For those of you that didn't hear my moving introduction this morning, I'm Jay Cohen from BofA Merrill Lynch and happy to introduce the next speaker. It's nice at this conference when we have true veterans of the business. They really do add a different perspective. We're fortunate to have a true veteran of the business speaking next. John Charman, this is his 41st year of working in the insurance industry. He started, I guess you were about 12 or 13 when you started in your dad's brokerage shop or something. You'll notice, by the way, that John's hair is shorter than it was last year. That's because he had it shaved to raise money for cancer, I just learned, and I played a very small part in that. He raised $800,000 simply by shaving his head. We're going to bring buzzers around later.
If anybody wants to do it, we can raise some money here as well. With those brief comments, John.
Jay's introduction was a very nice way of saying I'm far too old to actually be standing before you here today. Thank you, Jay, for providing the opportunity to be able to speak to you all. Good morning, ladies and gentlemen. I am going to try and forgive me, but I take it you all know this off by heart, and so I can skip through it pretty quickly. When I founded AXIS 10 years ago, in September of 2001, September the 19th. I set out our mission statement from the onset, which was pretty lofty, bearing in mind that the industry had gone through a pretty bad patch in the late 1990s into 2000, 2001. Seemed to be pretty happy with producing combined ratios that were north of 100% and up to 120% and hope that investment returns might actually outrun the claims.
Having come from Lloyd's and spent 30 years in Lloyd's, I set ourselves a target to become the leading global specialty insurer and reinsurer, defined by quality, sustainability, and profitability. There's a very strong word that's omitted there, which is size and scale. Instead of being comfortable with actually running a P&C business, either insurance or reinsurance, with combined ratios in excess of 100%, I set my company a target, and I told my investors that my target for our company was that over a cycle, we would achieve combined ratios around 80%, which at that time was very unusual.
I also, when I established AXIS, wanted to have a business model where I could have an insurance business and a reinsurance business side by side, which would allow me to essentially pick and choose from the global products in the different geographies that we need to trade in. Whether it was better to take the different products either on a direct insurance basis, or whether if there were strong industry players with great market shares, whether our model was best suited in those geographies to actually take the products by way of reinsurance. It gives us huge flexibility and always has done from the inception of our company. We're one of the very few companies that actually can significantly change our portfolios throughout our insurance business and throughout our reinsurance business on a day-by-day basis. Most companies have a holding company with separate different segments.
They have business plans. They have quarterly reports. We manage our portfolios throughout the insurance and the reinsurance business on a daily basis. That gives us huge flexibility, and it allows us to position ourselves appropriately in the market at any given time. I was also fortunate in 2001 to be given a whole ton of capital, around $1.7 billion, and have a clean sheet of paper. For my previous 30-year business career, I'd inherited companies with legacy problems. They had legacy infrastructure, legacy costs, legacy systems. For the first time, I was given huge amounts of capital, clean sheet of paper, and I could go out and get the very best people in the industry and find the very best technology modern business platform.
Around that modern business platform, build the people on a global basis with the skills in the insurance and reinsurance industry. From inception, I tried to create a really connected company because we live in a global marketplace that's fiercely competitive. The broker organizations who we do a lot of our business with are very well connected. They can distribute their products globally wherever they find good capacity at prices that their clients are looking for. In order for us to react to those sort of situations, we need to be connected globally so that our underwriters on a daily basis know exactly what's in the marketplace.
Where that client is putting his business, whether the business is being introduced to the North American market, whether it's also being introduced to Europe, whether it's being introduced to the U.K., or even if it's down in Australia. They'll go wherever they need to go, and we have to have an infrastructure that allows us to pick that business up and react very quickly in a very connected sort of way. We cooperate between ourselves within the company internationally, and we are then able to have a really focused response and a very efficient, speedy response, and actually attack that business wherever it's coming into the industry. Very few companies in our industry have that connectability. It allows brokers to exploit weakness, but that is something that AXIS just will not allow.
I just want to go back to those three words, quality, sustainability, and profitability, because that's what drives each and every one of us at AXIS. There is no other senior management team in our industry that is as deeply embedded in the day-to-day underwriting activities or operational activities of the company as we are at AXIS. Just finally on this slide, whilst we've not been able to achieve in our 10-year history the target that I set, between 2002 and 2011, our aggregate group combined ratio is 88%. If you think of the nightmare year we've just got through in 2011, I think that's a pretty credible performance. I just want to take a few moments, I'm going to try and whiz through these slides as quickly as I can, but try to get the salient points over.
As an insurance business, we're the largest global diversified insurer that has emerged from the Class of 2001. Just to remind you, there were 10 new insurance and reinsurance companies that were established down in Bermuda at the end of 2001, with a combined capital of over $10 billion. We were international from our inception. The experience and expertise of our senior management from inception has been on the international markets. Whereas most of the other companies in our peer group who started at the same time as us were mostly U.S.-centric. We weren't. We knew the world, we knew where we wanted to be, we established a plan, we had a build-out strategy over a five-year sort of period of time. You'll see as I go through this that that's exactly what we've achieved.
I like to think we have strong expertise in evaluating complex and volatile risks, predominantly in the short to medium tail lines. These are the sort of lines where the market change that's occurring, I'll talk about that later, these are the lines that get the greatest kick as the market returns to profitability. We expect to benefit very strongly from that rebound. We have never been afraid to downsize when faced with negative risk/reward characteristics. We have demonstrated that time and time again in our insurance business. Back in 2005, 2006, we were a major underwriter of aviation business. The market decided that they would substantially cut rates, I'm not talking by a reasonable margin, I'm talking about a margin of somewhere between 30%-40% in one slice at the end of 2005 to the airlines.
We walked away from $250 million-$300 million of business within one week because we understand the risk/reward characteristics of the marketplace. We have a great relationship with our clients, but we're not there as a company to subsidize them. We have to be paid. We've also during our 10-year history steadily invested in new geographies and products. Coming back to my comments about the international aspect to our company, we have within that 10-year period expanded throughout North America, Canada, throughout Europe, and in the last three or four years have begun a very steady but deliberate expansion in Asia. I think we actually have shown that it's a pretty good winning strategy, because despite the 2011 cat losses that I talked about earlier, if you think of their impact, we had $100 billion, over $100 billion of insured losses last year.
In 2011, our insurance business managed to produce a 98% combined ratio, which I think with the diversified portfolio we have and the strains that we had to deal with last year is very credible. Between 2002 and 2011, we had $12 billion of net premiums in our insurance business. We've made $2 billion of underwriting profit, which is an aggregate combined ratio over that period of 81%. I'll take a little bit of time to talk about our reinsurance business. As I said, that our management on a daily basis has the ability to flex our capital and distribute our capital, the emphasis of our trading between our insurance businesses globally and our reinsurance businesses globally. That's incredibly important, especially during a period of market change or aggressive competition. We need to position ourselves extremely well when margins are tight.
Are we relevant as a reinsurance business? Absolutely. We've established over the last decade a really strong global reinsurance franchise. In my view, we're one of the top 15 global reinsurers that the actual fabric of the day-to-day marketplace, that are there globally on a day-to-day basis and being used and utilized by the market. Again, rather like insurance, we're not frightened to scale back when we see the risk reward characteristics move away from us. If you go back to 2011 and the catastrophes that we saw emerge, an awful lot of those losses were unmodeled losses. They caused a great deal of surprise, whether it was New Zealand, where they didn't think there was a fault line running through Christchurch. Whether it's Thailand, where they never envisaged that flooding would have such extensive damage.
The tsunami, which was unmodeled as well, and the terrible damage and suffering that occurred there. We also had an early warning sign. The early warning signs were some losses that happened in 2010. Whilst we were profitable in 2010, we started to see some real catastrophes emerge that started to make my senior management group question the way that the reinsurance markets were approaching some of these geographies and some of the major seasons that we were reinsuring. We started in the last quarter of 2010 to do a really deep dive on a global basis throughout our entire cat portfolio.
I started, for those of you who take the time to listen to our quarterly earnings call, I started at the end of 2010 to say that we were not comfortable generally with the way that the reinsurance market were addressing some of the geographies that historically the reinsurance market had been very active in. It wasn't just a matter of price. It was a matter of the structure of the reinsurance programs that they were allowing cedents, primary companies, to reinsure. We were being far too complacent as an industry on the reinsurance side in allowing major cedents to have extraordinarily low retentions, the structures of their reinsurance programs were so heavily weighted towards the cedent, the fairness had gone out of the equation. We started to actually withdraw substantially our capacity from the beginning of 2011.
We still had enforced policies that we actually got caught on during 2011 during the cats that occurred. We actually again showed that we were first to the market. We knew there's a fundamental issue. It still wasn't addressed at this year-end. We still withheld a whole ton of our capacity because we're absolutely not satisfied that the market has yet understood the need for structural change as well as pricing change. That I'm convinced will happen during the course of this year. Just coming to the reinsurance business in terms of the strategy and that working, and despite our 119% combined ratio for 2011. If you take the period since 2002 through to 2011, and we run our reinsurance business net, we've written almost $14 billion worth of net premiums, and we've produced just over $1.4 billion of underwriting profit.
If you take that period, think of all the catastrophes that we've had to deal with, Katrina in 2005, the losses in 2008, and then 2011 cats. Our reinsurance business has an aggregate combined ratio of 89%. Moving on to the company, I think we've demonstrated our excellent financial performance. We're people who are pretty straightforward. We don't lie, we don't steal, and we don't cheat. We exist to deliver to our shareholders our performance. Failure or being average is not an option for us. A key measurement on our value is the return on average common equity. From 2002 to 2011, the average common equity averaged 14.2%. In terms of value creation, our diluted book value per share growth adjusted for dividends is 13.75%. We have demonstrated we have excellent financial performance.
It's still marginally below the targets that we set ourselves internally, when compared to our peer group, I think it's quite credible. From our inception, we've raised $2.6 billion, give or take a bit, which includes our initial capital raise. We've returned over $2.8 billion to our shareholders through dividends and share repurchases. We have a company with a total capital of about $6.4 billion, and we have common equity of around $5.4 billion. We have a track record of increasing our dividends every year since our IPO. This is what drives us, and this is our strategy in the current market environment. I'm not going to go through every point, they're all equally important. I'm just going to pick one from the underwriting part, which is our approach to learn the lessons that we have to from our past.
Just as I spoke earlier about, we suffered some pretty substantial catastrophe losses, not only as a company but as an industry. If you look at the $100 billion of losses, our market share was just around about 1%. Our market share in the industry is, depending upon geographies, is between 1% and 2%. Whilst I was not happy at all, especially during the celebration of our first 10 years, to have that burden of those losses, it was very much in line with the market share that we anticipated. My point is the fact we're honest enough, and diligent enough to very quickly learn from what we're seeing happening. We reacted very strongly within the international cat market. We contracted very quickly.
We set very tough new standards for the deployment of our capital in the light of the experience that we had during 2011, also the emergence of all these unmodeled losses. The uncertainty factor within our models, we looked at very carefully, and we have loaded obviously more significantly than most of the rest of the marketplace because we really believe that the risk element in our reinsurance business has changed over the last three or four years. Whether it's climate change, whatever it is, it's not going to go away. We have to price our portfolios with that in mind and not just be satisfied smugly to sit back and think that our portfolio's earned a 20% increase. We have to look at it on a risk-adjusted basis.
On the investment side, I picked out maintaining liquidity and shorter duration because we're not reaching for yield by investing in less liquid issues or by extending duration because at this moment in time we do not want to take a greater interest rate risk. Under capital, I chose the maintenance of financial strength but really being the right size for any opportunity. We have to balance the attractiveness of the return of capital through share repurchases because its valuations are so attractive. They're quite humbling for me as the CEO of the company, but apparently, they're very attractive. We also have to deal with the necessity to address our growing underwriting opportunities on a global basis. It's a very difficult balance. Just a quick note to bring you up to date on AXIS' position today.
As I said earlier, we have a global insurance and reinsurance platform. We have around 1,100 full-time employees in 30 offices around the world across five continents. As I said earlier, we had an international outlook from inception, we also had an international business plan from inception. We know the world, we have known it for many decades, we can trade very efficiently and very effectively throughout it. I talked about our diversified book of business by product and geography.
It worked extremely well for us as a company because we were able to withstand not only the $100 billion of catastrophe losses that the industry had to deal with in 2011, but if you think about what's been going on on the asset side with pretty poor returns on our investments as well as dealing with the volatility through the markets, the financial markets from the financial crisis in Europe. I hope we have an excellent market reputation. We're hard but we're fair. I say, and my colleagues say either to our broker colleagues, global brokers, or our global clients, "If you're fair with us, we'll be more than fair back. If you want to commoditize us, we'll commoditize our relationship with you." We have a very clear way of operating in the international business community.
We have deep relationships with both our broker base and our client base. They're embedded, and they've been, as Jay very kindly said earlier about me being such an old man, many of us in my company have been in the industry for well over 30 years, and we have embedded relationships at the very highest levels of most of our corporate clients as well as the broking community. Those relationships allow us to move within the marketplace. When we downsize, we do not lose those relationships. These are pretty professional people. They know when the people on their counterparties are being stupid, and they take advantage of it, but they also respect people that have very clear views of risk/reward characteristics, and they know the security they get, and they know the professionalism that we bring to the transactions we undertake with them.
We have a great ability to access and underwrite complex risks, as I said earlier. We have really highly talented underwriters. We're an underwriting business, day by day, product by product, geography by geography. We're not a revenue sweeper, and so many businesses in our industry act, quite frankly, as vacuum cleaners, and the end results actually will show that. We have strong capital and ratings and a very conservative balance sheet. We're an A+ from S&P, which we got some time ago. We're A with a positive outlook from AM Best. They've been sitting on their hands, in my view, for the last four or five years, but I forgive them. We have a high-quality liquid investment portfolio. We have $6.7 billion of net reserves, and for a short to medium-tail business, 63% of those reserves are IBNR reserves.
Between 2002 and 2011, and just to remind you, we have a very conservative reserving process that has been extremely consistent throughout our 10-year history. Between 2002 and 2011, we have had aggregate favorable reserve development of $2.5 billion, and favorable reserve development in every year of our history. I don't like the word conclusion because there is no conclusion to AXIS because we're on a very long, determined journey. To try to sum up this presentation, we have capacity for greater than industry growth in favorable markets. We can also downscale, as I said earlier. We are experts, we believe, in our industry. We have strong track records, and we have strong market presence in complex business lines.
Those are the lines, as I said earlier, that will benefit most as the market moves from the very negative market price reductions, the aggressive price reductions we've seen since really 2005. I have been saying for the last 15 months that I was convinced that 2011 was going to be the bottom end of a very aggressive pricing cycle. For my company, I said to each and every one of them, what we need to do is to get through 2011 because I was convinced the market was in cycle change as opposed to event change. An event change is instant gratification. Cycle change is very different. You grind it out risk by risk, product by product, geography by geography. It's absolutely happened. We've reached the bottom. We measure our insurance business with 23 different measurement factors.
When we came into 2011, every one apart from one was in negative territory. When we came out of 2011, every one apart from three, and they're immaterial in terms of revenue, were very positive. It's not instant gratification, that's where our trading ability and capability, our focus, our efficiency, our knowledge of the global markets in insurance and reinsurance help us because where there's margin, we'll find it, and we'll deliver it. Finally, from inception, those of you who know me know that as a business, we've been extremely cautious with respect to long-tail business. I believe that the market has generally ignored tail risk, that is not something that I'm prepared to do. The element of long-tail business and therefore tail uncertainty is very limited in AXIS.
You get what you see with us, and it's pretty quick, and when you pick up the balance sheet, it's real. Finally, all of us at AXIS are dedicated to delivering long-term value to our shareholders. That's the reason why we're there, that's what we get paid, and that's what we deliver. With that, Jay, I'd like to hand it over to you.
We've got about four minutes for questions.
Sorry about that.
It's okay.
Prior to 2011, I really did think that AXIS stood apart from its peers, its offshore reinsurance insurance peers. I have to say, 2001 kind of shook my confidence or conviction a little bit. You talked about having recognized the unmodeled risk and starting to withdraw or re-underwrite. Was it simply that you didn't do it in time? 2011, you had the exposure, or am I not reading it right?
Yeah, I'm not sure that You started by talking about offshore. If you're talking about offshore.
The broader, all of your peer companies.
No, I think the whole industry.
Right.
Let's be clear about it. The whole industry was called out-
Right
by the cat losses of 2011. Yes, of course, we modeled for Japanese earthquake. What was unmodeled was the tsunami impact.
As I said earlier, Christchurch, it's a $15 billion loss to the industry. That was unmodeled because they didn't think there was a fault line under the city. There are a number of circumstances. Thailand, where I've been convinced from the very earliest stages of that loss that it was going to be a huge market loss, but it's disproportionate in its distribution. We're not affected by it to any great extent. We're bound to pick it up from our reinsurance business or other cedents who's written Thai business. Nobody either modeled or The Japanese, forgive me, have been investing down in Thailand for 14 years, and they've been putting all their manufacturing industries down there. Naturally, Japanese companies insure with Japanese insurers. They have something like a 60% market share of that loss. Completely unexpected. Completely blew all of their I'm not making excuses.
I don't think that there was any underperformance by us at all. Our market share of the cat losses was exactly at the low end of our market share. We got called out like the rest of the industry. We just didn't expect the scale of those losses. There have been a lot of risk losses as well. That you mentioned the offshore energy bit.
Not the offshore. I meant your competitors.
No, I think it's an industry issue.
Okay.
That's why I was very disappointed by the reinsurance industry at the end of 2011 in the fact that they seem to be content just to increase prices instead of going back to really looking at underlying structures and being the underwriters that they're supposed to be. We actually reacted very strongly. Going into 2011, don't forget we had an in-force portfolio.
Okay.
Could squeeze one more question in.
Yeah. Hi. I was just wondering if you could give an estimate now that a year ago you called the cycle very well. If you could give an estimate what you think in terms of reinsurance pricing, what you think that pricing would have to go up by over a cycle. Would it be 50%-100%?
I think the reinsurance market reacted with price increases. What I was, again, disappointed by was the fact that obviously cedents that have produced losses to the market were adjusted for their loss experience. We had some pretty severe model change with RMS v11 coming out with a new model. It was certainly ignored in Europe, and it was heavily discounted in the U.S. I believe as we go through, the reason why I'm optimistic and we held back capacity is the fact that you can't run away from reality, and the fact that the market cannot ignore those assumptions of risk and the impact on aggregates. We believe as we go through this year, the market will have to react and have to price in those model changes, which it didn't wish to do at the year-end.
We had some pretty average, I would describe the year-end renewals on the reinsurance marketplace as being pretty average. Because of a number of factors, not least of which is the margin erosion that we're having to deal with. Not least of which we're facing increased risk from much, much larger concentrated catastrophe losses. You have all these unmodeled losses that we have to deal with. The uncertainty factor loading within our models has to increase. That has to lead to increased pricing. I'm not going to tell you what my view is, but let me tell you, the reinsurance market is not here to subsidize primary businesses that really cannot price their underlying products properly.
That's what the primary businesses want us to do, but the industry will not do that because we have to get back to a sustainable return on equity that will allow the capital to still be supplied to the reinsurance industry