quarter of 2005 primarily due to a lower level of favorable reserve development in our reinsurance segment.

Gross premiums for the six months ended June 30, 2006 increased 9.9% from the same period of 2005 and were derived 49.4% from our insurance segment and 50.6% from our reinsurance segment compared to 47.9% and 52.1%, respectively, for the same period of 2005. The increase was largely driven by growth of our professional lines insurance business, growth in our U.S. casualty reinsurance book and significant improvement in price for catastrophe-exposed insurance business. Our combined ratio increased to 78.9% in the six months ended June 30, 2006 from 76.4% in the same period of 2005 primarily due to a lower level of favorable reserve development in our reinsurance segment.

Insurance Segment

Our insurance segment reported gross premiums written in the quarter of $629.6 million, up 22.7% from the second quarter of 2005, and net premiums written of $455.0 million, up 24.6% from the second quarter of 2005. The growth was largely driven by a significant improvement in pricing in our catastrophe-exposed property and marine lines and also additional political risk premium written in the quarter.

Our insurance segment reported gross premiums written in the six months of $1,066.7 million, up 13.2% from the same period of 2005, and net premiums written of $730.2 million, up 10.7% from the same period of 2005. The growth was largely driven by significant improvement in pricing in our catastrophe-exposed property and marine lines and also additional professional lines business.

Our insurance segment reported a combined ratio of 68.5% for the quarter compared to 66.8% for the quarter ended June 30, 2005. The increase was primarily due to a shift in the mix of earned premium towards professional lines in the quarter. The insurance segment experienced net favorable prior period reserve development from short tail lines of $58.2 million, or 18.0 percentage points, compared to favorable development of $44.4 million, or 14.2 percentage points, in the quarter ended June 30, 2005.

Reinsurance Segment

Gross premiums written in our reinsurance segment increased by 43.8%, or $111.5 million to $365.8 million, for the quarter ended June 30, 2006 compared to the same period of 2005. The increase was driven by growth in our U.S. casualty reinsurance lines of business and also significant improvement in pricing in catastrophe-exposed reinsurance business in the U.S.

Gross premiums written in our reinsurance segment increased by 6.8%, or $69.7 million to $1,093.5 million, for the six months ended June 30, 2006 compared to the same period of 2005. The increase was driven by growth in our U.S. casualty and professional lines reinsurance business.

Our reinsurance segment reported a combined ratio of 84.0% for the quarter compared to 77.7% in the second quarter of 2005. The increase was primarily due to a lower level of favorable reserve development. We experienced net favorable development of $6.3 million, or 1.8 percentage points, in the current quarter compared to favorable development of $29.6 million, or 9.5 percentage points, for the quarter ended June 30, 2005.

Interest Expense

Interest expense for the quarter and six months ended June 30, 2006 was $8.3 million and $16.4 million respectively, consistent with the comparable periods of 2005. Interest expense consists of interest due on outstanding debt, the amortization of debt offering expenses and offering discounts and fees relating to our credit facility. Our outstanding debt relates to $500.0 million of senior unsecured debt issued on November 15, 2004.

Preferred Dividends

Preferred dividends were $9.2 million and $18.9 million in the quarter and six months ended June 30, 2006 respectively, and related to dividends declared on our Series A and B preferred shares which were issued in September and November 2005, respectively.

Investments

Pre-tax net investment income was $91.7 million an increase of 58.0%, or $33.7 million, from the second quarter of 2005. Included in net investment income for the second quarter of 2006 was $5.5 million in income from other investments, compared to $3.1 million in the second quarter of 2005. Income from other investments is generated from holdings in multiple hedge funds of funds, senior secured loan funds and a high yield fund. We experienced $9.7 million of net realized losses, compared to $1.9 million of net realized gains in the second quarter of 2005.

Pre-tax net investment income for the six months ended June 30, 2006 was $185.2 million an increase of 67.2%, or $74.5 million, from the six months ended June 30, 2005. Included in net investment income for the six months ended June 30, 2006 was $18.9 million in income from other investments, compared to $4.2 million in the same period of 2005. We experienced $20.7 million of net realized losses, compared to $0.4 million of net realized gains for the six months ended June 30, 2005.

This increased investment income generated in the second quarter and first six months of 2006 principally reflects the positive impact of higher investment yields, higher investment balances and an increase in investment income from our other investments.

Capitalization / Shareholders' Equity

Total capitalization at June 30, 2006 was $4.3 billion, including $0.5 billion of long-term debt and $0.5 billion of preferred equity, compared to $4.0 billion at December 31, 2005. The increase was primarily due to net income in 2006 that was partially offset by unrealized losses on investments.

At June 30, 2006, diluted book value per common share was $20.68 and book value per common share was $22.15, compared to $19.19 and $20.23 respectively, from December 31, 2005. Diluted book value per share is a non-GAAP financial measure. A reconciliation of this measure to shareholders' equity is presented at the end of this release.

Conference Call

We will host a conference call on Tuesday August 8, 2006 at 8:00 AM (Eastern) to discuss the second quarter financial results and related matters. This presentation will be available through an audio webcast accessible through the Investor Information section of our website at www.axiscapital.com.

In addition, a financial supplement relating to our financial results for the quarter ended June 30, 2006 is available in the Investor Information section of our website.

AXIS Capital is a Bermuda-based global provider of specialty lines insurance and treaty reinsurance with shareholders' equity at June 30, 2006 of $3.8 billion and locations in Bermuda, the United States, Europe and Singapore. Its operating subsidiaries have been assigned a rating of "A" ("Excellent") by A.M. Best and a rating of "A" ("Strong") by Standard & Poor's. AXIS Capital has been assigned a senior unsecured debt rating of Baa1 (stable) by Moody's Investors Service and BBB+ (stable) by Standard & Poor's. For more information about AXIS Capital, visit our website at www.axiscapital.com.

                    AXIS CAPITAL HOLDINGS LIMITED
               CONSOLIDATED BALANCE SHEETS (UNAUDITED)
              As at June 30, 2006 and December 31, 2005
               (Expressed in thousands of U.S. dollars)


                                              June 30,    December 31,
                                                 2006         2005
                                             ------------ ------------
Assets
Cash and cash equivalents                     $1,615,448   $1,280,990
Fixed maturity investments at fair market
 value                                         6,009,431    6,012,425
Other investments                                627,721      409,504
Accrued interest receivable                       68,381       59,784
Securities lending collateral                    909,807      998,349
Insurance and reinsurance balances
 receivable                                    1,409,988    1,026,975
Deferred acquisition costs                       290,627      196,388
Prepaid reinsurance premiums                     309,881      281,579
Reinsurance recoverable                        1,392,543    1,518,110
Intangible assets                                 35,500       37,013
Other assets                                     129,723      104,859
                                             ------------ ------------
       Total Assets                          $12,799,050  $11,925,976
                                             ============ ============
Liabilities
Reserve for losses and loss expenses          $4,835,161   $4,743,338
Unearned premiums                              2,289,140    1,760,467
Insurance and reinsurance balances payable       333,547      314,232
Accounts payable and accrued expenses             75,393      101,179
Securities lending payable                       904,974      995,287
Net payable for investments purchased             43,012           76
Debt                                             499,100      499,046
                                             ------------ ------------
       Total Liabilities                       8,980,327    8,413,625
                                             ------------ ------------

Shareholders' Equity
Series A preferred shares                            125          125
Series B preferred shares                             31           31
Common shares                                      1,873        1,861
Additional paid-in capital                     2,413,410    2,386,200
Accumulated other comprehensive loss            (166,580)     (77,798)
Retained earnings                              1,569,864    1,201,932
                                             ------------ ------------
       Total Shareholders' Equity              3,818,723    3,512,351
                                             ------------ ------------
       Total Liabilities & Shareholders'
        Equity                               $12,799,050  $11,925,976
                                             ============ ============


                    AXIS CAPITAL HOLDINGS LIMITED
          CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
     For the quarters and six months ended June 30, 2006 and 2005
 (Expressed in thousands of U.S. dollars, except share and per share
                               amounts)


                        Quarters ended           Six Months ended
                    June 30,     June 30,     June 30,     June 30,
                       2006         2005         2006         2005
Revenues
   Gross premiums
    written           $995,380     $767,293   $2,160,120   $1,965,992
   Premiums ceded     (174,648)    (151,497)    (347,060)    (288,125)
   Change in
    unearned
    premiums          (141,633)       8,617     (500,367)    (427,864)
                   ------------ ------------ ------------ ------------
   Net premiums
    earned             679,099      624,413    1,312,693    1,250,003

   Net investment
    income              91,663       58,001      185,231      110,759
   Net realized
    (losses) gains      (9,777)       1,831      (20,706)         438
   Other insurance
    related income
    (loss)                 438       (5,451)       1,062       (5,519)
                   ------------ ------------ ------------ ------------
      Total
       revenues        761,423      678,794    1,478,280    1,355,681
                   ------------ ------------ ------------ ------------

Expenses
   Net losses and
    loss expenses      371,982      322,853      730,640      667,143
   Acquisition
    costs              101,832       85,471      191,536      176,772
   General and
    administrative
    expenses            57,657       56,796      113,068      111,098
   Foreign
    exchange
    (gains) losses     (18,901)      27,226      (28,165)      50,644
   Interest
    expense              8,315        7,818       16,400       15,897
                   ------------ ------------ ------------ ------------
      Total
       expenses        520,885      500,164    1,023,479    1,021,554
                   ------------ ------------ ------------ ------------

Income before
 income taxes          240,538      178,630      454,801      334,127
   Income tax
    expense              7,912        5,785       17,359        9,483
                   ------------ ------------ ------------ ------------
Net Income             232,626      172,845      437,442      324,644
Preferred share
 dividends              (9,226)           -      (18,857)           -
                   ------------ ------------ ------------ ------------

Net income
 available to
 common
   shareholders       $223,400     $172,845     $418,585     $324,644
                   ============ ============ ============ ============

Weighted average
 common shares and
    common share
     equivalents -
     basic         149,765,181  140,566,523  149,541,163  143,584,354
                   ============ ============ ============ ============

Weighted average
 common shares and
   common share
    equivalents -
    diluted        163,325,459  153,637,750  163,441,641  157,013,504
                   ============ ============ ============ ============

Net income per
 share - basic           $1.49        $1.23        $2.80        $2.26
                   ============ ============ ============ ============

Net income per
 share - diluted         $1.37        $1.13        $2.56        $2.07
                   ============ ============ ============ ============

Insurance Ratios
Loss ratio                54.8%        51.7%        55.7%        53.4%
Expense ratio             23.5%        22.8%        23.2%        23.0%
                   ------------ ------------ ------------ ------------
Combined ratio            78.3%        74.5%        78.9%        76.4%
                   ============ ============ ============ ============



                     AXIS CAPITAL HOLDINGS LIMITED
                CONSOLIDATED SEGMENTAL DATA (UNAUDITED)
                      Quarter ended June 30, 2006

                  Global      U.S.      Total    Reinsurance
                  Insurance Insurance  Insurance
                 ---------- --------- ---------- -----------

Revenues:
Gross premiums
 written          $313,235  $316,370   $629,605    $365,775
Net premiums
 written           278,370   176,656    455,026     365,706
Net premiums
 earned            180,568   143,003    323,571     355,528
Other insurance
 related
    income               -       438        438           -
Expenses:
Net losses and
 loss expenses     (68,883)  (78,902)  (147,785)   (224,197)
Acquisition
 costs             (23,753)  (15,001)   (38,754)    (63,078)
 General and
  administrative
  expenses         (11,304)  (23,569)   (34,873)    (11,501)
Underwriting
 income             76,628    25,969    102,597      56,752

Corporate
 expenses
Net investment
 income
Realized losses
 on investments
Foreign exchange
 gains
Interest expense
Income before
 income taxes

Net loss and
 loss expense
 ratio                38.1%     55.2%      45.7%       63.1%
Acquisition cost
 ratio                13.2%     10.5%      12.0%       17.7%
General and
 administrative
 expense ratio         6.3%     16.5%      10.8%        3.2%
---------------- ---------- --------- ---------- -----------
Combined ratio       57.6 %     82.2%      68.5%       84.0%
================ ========== ========= ========== ===========


                 Corporate   Total
                 --------- ---------

Revenues:
Gross premiums
 written               $-  $995,380
Net premiums
 written                -   820,732
Net premiums
 earned                 -   679,099
Other insurance
 related
    income              -       438
Expenses:
Net losses and
 loss expenses          -  (371,982)
Acquisition
 costs                  -  (101,832)
 General and
  administrative
  expenses              -   (46,374)
Underwriting
 income                 -   159,349

Corporate
 expenses         (11,283)  (11,283)
Net investment
 income            91,663    91,663
Realized losses
 on investments    (9,777)   (9,777)
Foreign exchange
 gains             18,901    18,901
Interest expense   (8,315)   (8,315)
                           ---------
Income before
 income taxes              $240,538
                           =========

Net loss and
 loss expense
 ratio                         54.8%
Acquisition cost
 ratio                         15.0%
General and
 administrative
 expense ratio        1.7%      8.5%
---------------- --------- ---------
Combined ratio                 78.3%
================           =========


                     AXIS CAPITAL HOLDINGS LIMITED
                CONSOLIDATED SEGMENTAL DATA (UNAUDITED)
                      Quarter ended June 30, 2005

                 Global      U.S.      Total    Reinsurance
                 Insurance Insurance  Insurance
                ---------- --------- ---------- -----------

Revenues:
===============
Gross premiums
 written         $227,512  $285,470   $512,982    $254,311
Net premiums
 written          214,005   151,098    365,103     250,693
Net premiums
 earned           204,717   108,321    313,038     311,375
Other insurance
 related (loss)
 income            (5,627)      326     (5,301)       (150)
Expenses:
Net losses and
 loss expenses    (78,039)  (70,658)  (148,697)   (174,156)
Acquisition
 costs            (26,455)   (3,695)   (30,150)    (55,321)
General and
 administrative
 expenses          (9,632)  (20,777)   (30,409)    (12,330)
Underwriting
 income            84,964    13,517     98,481      69,418

Corporate
 expenses
Net investment
 income
Realized gains
 on investments
Foreign
 exchange
 losses
Interest
 expense
Income before
 income taxes

Net loss and
 loss expense
 ratio               38.1%     65.2%      47.5%       55.9%
Acquisition
 cost ratio          12.9%      3.4%       9.6%       17.8%
General and
 administrative
 expense ratio        4.7%     19.2%       9.7%        4.0%
--------------- ---------- --------- ---------- -----------
Combined ratio       55.7%     87.8%      66.8%       77.7%
=============== ========== ========= ========== ===========


                Corporate   Total
                --------- ---------

Revenues:
Gross premiums
 written              $-  $767,293
Net premiums
 written               -   615,796
Net premiums
 earned                -   624,413
Other insurance
 related (loss)
 income                -    (5,451)
Expenses:
Net losses and
 loss expenses         -  (322,853)
Acquisition
 costs                 -   (85,471)
General and
 administrative
 expenses              -   (42,739)
Underwriting
 income                -   167,899

Corporate
 expenses        (14,057)  (14,057)
Net investment
 income           58,001    58,001
Realized gains
 on investments    1,831     1,831
Foreign
 exchange
 losses          (27,226)  (27,226)
Interest
 expense          (7,818)   (7,818)
Income before
 income taxes             $178,630

Net loss and
 loss expense
 ratio                        51.7%
Acquisition
 cost ratio                   13.7%
General and
 administrative
 expense ratio       2.2%      9.1%
--------------- --------- ---------
Combined ratio                74.5%
===============           =========


                     AXIS CAPITAL HOLDINGS LIMITED
                CONSOLIDATED SEGMENTAL DATA (UNAUDITED)
                    Six Months ended June 30, 2006

                 Global      U.S.       Total     Reinsurance
                 Insurance  Insurance  Insurance
                ---------- ---------- ----------- -----------

Revenues:
Gross premiums
 written         $523,033   $543,622  $1,066,655  $1,093,465
Net premiums
 written          435,556    294,620     730,176   1,082,884
Net premiums
 earned           365,767    280,517     646,284     666,409
Other insurance
 related income         -      1,062       1,062           -
Expenses:
Net losses and
 loss expenses   (149,322)  (154,633)   (303,955)   (426,685)
Acquisition
 costs            (51,142)  (25,068 )    (76,210)   (115,326)
General and
 administrative
 expenses         (21,172)   (46,756)    (67,928)    (22,215)
Underwriting
 income           144,131     55,122     199,253     102,183

Corporate
 expenses
Net investment
 income
Realized losses
 on investments
Foreign
 exchange gains
Interest
 expense
Income before
 income taxes

Net loss and
 loss expense
 ratio               40.8%      55.1%       47.0%       64.0%
Acquisition
 cost ratio          14.0%       8.9%       11.8%       17.3%
General and
 administrative
 expense ratio        5.8%      16.7%       10.5%        3.3%
--------------- ---------- ---------- ----------- -----------
Combined ratio       60.6%      80.7%       69.3%      84.6.%
=============== ========== ========== =========== ===========


                Corporate    Total
                --------- -----------

Revenues:
Gross premiums
 written               -  $2,160,120
Net premiums
 written               -   1,813,060
Net premiums
 earned                -   1,312,693
Other insurance
 related income        -       1,062
Expenses:
Net losses and
 loss expenses         -    (730,640)
Acquisition
 costs                 -    (191,536)
General and
 administrative
 expenses              -     (90,143)
Underwriting
 income                -     301,436

Corporate
 expenses        (22,925)    (22,925)
Net investment
 income          185,231     185,231
Realized losses
 on investments  (20,706)    (20,706)
Foreign
 exchange gains   28,165      28,165
Interest
 expense         (16,400)    (16,400)
Income before
 income taxes               $454,801

Net loss and
 loss expense
 ratio                          55.7%
Acquisition
 cost ratio                     14.6%
General and
 administrative
 expense ratio       1.7%        8.6%
--------------- --------- -----------
Combined ratio                  78.9%
===============           ===========


                     AXIS CAPITAL HOLDINGS LIMITED
                CONSOLIDATED SEGMENTAL DATA (UNAUDITED)
                    Six Months ended June 30, 2005

                 Global      U.S.       Total    Reinsurance
                 Insurance  Insurance  Insurance
                ---------- ---------- ---------- -----------

Revenues:
Gross premiums
 written         $479,835   $462,396   $942,231  $1,023,761
Net premiums
 written          417,435    242,330    659,765   1,018,102
Net premiums
 earned           421,575    214,822    636,397     613,606
Other insurance
 related (loss)
 income            (5,865)       346     (5,519)          -
Expenses:
Net losses and
 loss expenses   (143,934)  (142,376)  (286,310)   (380,833)
Acquisition
 costs            (59,537)    (6,739)   (66,276)   (110,496)
General and
 administrative
 expenses         (19,484)   (41,088)   (60,572)    (24,631)
Underwriting
 income           192,755     24,965    217,720      97,646

Corporate
 expenses
Net investment
 income
Realized gains
 on investments
Foreign
 exchange
 losses
Interest
 expense
Income before
 income taxes

Net loss and
 loss expense
 ratio               34.1%      66.3%      45.0%       62.1%
Acquisition
 cost ratio          14.1%       3.1%      10.4%       18.0%
General and
 administrative
 expense ratio        4.6%      19.1%       9.5%        4.0%
--------------- ---------- ---------- ---------- -----------
Combined ratio       52.8%      88.5%      64.9%       84.1%
=============== ========== ========== ========== ===========


                Corporate    Total
                --------- -----------

Revenues:
Gross premiums
 written               -  $1,965,992
Net premiums
 written               -   1,677,867
Net premiums
 earned                -   1,250,003
Other insurance
 related (loss)
 income                -      (5,519)
Expenses:
Net losses and
 loss expenses         -    (667,143)
Acquisition
 costs                 -    (176,772)
General and
 administrative
 expenses              -     (85,203)
Underwriting
 income                -     315,366

Corporate
 expenses        (25,895)    (25,895)
Net investment
 income          110,759     110,759
Realized gains
 on investments      438         438
Foreign
 exchange
 losses          (50,644)    (50,644)
Interest
 expense         (15,897)    (15,897)
Income before
 income taxes               $334,127

Net loss and
 loss expense
 ratio                          53.4%
Acquisition
 cost ratio                     14.1%
General and
 administrative
 expense ratio       2.1%        8.9%
--------------- --------- -----------
Combined ratio                  76.4%
===============           ===========

Cautionary Note Regarding Forward-Looking Statements

This release contains forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements contained in this release include our expectations regarding market conditions. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause actual events or results to be materially different from our expectations include (1) our limited operating history, (2) the occurrence of natural and man-made disasters, (3) actual claims exceeding our loss reserves, (4) the failure of any of the loss limitation methods we employ, (5) the effects of emerging claims and coverage issues, (6) the failure of our cedants to adequately evaluate risks, (7) the loss of one or more key executives, (8) a decline in our ratings with rating agencies, (9) the loss of business provided to us by our major brokers, (10) changes in governmental regulations, (11) increased competition, (12) general economic conditions and (13) the other matters set forth under Item 1A, "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2005 filed with the SEC on March 9, 2006. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

In addition to the GAAP financial measures included within this release, we have presented `operating income' which represents net income available to common shareholders, before the after tax impact of net realized gains and losses on investments, "operating income, excluding the after tax impact of foreign exchange gains/losses" and "diluted book value per common share," which are non-GAAP financial measures. We have included the first and second measures as we believe that security analysts, rating agencies and investors believe that realized gains and losses and foreign exchange, where an actively managed foreign exchange program is not in place, are largely opportunistic and are a function of economic and interest rate conditions. As a result, we believe that they evaluate earnings before realized gains and losses and foreign exchange, adjusted for tax, to make performance comparisons with our industry peers. We have included the third measure because it takes into account the effect of dilutive securities and, therefore, we believe that this is a better measure of calculating shareholder returns than book value per share.

                    AXIS CAPITAL HOLDINGS LIMITED
              NON-GAAP FINANCIAL MEASURE RECONCILIATION
                           OPERATING INCOME
     For the Quarters and Six Months ended June 30, 2006 and 2005
  (Expressed in thousands of U.S. dollars, except per share amounts)


                         Quarters ended           Six Months ended
                      June 30,     June 30,     June 30,     June 30,
                        2006         2005         2006         2005

Net income            $223,400     $172,845      418,585      324,644

Adjustment for net
 realized losses
 (gains)                 9,777       (1,831)      20,706         (438)
 on investments
Adjustment for
 associated tax
 impact of net
 realized (losses)
 gains on investments     (929)         (65)      (1,872)        (521)
                   ------------ ------------ ------------ ------------
Operating income      $232,248     $170,949     $437,419     $323,685
                   ============ ============ ============ ============

Net income per
 share - diluted         $1.37        $1.13        $2.56        $2.07
                   ============ ============ ============ ============

Adjustment for net
 realized losses
 (gains) on               0.06        (0.01)        0.13            -
 investments
Adjustment for
 associated tax
 impact of net
 realized (losses)
 gains on investments    (0.01)           -        (0.01)           -

                   ------------ ------------ ------------ ------------
Operating income
 per share -
 diluted                 $1.42        $1.12        $2.68        $2.07
                   ============ ============ ============ ============


Weighted average
 common shares and
 common share
 equivalents -
 diluted           163,325,459  153,637,750  163,441,641  157,013,504
                   ============ ============ ============ ============


                    AXIS CAPITAL HOLDINGS LIMITED
              NON-GAAP FINANCIAL MEASURE RECONCILIATION
OPERATING INCOME EXCLUDING FOREIGN EXCHANGE (GAINS) LOSSES, NET OF TAX
     For the Quarters and Six Months ended June 30, 2006 and 2005
  (Expressed in thousands of U.S. dollars, except per share amounts)


                         Quarters ended           Six Months ended
                      June 30,     June 30,     June 30,     June 30,
                         2006         2005         2006         2005

Net income            $223,400     $172,845      418,585      324,644

Adjustment for net
 realized losses
 (gains) on
 investments             9,777       (1,831)      20,706         (438)
Adjustment for
 foreign exchange
 losses (gains)        (18,901)      27,226      (28,165)      50,644
Adjustment for
 associated tax
 impact                    (39)        (812)        (689)      (1,725)
                   ------------ ------------ ------------ ------------
Operating income
 excluding foreign
 exchange (losses)
 gains, net of tax    $214,237     $197,428     $410,437     $373,125
                   ============ ============ ============ ============

Net income per
 share - diluted         $1.37        $1.13        $2.56        $2.07
                   ============ ============ ============ ============

Adjustment for net
 realized losses
 (gains) on
  investments             0.06        (0.01)        0.13            -
Adjustment for
 foreign exchange
 losses (gains)          (0.12)        0.18        (0.17)        0.32
Adjustment for
 associated tax
 impact                      -        (0.01)           -        (0.01)
                   ------------ ------------ ------------ ------------
Operating income
 excluding foreign
 exchange (losses)
 gains, net of tax,
 per share -
 diluted                 $1.31        $1.29        $2.52        $2.38
                   ============ ============ ============ ============


Weighted average
 common shares and
 common share
 equivalents -
 diluted           163,325,459  153,637,750  163,441,641  157,013,504
                   ============ ============ ============ ============


                    AXIS CAPITAL HOLDINGS LIMITED
              NON-GAAP FINANCIAL MEASURE RECONCILIATION
                     DILUTED BOOK VALUE PER SHARE
              As at June 30, 2006 and December 31, 2005
 (Expressed in thousands of U.S. dollars, except share and per share
                               amounts)

                                              June 30,    December 31,
                                                 2006         2005


Total shareholders' equity                    $3,818,723   $3,512,351
less preferred equity                           (500,000)    (500,000)
                                             ------------ ------------
Common shareholders' equity                   $3,318,723   $3,012,351

Common shares outstanding                    149,809,873  148,868,759

                                             ------------ ------------
Book value per common share                       $22.15       $20.23
                                             ============ ============

Diluted book value on an "as if converted
 basis"

Common shareholders' equity                   $3,318,723   $3,012,351
add in:
   proceeds on exercise of options               101,050      117,808
   proceeds on exercise of warrants              244,812      244,812

                                             ------------ ------------
Adjusted shareholders' equity                  3,664,585    3,374,971
                                             ------------ ------------

As if converted diluted shares outstanding
Common shares outstanding                    149,809,873  148,868,759
add in:
   vesting of restricted stock                 2,291,590    1,172,550
   exercise of options                         5,398,517    6,174,464
   exercise of warrants                       19,665,963   19,650,509

                                             ------------ ------------
Diluted common shares outstanding            177,165,943  175,866,282
                                             ------------ ------------

                                             ------------ ------------
Diluted book value per common share               $20.68       $19.19
                                             ============ ============

Source: AXIS Capital Holdings Limited

Contact: Investor Contacts AXIS Capital Holdings Limited Linda Ventresca, 441-297-9513 info@axiscapital.com or Media Contacts Kekst and Company Joseph Kuo or Caroline Gentile, 212-521-4800