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Axis to post $136mn derivative hit in Q3

Bermudian domiciled (re)insurer Axis Capital says it expects its third-quarter operating income to be impacted by an increase of approximately $136mn in the fair value liability of an indemnity derivative contract that is exposed to longevity risk.

Explaining that there is "considerable uncertainly" over the measurement of fair value for the contract, Axis said that while settlement is not due until 2017, the net derivative liability of $229mn recorded at the end of Q3 "would represent nearly a full loss to the contract".

Axis also added that its net realised investment losses for the quarter are expected to include approximately $260mn in other-than-temporary impairment losses from investments in its fixed maturity portfolio for which it no longer expects full recovery.

Despite this, Axis expects that its shareholders' equity will increase to $5.4bn, a 10 percent uplift compared to the $4.9bn it posted in the second quarter. Diluted book value per share is projected to increase approximately 10 percent for Q3 to $31.50 per share.

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