UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

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In re AXIS CAPITAL HOLDINGS LTD. SECURITIES LITIGATION

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Civil Action No. 04-CV-08564 (RJH)

CLASS ACTION

CONSOLIDATED CLASS ACTION COMPLAINT

Court appointed Lead Plaintiffs, Robert Schimpf and James Dolan (collectively “Lead

Plaintiffs”), and proposed class representative Kirk Durham (“Durham”), by their undersigned

attorneys, bring this action as a class action individually and on behalf a class defined more

specifically herein consisting of all persons and entities that purchased or otherwise acquired AXIS

Capital Holdings Limited (“AXIS” or the “Company”) publicly traded common stock on the open

market during the period August 6, 2003 through and including October 14, 2004 (the “Class

Period”), including those who purchased in the Company’s Secondary Public Offering of 23 million

shares at $27.91 per share on or about April 15, 2004 (the “Secondary Offering”), and were damaged

thereby, and allege the following based upon personal knowledge as to themselves and their own

acts, and upon information and belief as to all other matters.

Lead Plaintiffs’ and Durham’s information and belief are based on, inter alia, an

investigation made by and through their undersigned counsel, which included, among other things, a

review of: (1) AXIS’ public filings with the Securities and Exchange Commission (“SEC”); (2)

public filings that other insurance industry participants made with the SEC; (3) publicly available

documents and trade journals related to the insurance industry; (4) pleadings and exhibits filed in

connection with various criminal, civil and administrative investigations and proceedings brought by

the New York Attorney General (“NYAG”), the New York State Insurance Department and other

enforcement agencies against certain insurance industry participants; (5) analyst research reports; (6)

transcripts of investor conference calls regarding AXIS’ financial results and business operations; (7)

press releases and media reports related to AXIS and its subsidiaries; (8) interviews and consultation

with former employees of AXIS; and (9) Lead Plaintiffs’ and Durham’s investigation into the facts

and circumstances alleged herein.

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Lead Plaintiffs’ and Durham’s investigation into the factual allegations contained herein is

continuing, as are investigations by the NYAG and enforcement agencies in other states, and

therefore, it is possible that additional facts related to the allegations contained herein may be

revealed during the course of these investigations.

I. NATURE OF THE ACTION

1. AXIS provided insurance and reinsurance through wholly owned subsidiaries located

in the United States and elsewhere and reported tremendous growth in revenue and net income

throughout the Class Period. AXIS reported that its gross insurance premium revenue had

skyrocketed to more than $2.2 billion in 2003, compared to $1.1 billion in 2002, and that its net

income had more than doubled to $532.3 million in 2003, compared to $265.1 million in 2002.

2. Unfortunately, events that transpired over the past several months have shown that,

throughout the Class Period, AXIS’ financial results and the nature of its business operations were

reliant upon and unsustainable at historical levels in the absence of its participation in a scheme to

manipulate the insurance market through improper and illegal anticompetitive agreements under

which AXIS paid certain insurance brokers to steer business to AXIS and away from AXIS’

competitors. This scheme involved the participation of Marsh Inc. (“Marsh”), among others, the

world’s largest insurance broker and a wholly owned subsidiary of Defendant Marsh & McLennan

Companies (“MMC”), one of AXIS’ founders and largest shareholders.

3. The illicit scheme began to unravel on October 14, 2004, the last day of the Class

Period, when Eliot Spitzer, the Attorney General of the State of New York (“NYAG”), filed a

complaint (the “Spitzer Complaint”) in the New York State Supreme Court, New York County,

charging Marsh and MMC with violating state securities and antitrust laws. The Spitzer Complaint

unveiled a scheme in which Marsh had entered anticompetitive agreements with insurance providers

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to steer insurance premiums to the providers in exchange for illegal, hidden payments, which have

been generally referred to as kickbacks.

4. According to the Spitzer Complaint, “[s]ince at least the late 1990s, Marsh ha[d]

designed and executed a business plan under which insurance companies agreed to pay Marsh so-

called ‘contingent commissions’ to steer them business and shield them from competition.” Upon

filing the Spitzer Complaint, the NYAG issued a press release entitled “Investigation Reveals

Widespread Corruption in Insurance Industry,” which described the illicit scheme as follows:

For years Marsh received special payments from insurance companies that were above and beyond normal sales commissions. These payments – known as “contingent commissions” – were characterized as compensation for “market services” but were, in fact, rewards for the business that Marsh and its independent brokers steered and allocated to the insurance companies. Industry representatives defend this long-standing practice as acceptable and even beneficial to clients, but the Attorney General’s office has uncovered extensive evidence showing that it distorts and corrupts the insurance marketplace and cheats insurance customers.

(Emphasis added.)

5. The NYAG, the Connecticut Attorney General Richard Blumenthal and Illinois

Attorney General Lisa Madigan then filed a joint complaint charging Aon Corp. (“Aon”), the

world’s second largest insurance broker, with similar misconduct. In announcing the action against

Aon, Connecticut Attorney General Blumenthal admonished that:

This hidden ‘pay to play’ scheme severely hit both public and private purses, including ordinary consumers, towns and cities, taxpayers and major educational institutions. Aon demanded kickbacks from insurers in exchange for business, even as it was paid by customers. The scheme inflated prices and stifled competition. Today’s action compels Aon to cease this illegal, unethical practice immediately and pay restitution.

(Emphasis added.) 6. Illinois Attorney General Madigan detailed the fraud as follows:

Our investigation revealed that Aon Corporation accepted secret payments from insurers for steering them business. Aon’s acceptance of these secret payments was a direct conflict of interest that harmed Aon’s clients. Aon’s acceptance of

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kickbacks was not only unethical, but illegal. This settlement will guard against future conflicts of interest and help to return integrity to this industry.

(Emphasis added.)

7. Marsh and Aon recently settled the enforcement actions brought by the NYAG and

the Connecticut and Illinois Attorneys General and agreed to pay $850 million and $190 million,

respectively. They also agreed to stop receiving what these Attorneys General had characterized as

“illegal kickbacks.”

8. The enforcement actions against Marsh and Aon are particularly material to AXIS’

investors because AXIS attributed the vast majority of its Class Period growth to increased insurance

premiums written by Marsh and Aon. Specifically, AXIS reported that Marsh wrote $765.2 million

of its insurance premiums in 2003, compared to $419.9 million in 2002, and Aon wrote $438.6

million of its insurance premiums in 2003, compared to $229.3 in 2002. Insurance premiums from

Marsh and Aon collectively accounting for more than 50% of AXIS’ total $2.2 billion of insurance

premiums in 2003, and more than 50% of AXIS’ insurance premium growth in 2003.

9. Only after the NYAG and other enforcement authorities unveiled their investigations

into the widespread corruption characterized by a “hidden pay-to-play scheme” that involved “illegal

kickbacks” did AXIS finally divulge that it was directly involved in the scheme, having paid

insurance brokers over $39.1 million in “incentive commissions” in fiscal 2003, including $18.1

million that AXIS paid to Marsh. AXIS also admitted that these payments continued through at least

October 1, 2004.

10. Plaintiffs are alleging that by virtue of this misconduct defendants violated the federal

securities laws by failing to disclose the amount and nature of the incentive commissions payments

and the extent to which the illicit payments contributed to AXIS’ revenue and, therefore, its income.

The $39.1 million in incentive commissions that AXIS paid Marsh, Aon and others in 2003

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amounted to more than 17% of AXIS’ acquisition costs. Even more, because Marsh and Aon

accounted for more than $1.2 billion or 50% of AXIS’ total insurance premiums in 2003, AXIS

should have fully disclosed the extent to which its business operations and financial results were

reliant upon and unsustainable in the absence of incentive commissions that AXIS paid to them.

Further, AXIS produced its underwriting premiums almost entirely through insurance brokers, and

thus the amount and nature of the total incentive commission payments to all insurance brokers was

material for AXIS’ investors to fully understand the Company’s business operations and financial

results.

11. In the wake of the investigation by the NYAG and other enforcement agencies, AXIS

has ceased the payments, condemned the practice and publicly acknowledged that it should have

been disclosed to investors. In a letter to shareholders included in the Company’s 2004 Annual

Shareholder Report, John R. Charman (“Charman”), the Company’s President and Chief Executive

Officer, acknowledged that “we have been dismayed by the findings of this industry-wide

investigation and do not in anyway condone this type of alleged behavior . . . . I believe the well-

being of the industry lies in eradicating all potential conflicts of interest, not merely disclosing

them.” (Emphasis added.)

12. Additionally, during an investor conference call on February 9, 2005, Charman

confirmed that:

As stated in last quarter’s call, we have ceased entering into and have suspended making payments under incentive commission arrangements. At this time, both the outcome of regulatory guidance and the future structure of producer compensation are still uncertain . . . . We are in the course of reviewing the recent settlement between the New York Attorney General and Marsh, and its implications for AXIS, as well as the industry.

13. Throughout the Class Period, the defendants knew or recklessly disregarded the true

nature of the incentive commission payments to Marsh, Aon and others, and deliberately chose to

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conceal their existence. In fact, on November 4, 2004, defendants Charman, Michael A. Butt

(“Butt”) and Andrew Cook (“Cook”) participated in an investor conference during which Charman

admitted that: “As a matter of fact, I have overseen negotiations of [incentive commission payments]

through AXIS since our inception.” During the same call, Cook, the Company’s Chief Financial

Officer, divulged that, “. . . we have included these commission dollars in our overall acquisition

costs since our inception.” Furthermore, several entities related to MMC took advantage of this

material adverse information and sold AXIS shares in the Company’s Secondary Offering at

artificially inflated prices.

14. AXIS is now embroiled in an ever expanding investigation by the NYAG and law

enforcement and administrative agencies in other states. On August 26, 2004, AXIS Specialty U.S.

Holdings Inc. (“AXIS U.S. Holdings”) received a subpoena from the NYAG seeking information

regarding “incentive commission agreements between its insurance companies and insurance

brokers.” On September 20, 2004, AXIS U.S. Holdings received two additional subpoenas from the

NYAG seeking “information regarding fictitious and inflated quotes submitted by insurance

companies to insurance brokers.” On October 21, 2004, AXIS U.S. Holdings received yet another

subpoena from the NYAG seeking “information regarding tying [agreements], or conditioning direct

insurance on the placement of reinsurance.” On December 7, 2004, AXIS announced that its United

States operating subsidiaries had received even more subpoenas or requests for information from

“various state insurance regulators regarding incentive commission agreements, fictitious and

inflated quotes, tying and related issues.”

15. Although state enforcement agencies are continuing their investigations into the illicit

incentive commissions and other illegal conduct that pervaded the insurance industry, AXIS’

investors, including Lead Plaintiffs, Durham and the proposed Class, already have been damaged.

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On October 14, 2004, when the NYAG announced its investigation into the wide-spread corruption,

the price of AXIS stock, which had traded as high as $32.95 during the Class Period, dropped from

an opening price of $25.85 per share to close at $24.20 per share, and then on enormous trading

volume dropped to $23.36 per share on October 15, 2004, a two-day drop of approximately 10%.

II. JURISDICTION AND VENUE

16. The Court has jurisdiction over the subject matter of this action pursuant to Section

22 of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. §77v, and Section 27 of the

Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §78aa, and 28 U.S.C. §§1331 and

1337. The claims arise under Sections 11, 12(a)(2) and 15 of the Securities Act, 15 U.S.C. §§77j,

77l(a)(2) and 77o; under Sections 10(b), 20(a) and 20A of the Exchange Act, 15 U.S.C. §§78j(b),

78t(a) and 78t-1, and the rules and regulations promulgated thereunder, including SEC Rule 10b-5,

17 C.F.R. 240.10b-5.

17. Venue is proper in this District pursuant to Section 22 of the Securities Act, Section

27 of the Exchange Act, and 28 U.S.C. §1391(b). Many of the acts and transactions giving rise to

the violations of law complained of herein, including the preparation and dissemination to the public

of materially false and misleading public filings, occurred in this District. Further, at all relevant

times herein, AXIS US Reinsurance Company, a subsidiary of AXIS, maintained its principal

executive offices in this District, at 430 Park Avenue, New York, NY, 10022.

18. In connection with the wrongful acts and conduct alleged herein, the defendants

directly or indirectly, used the means and instrumentalities of interstate commerce, including the

United States mails and the facilities of the national securities exchange.

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III. PARTIES

A. Plaintiffs

19. Robert Schimpf (“Schimpf”) is an individual who purchased AXIS shares during the

Class Period as demonstrated by the certification that Schimpf previously filed with the Court. On

April 22, 2004, Schimpf acquired 200 shares of AXIS common stock at a price of $28.22 per share,

and suffered damages as a result of the violations of the federal securities laws alleged herein when

the truth was revealed at the end of the Class Period and the value of his holdings dropped.

20. James Dolan (“Dolan”) is an individual who purchased AXIS shares during the Class

Period as demonstrated by the certification that Dolan previously filed with the Court. On May 7,

2004, Dolan acquired 175 shares of AXIS common stock at a price of $27.80 per share, and suffered

damages as a result of the violations of the federal securities laws alleged herein when the truth was

revealed at the end of the Class Period and the value of his holdings dropped.

21. Proposed class representative Kirk Durham (“Durham”) is an individual who is still

holding the 395 shares of AXIS common stock he purchased at a price of $27.91 per share in the

Company’s Secondary Offering on April 15, 2004, as set forth in more detail below, and suffered

damages as a result of the violations of the federal securities laws alleged herein when the truth was

revealed at the end of the Class Period and the value of his holdings dropped.

22. By Order of the Court dated April 13, 2005, Schimpf and Dolan were appointed Lead

Plaintiffs in this action in accordance with Section 21D(a)(3)(B) of the Exchange Act, 15 U.S.C.

§78u-4.

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B. Defendants

(i) AXIS Capital Holdings Limited

23. AXIS Capital Holdings Limited (“AXIS” or the “Company”) and its wholly owned

operating subsidiaries provide insurance and reinsurance on a global basis. AXIS maintains its

principal place of business at 106 Pitts Bay Road, Pembroke HM08, Bermuda.

24. AXIS U.S. Holdings is a wholly owned subsidiary of AXIS and was incorporated in

Delaware on March 11, 2002. AXIS U.S. Holdings acts as a holding company for: (1) AXIS

Reinsurance Company (“AXIS Reinsurance”), which is domiciled in New York and is licensed to

write insurance and reinsurance in all 50 states in the United States, the District of Columbia and

Puerto Rico; (2) AXIS Specialty Insurance Company Insurance (“AXIS Insurance”), which is

domiciled in Connecticut and is licensed to write insurance in Connecticut and eligible to write

surplus lines of insurance in 37 of the states in the United States and the District of Columbia; and

(3) AXIS Surplus Insurance Company (“AXIS Surplus”), which is licensed to write insurance in

Illinois, Alabama and Georgia and eligible to write surplus lines of insurance in 45 states and the

District of Columbia.

25. AXIS Specialty Holdings Ireland Limited (“AXIS Ireland Holdings”) is a wholly

owned subsidiary of AXIS and was incorporated in Ireland on January 28, 2002, and, at all times

relevant, acted as a holding company for AXIS Specialty Europe Limited (“AXIS Specialty

Europe”) and AXIS Re Limited (“AXIS Re”). AXIS Specialty Europe became licensed as an Irish

insurer in May 2002, and is authorized to write surplus lines business in 20 states in the United

States. AXIS Re also became entitled to carry on reinsurance business from Ireland in May 2002.

AXIS Specialty London was established in June 2003 as a UK branch of AXIS Specialty Europe.

The UK branch commenced underwriting business in September 2003. AXIS Re Europe was

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established in August 2003 as a Swiss branch of AXIS Re. The Swiss branch commenced

underwriting reinsurance business in Zurich during November 2003.

26. During the Class Period, AXIS’ common stock was traded on the New York Stock

Exchange (“NYSE”) under the symbol “AXS,” and the Company filed annual reports on Form 10-K

and quarterly reports on Form 10-Q with the SEC. As of November 4, 2004, there were 154,907,232

million shares of AXIS common stock outstanding. Throughout the Class Period, AXIS reported its

financial results on a consolidated basis and operated on a fiscal year that ended on December 31.

(ii) The Individual Defendants

27. John R. Charman. Throughout the Class Period, defendant John R. Charman

(“Charman”) was the Company’s President and Chief Executive Officer (“CEO”), and a director.

Charman also served as CEO and President of AXIS Specialty Limited and was Chairman of AXIS

Ireland Holdings, AXIS Re, AXIS Specialty Europe and AXIS Specialty (Barbados) Limited.

Charman was also a member of the Company’s Executive Committee throughout the Class Period,

and in this capacity was responsible for exercising the authority of the board of directors when the

entire board was not available to meet.

28. Charman signed the Company’s 2003 Form 10-K filed with the SEC on February 27,

2004 (“2003 10-K”), and each of the Company’s 10-Qs filed with SEC during the Class Period, and

pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, certified that AXIS had “designed such

disclosure controls and procedures, or caused such disclosure controls and procedures to be designed

. . . to ensure that material information relating to [AXIS], including its consolidated subsidiaries, is

made known to us by others within those entities . . . [and that Charman had] evaluated the

effectiveness of [AXIS’] disclosure controls and procedures . . . .”

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29. Charman also signed the Company’s 2003 Annual Shareholder Report, dated April 7,

2004, and the Company’s Registration Statement filed with the SEC on March 26, 2004, as amended

on April 6, 2004 (the “Registration Statement”), in connection with a secondary offering of 23.0

million shares of AXIS common stock (the “Secondary Offering”), which included 3.0 million

shares sold in an over-allotment that underwriters of the Secondary Offering had exercised. In

addition, during the Class Period, Charman made numerous statements about the Company’s

financial results and the nature of its operations during conference calls, at industry meetings and in

company press releases, as set forth more particularly below.

30. According to the Company’s 2003 Annual Shareholder Report, Charman was a

member of the Company’s senior management and was “deeply embedded in the day-to-day

underwriting operations.” Further, the Registration Statement boasted that, as a member of senior

management, AXIS relied on Charman for his “extensive customer relationships to take advantage

of the current dislocation in the insurance market, generate new business and establish [AXIS] as a

leading writer of specialty lines and treaty reinsurance,” and that Charman, as a member of senior

management, “manage[d] our exposures on a product and geographic basis through comprehensive,

daily review[s] . . . .” The Company also boasted that its senior management team, led by Charman,

“has extensive customer relationships with leading … brokers around the world, including Marsh

and its subsidiary Guy Carpenter . . . .”

31. At all times relevant, Charman knew of the true nature of the incentive commission

payments and the failure of AXIS to disclose this material information. For example, during an

investor conference call on November 4, 2004, Charman admitted that “I have overseen the

negotiation of [incentive commissions] through AXIS since our inception . . . .” In a letter to

shareholders included in the Company’s 2004 Annual Shareholder Report, dated April 19, 2005,

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Charman also admitted that “we have been dismayed by the findings of this industry-wide

investigation and do not in anyway condone this type of alleged behavior . . . . I believe the well-

being of the industry lies in eradicating all potential conflicts of interest, not merely disclosing

them.” (Emphasis added.)

32. According to a Company proxy statement dated October 15, 2004 (“2004 Proxy

Statement”), Charman owned 6,426,262 million shares or 4.1% of AXIS common stock issued and

outstanding as of September 15, 2004, which included outstanding common shares and assumes

exercise of all outstanding warrants for common shares as well as the exercise of all outstanding

options exercisable or exercisable within 60 days of September 30, 2004.

33. The Registration Statement reported that Charman received a base salary of $1.0

million and a bonus of $2.25 million in 2003, and a Company proxy statement dated March 15, 2005

(“2005 Proxy Statement”), reported that Charman received a base salary of $1.25 million and a

bonus of $3.0 million in 2004.

34. Michael A. Butt. Defendant Michael A. Butt (“Butt”) was the Company’s Chairman

of the Board throughout the Class Period, and was also Chairman of AXIS Specialty Limited.

According to AXIS, the primary responsibility of its Board of Directors is to “provide effective

governance over the Company’s affairs for the benefit of its shareholders, and to help broaden the

perspective of executive management.” The Company boasted that the Board of Directors “had

adopted Corporate Governance guidelines to ensure that they have the necessary authority and

procedures in place to oversee the work of management and to exercise independence in evaluating

[AXIS’] business operations.” Further, the Company claimed that the Board of Directors had

“expressed their commitment to diligently exercise their oversight responsibilities and to meet and

exceed the Corporate Governance requirements of both federal law and the NYSE.”

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35. According to the Company’s Corporate Governance Guidelines, as a director Butt

had “unrestricted access to officers and employees of the Company, including internal auditors, risk

management personnel and legal counsel [and] may arrange contact with Company officers and

employees directly . . . .” In addition, the guidelines provide that the Board of Directors “is

ultimately responsible for maintaining the integrity of the Company [and for] overseeing the

operations and results of business, evaluating and approving sound business strategies . . . [and]

assessing major risk factors and reviewing policies to manage and mitigate risk.”

36. Throughout the Class Period, Butt also was a member of the Executive Committee,

and in that capacity was responsible for exercising the authority of the Board of Directors when the

entire Board was not available to meet. Butt also was a member of the Finance Committee, which,

according to the Company, “generally approves all finance related transactions.”

37. During the Class Period, Butt signed the Company’s 2003 10-K, the Company’s 2003

Annual Shareholder Report and the Company’s Registration Statement filed with the SEC in

connection with a Secondary Offering. In addition, during the Class Period, Butt made statements

about the Company’s financial results and business operations during investor conference calls, at

industry meetings and in Company press releases, as set forth in more detail below.

38. According to the Company’s 2003 Annual Shareholder Report, Butt was a member of

the Company’s “senior management” and was “deeply embedded in the day-to-day underwriting

operations.” The Registration Statement boasted that, as a member of senior management, the

Company relied on Butt’s “extensive customer relationships to take advantage of the current

dislocation in the insurance market, generate new business and establish [AXIS] as a leading writer

of specialty lines and treaty reinsurance,” and that Butt helped “manage our exposures on a product

and geographic basis through comprehensive, daily review[s] . . . .” The Company also claimed that

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its senior management team, which included Butt, “has extensive customer relationships with

leading . . . brokers around the world, including Marsh . . . .”

39. According to the 2004 Proxy Statement, Butt owned 427,297 million shares of AXIS

common stock issued and outstanding as of September 15, 2004, which included outstanding

common shares and assumes exercise of all outstanding warrants for common shares as well as the

exercise of all outstanding options exercisable or exercisable within 60 days of September 30, 2004.

40. The Registration Statement reported that Butt received a base salary of $500,000 and

a bonus of $1.125 million in 2003, and the 2005 Proxy Statement reported that Butt received a base

salary of $750,000 and a bonus of $1.35 million in 2004.

41. Andrew Cook. Defendant Andrew Cook (“Cook”) was AXIS’ Executive Vice

President and Chief Financial Officer (“CFO”) throughout the Class Period. In addition, at all

relevant times herein, Cook served as CFO and Executive Vice President of AXIS Specialty

Limited, and as a director of AXIS U.S. Holdings, AXIS Insurance, AXIS Reinsurance, AXIS

Surplus, AXIS Ireland Holdings, AXIS Re, and AXIS Specialty Europe.

42. As CFO, Cook reported directly to Charman and the Board of Directors and was

responsible for overseeing AXIS’ financial reporting and assuring that the financial statements, and

other financial information, fairly presented in all material respects the financial condition, results of

operations and cash flows of the Company. Cook signed the 2003 10-K and each of AXIS’ quarterly

reports filed on Form 10-Q during the Class Period, and pursuant to Section 302 of the Sarbanes-

Oxley Act of 2002, certified that AXIS had “designed such disclosure controls and procedures, or

caused such disclosure controls and procedures to be designed . . . to ensure that material

information relating to [AXIS], including its consolidated subsidiaries, is made known to us by

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others within those entities . . . [and Cook had] evaluated the effectiveness of [AXIS’] disclosure

controls and procedures . . . .”

43. In addition, during the Class Period, Cook made statements about the Company’s

financial results and the nature of its business operations during investor conference calls, at industry

meetings and in press releases, as detailed below.

44. According to the Company’s 2003 Annual Shareholder Report, Cook was a member

of the Company’s “senior management” who was “deeply embedded in the day-to-day underwriting

operations.” The Registration Statement boasted that, as a member of senior management, the

Company relied on Cook’s “extensive customer relationships to take advantage of the current

dislocation in the insurance market, generate new business and establish [AXIS] as a leading writer

of specialty lines and treaty reinsurance,” and that Cook “manage[d] our exposures on a product and

geographic basis through comprehensive, daily review[s] . . . .” The Company boasted that its senior

management team, which included Cook, “has extensive customer relationships with leading . . .

brokers around the world, including Marsh and its subsidiary Guy Carpenter . . . .”

45. The 2004 Proxy Statement revealed that Cook owned 296,667 of the Company’s

common stock issued and outstanding as of September 15, 2004, which included outstanding

common shares and assumes exercise of all outstanding warrants for common shares as well as the

exercise of all outstanding options exercisable or exercisable within 60 days of September 30, 2004.

Further, according to the Registration Statement, Cook received a base salary of $375,000 and an

annual bonus of $843,750 in 2003.

46. Defendants Charman, But and Cook are sometimes collectively referred to below as

the “Individual Defendants.” Collectively, along with AXIS, the Individual Defendants will

sometimes be referred to herein as the “AXIS Defendants.”

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(iii) Underwriter Defendants

47. Defendant Morgan Stanley & Co. Inc. (“Morgan Stanley”) is a national investment

firm headquartered in New York that provides securities underwriting, financial advisory services

and equity research services. Morgan Stanley was a co-lead underwriter of AXIS’ Secondary

Offering and it sold and distributed AXIS common stock to the investing public pursuant to the

Registration Statement and a Prospectus filed with the SEC in connection with the Secondary

Offering. As part of its duties as an underwriter, Morgan Stanley was required to conduct, prior to

the Secondary Offering, a due diligence investigation of the Company. Pursuant to its underwriting

agreement with AXIS, Morgan Stanley earned approximately $5.9 million in fees for its

underwriting services in connection with the Secondary Offering.

48. Defendant Citigroup Global Markets Inc. (“Citigroup”) is a national investment firm

headquartered in New York that provides securities underwriting, financial advisory services and

equity research services. Citigroup was a co-lead underwriter of AXIS’ Secondary Offering and it

sold and distributed AXIS common stock to the investing public pursuant to the Registration

Statement and a Prospectus filed with the SEC in connection with the Secondary Offering. As part

of its duties as an underwriter, Citigroup was required to conduct, prior to the Secondary Offering, a

due diligence investigation of the Company. Pursuant to its underwriting agreement with AXIS,

Citigroup earned approximately $3.6 million in fees for its underwriting services in connection with

the Secondary Offering.

49. Defendants Morgan Stanley and Citigroup are sometimes collectively referred to

below as the “Underwriter Defendants.”

(iv) Marsh & McLennan Companies, Inc.

50. Defendant Marsh & McLennan Companies, Inc. (“MMC”) is a Delaware corporation

with its principal place of business in New York. MMC is the parent company of Marsh, which - 16 -

serves clients with risk and insurance services, including serving as a broker or consultant for

insureds. MMC is also the ultimate parent company of MMC Capital Inc. (“MMC Capital”), an

entity that manages Trident Capital II, L.P., which serves as the sole general partner of Trident II,

L.P. The general partners of Trident Capital II, L.P. are Marsh & McLennan GP I, Inc., a wholly

owned indirect subsidiary of MMC, and two single member limited liability companies that are

owned by individuals who are senior executive officers of MMC. According to the Registration

Statement, at all relevant times herein, as the ultimate parent corporation of its various subsidiaries,

MMC shared voting and investment power with respect to all common shares of AXIS that were, or

may have been deemed to have been, beneficially owned by each of its subsidiaries. MMC

disclaimed any beneficial ownership of common shares and warrants to purchase common shares

that were beneficially owned by Trident II, L.P. and Trident Capital II, L.P., except to the extent of

its pecuniary interest therein.

51. Charles A. Davis, an AXIS director since its inception and throughout the Class

Period, was at all relevant times herein Chairman and Chief Executive Officer of MMC Capital and

a Vice Chairman and director of MMC.

52. In connection with the Secondary Offering, the following Marsh related entities sold

the following amount of AXIS shares: Trident II, defined below, sold 1,223,769 shares, Marsh &

McLennan Capital Professionals Fund, L.P. sold 34,299 shares, and Marsh & McLennan

Employees’ Securities Company, L.P. sold 34,493 shares. These sales were made at a time when

Marsh and its related entities had actual knowledge that AXIS’ stock was artificially inflated by

virtue of the participation in the payment of incentive commissions described herein. MMC is being

charged under Section 20(a) as a control person of AXIS and under Section 20A(a) for trading on

inside information. In light of the fact that these sales took place in the context of the Secondary

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Offering, MMC also is being charge under Section 12(a)(2) of the Securities Act for selling shares

pursuant to a false and misleading prospectus.

53. None of these allegations contained herein relate to MMC’s conduct with respect to

its own publicly traded securities.

IV. CLASS ACTION ALLEGATIONS

54. Lead Plaintiffs and proposed class representative Durham bring this action on their

own behalf and as a class action pursuant to Rules 23(a) and 23(b)(3) of the Federal Rule of Civil

Procedure on behalf of all persons or entities (the “Class”) who: (i) purchased or acquired AXIS

common stock in the Company’s Secondary Offering pursuant to the Registration Statement and a

Prospectus filed with the SEC on April 16, 2004, or (ii) purchased or acquired AXIS’ common stock

in the open market during the Period from August 6, 2003, through October 14, 2004, inclusive (the

“Class Period”), and were damaged thereby. Excluded from the Class are (i) the defendants,

members of the family of each individual defendant; (iii) any person who was an officer or director

of AXIS, MMC or Marsh during the Class Period; (iv) any firm, trust, corporation, officer, or other

entity in which any defendant has a controlling interest; and (v) the legal representatives, agents,

affiliates, heirs, successors-in-interest or assigns of any such excluded party.

55. The Class is so numerous that joinder of all Class members is impracticable. AXIS

common stock was actively traded on the NYSE, an efficient market, throughout the Class Period.

While the exact number of Class members can only be determined by appropriate discovery, Lead

Plaintiffs and proposed class representative Durham believe that Class members number in the

thousands. As of November 4, 2004, there were over 154 million shares of AXIS common stock

outstanding. Approximately 23 million shares of AXIS common stock was issued pursuant to the

Company’s secondary offering. Based on the volume of trading of AXIS common stock during the

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Class Period, it is believed that hundreds, if not thousands, of investors purchased AXIS common

stock pursuant to the Secondary Offering and in the open market during the Class Period, rendering

joinder of all such purchases impracticable.

56. Lead Plaintiffs’ claims and the claim of the proposed class representative Durham are

typical of the claims of the members of the Class. Lead Plaintiffs, proposed class representative

Durham and all Class members sustained damages as a result of the wrongful conduct complained of

herein.

57. Lead Plaintiffs and proposed class representative Durham will fairly and adequately

protect the interests of the class members and have retained counsel competent and experienced in

class action and securities litigation. Lead Plaintiffs and proposed class representative Durham have

no interests that are contrary to or in conflict with those of the Class members that they seek to

represent.

58. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy. Because the damages suffered by individual Class members may

be relatively small, the expense and burden of individual litigation make it virtually impossible for

the Class members individually to seek redress for the wrongful conduct alleged herein.

59. Common questions of law and fact exist as to all Class members and predominate

over any questions solely affecting individual Class members. Among the questions of law and fact

common to the Class are:

i. whether the federal securities laws were violated by defendants’ acts

as alleged herein;

ii. whether documents, including the Registration Statement and

Prospectus, that AXIS filed with the SEC, press releases and public

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statements made by defendants during the Class Period contained

misstatements of material fact or omitted to state material facts

necessary in order to make the statements made, in light of the

circumstances in which they were made, not misleading;

iii. whether the defendants acted with the requisite state of mind in

omitting and/or misrepresenting material facts in the documents filed

with the SEC, press releases and public statements;

iv. whether the market prices of AXIS common stock during the Class

Period were artificially inflated due to the material misrepresentations

complained of herein; and

v. whether the Class members have sustained damages and, if so, the

appropriate measure thereof.

60. Lead Plaintiffs and proposed class representative Durham know of no difficulty that

will be encountered in the management of this litigation that would preclude its maintenance as a

class action.

61. The names and addresses of the record owners of AXIS common stock purchases

during the Class Period in the open market and pursuant to the Secondary Offering are obtainable

from information in the possession of the Company’s transfer agent(s). Notice can be provided to

the record owners of AXIS stock via first class mail using techniques and a form of notice similar to

those customarily used in securities class actions.

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V. SUBSTANTIVE ALLEGATIONS

A. Background

62. There are basically three types of participants in the insurance market. First, there are

clients or “insureds” that purchase insurance coverage typically for personal or business purposes.

Second, there are insurance brokers hired by clients to advise them of needed coverage. Third, there

are insurance providers, such as AXIS, that submit quotes to insurance brokers and, if ultimately

selected by the clients, enter into contracts with clients to provide insurance for that client’s risk.

Brokers represent the client, obtain price quotes from insurance providers, present the quotes to the

client, and make recommendations to the client that include factors other than price, such as

differences in coverage, an insurance company’s financial security, or an insurance company’s

reputation for service or claims payment.

63. At all relevant times herein, AXIS provided various forms of insurance and

reinsurance throughout the United States and on a global basis through its various wholly-owned

operating subsidiaries. AXIS’ SEC filings represented that its principal competitors included ACE

Limited, Allianz Group, Allied World Assurance Company, Ltd., American International Group,

Inc., Arch Capital Group Ltd., Berkshire Hathaway, Inc., Chubb Corporation, Converium Group,

Endurance Specialty Holdings Ltd., Everest Re Group, Ltd., Factory Mutual Insurance Company,

Montpelier Re Holdings Ltd, Munich Re Group, Partner Re Ltd., Platinum Underwriters Holdings,

Ltd., Renaissance Re Holdings Ltd., Swiss Reinsurance Company and XL Capital Ltd.

64. Although numerous insurance and reinsurance providers compete for business, the

gateway to the insurance market is through insurance brokers, and the insurance brokerage market is

highly concentrated and dominated primarily by three brokers: Marsh, Aon and Willis Group

Holdings Inc. (“Willis”).

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65. According to the NYAG, during the Class Period, Marsh and its wholly-owned

subsidiary, Guy Carpenter Inc. (“Guy Carpenter”), controlled roughly 40 percent of the global

insurance and reinsurance brokerage markets, Aon controlled approximately 30 percent, and Willis

controlled seven percent.

66. Throughout the Class Period, AXIS relied almost exclusively on a handful of brokers,

particularly Marsh and Aon, to sell its insurance and reinsurance products. The Company reported

in its 2003 10-K that Marsh, including its wholly-owned subsidiary Guy Carpenter, and Aon

accounted for 33.7% and 19.3% of AXIS’ gross premiums in 2003, respectively, and advised

investors of how material these brokers were to AXIS by warning that the loss of business with

either broker “could cause actual events or results to be materially different from our expectations . .

. .” The Registration Statement also warned that “[s]ince 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.”

B. The IPO

67. On November 20, 2001, AXIS commenced operations as AXIS Specialty Limited., an

entity formed through the collaboration of Marsh and MMC Capital, a wholly owned indirect

subsidiary of MMC, with $1.6 billion in venture capital. As founding shareholders, MMC Capital

invested $100 million directly in AXIS and an additional $60 million through Trident II L.P.

(“Trident II”), a private equity fund managed by MMC Capital that specialized in making

investments in the insurance, reinsurance and financial services sectors. At all relevant times, MMC,

through its related entities, including MMC Capital and Trident II, maintained a substantial

ownership interest in AXIS, as detailed below.

68. On December 9, 2002, AXIS was incorporated under the laws of Bermuda. AXIS

Specialty Limited and its subsidiaries became wholly owned subsidiaries of AXIS pursuant to an

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exchange offer consummated on December 31, 2002. In the exchange offer, holders of AXIS

Specialty Limited exchanged those shares for identical shareholdings in AXIS. Following the

exchange offer, AXIS Specialty Limited distributed its wholly owned subsidiaries to AXIS.

69. On or about July 7, 2003, AXIS completed an initial public offering (the “IPO”) and

sold 15,410,000 shares of AXIS stock priced at $22.00 per share, including 2,010,000 shares to

cover over-allotments exercised by the IPO underwriters. AXIS raised approximately $316.0

million in net proceeds after underwriting fees and expenses. In addition, certain selling

shareholders sold 9,315,000 shares priced at $22.00 per share, including 1,215,000 shares to cover

over-allotments, and received approximately $204.9 million in net proceeds after underwriting fees

and expenses.

70. MMC and its related entities capitalized on the IPO. Trident II sold 1,223,769 shares

and received approximately $26.9 million, Marsh & McLennan Capital Professionals Fund, L.P.

sold 34,299 shares and received approximately $754,578 and Marsh & McLennan Employees’

Securities Company, L.P. sold 34,493 shares and received $758,846, before underwriting fees and

expenses.

C. The Secondary Offering

71. Bolstered by its reported explosive growth in underwriting premiums and net income

in fiscal 2003, the AXIS Defendants filed the Registration Statement on March 26, 2004, as

amended on April 6, 2004, and caused an addition 20 million shares of common stock to be

registered on behalf of a group of selling shareholders. The selling shareholders also granted the

underwriters an over-allotment option to purchase an additional 3.0 million shares at the same price

per share as the public offering price, less an underwriting discount of $0.91 per share. The

Individual Defendants signed the Registration Statement.

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72. The Registration Statement included AXIS’ consolidated financial statements for the

years ended December 31, 2003 and 2002 and for the period from AXIS’ inception through

December 31, 2001, and represented that they were prepared in accordance with U.S. Generally

Accepted Accounting Principles (“GAAP”).

73. AXIS priced its Secondary Offering on April 15, 2004 at $27.91 per share. The

Secondary Offering was underwritten by a syndicate that included, among others, Morgan Stanley

and Citigroup, for fees of $18.3 million. Morgan Stanley and Citigroup were the co-leads on the

Secondary Offering.

74. MMC and its related entities capitalized on the Secondary Offering. Specifically,

Trident II sold 3,324,048 shares; Marsh & McLennan Capital Professionals Fund, L.P. sold 93,061

shares; Marsh & McLennan Employees’ Securities Company, L.P. sold 93,575 shares; Putnam

Investments Holdings, LLC (“Putnam”) sold 16,907 shares; Putnam Investments Employees’

Securities Company I LLC sold 14,533 shares; and Putnam Investments Employees’ Securities

Company II LLC sold 12,976 shares. Putnam is an indirect subsidiary of MMC and is the managing

member of Putnam Investments Employees’ Securities Co. I LLC and Putnam Investments

Employees’ Securities Co. II LLC. Collectively, these MMC related entities sold 3,555,100 shares

and received approximately $95.9 million, an amount substantially in excess of the amount paid for

such shares.

D. Marsh Exerted Substantial Control Over AXIS

75. Throughout the Class Period, Marsh exerted substantial control over AXIS by virtue

of its ownership of a substantial number of AXIS shares. According to the IPO prospectus filed with

the SEC on June 30, 2003, Trident II beneficially owned 37,792,080 shares of AXIS stock, or

approximately 24.2% of the outstanding shares prior to the IPO. This included 18,936,664 common

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shares and 16,846,336 common shares issuable upon the exercise of warrants held by Trident II, and

1,063,336 common shares and 945,744 common shares issuable upon exercise of warrants held by

various Marsh related entities. Following the IPO, Trident II and various Marsh related entities

beneficially owned 36,499,519 shares of AXIS stock, or approximately 21.5% of the Company’s

then outstanding shares.

76. The Registration Statement for the Secondary Offering indicated that Marsh related

entities, including Trident II, beneficially owned 44,032,509 shares of AXIS stock prior to the

Secondary Offering, or 25.5% of the Company’s outstanding shares. This included: (i) 7,404,827

common shares held by Marsh & McLennan Risk Capital Holdings, Ltd.; (ii) 490,756 common

shares and 473,264 common shares issuable upon exercise of warrants of the Company held by

Marsh & McLennan Capital Professionals Fund, L.P.; (iii) 493,469 common shares and 476,528

common shares issuable upon exercise of warrants of the Company held by Marsh & McLennan

Employees’ Securities Company, L.P.; (iv) 17,529,331 common shares and 16,918,312 common

shares issuable upon exercise of warrants held by Trident II; (v) 11,792 shares held by MMC; (vi)

89,159 common shares held by Putnam; (vii) 76,641 common shares held by Putnam Investments

Employees’ Securities Co. I LLC; and (viii) 68,430 common shares held by Putnam Investments

Employees’ Securities Co. Following the Secondary Offering, Marsh’s related entities, including

Trident II and Putnam, beneficially owned 40,477,409 shares of AXIS stock, or 23.4 % of the

Company’s outstanding shares.

77. In addition to exerting substantial control over AXIS by virtue of its stock holdings,

Marsh influenced AXIS’ business operations throughout the Class Period by virtue of the many of

AXIS’ officers and directors who were current or former officers and directors of Marsh. For

example,

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a. Charles Davis (“Davis”) was a director of AXIS and a member of AXIS’

Corporate Governance and Nominating Committee throughout the Class

Period. He simultaneously served as Chairman and CEO of MMC Capital, as

a Chairman and director of MMC, and as a member of the Trident II

investment committee.

b. Robert Newhouse, Jr. (“Newhouse”) served as a director of AXIS and as

Chairman of AXIS’ Executive Committee throughout the Class Period.

Newhouse previously held various executive positions with Marsh, and

served as Marsh’s President from 1976 though 1988 and as Vice Chairman

and Member of the Office of the Chairman from 1988 through 1990.

c. Richard Blum (“Blum”) was Chairman of the Board, Chief Executive Officer

and President of AXIS Specialty U.S. Holdings, and a director of AXIS

Specialty, AXIS Insurance, AXIS Re and AXIS Surplus throughout the Class

Period. From 1958 through 1996, Blum held various positions at Guy

Carpenter, Marsh’s wholly-owned subsidiary, including Chairman and Chief

Executive Officer. He then worked at J&H Marsh & McLennan Companies,

Inc., serving as Vice-Chairman from 1997 to 1999 and Senior Advisor from

1999 until joining AXIS in 2002.

d. Frank J. Tasco served as a director of AXIS throughout the Class Period. Mr.

Tasco retired in 1992 as Chairman of the Board and Chief Executive Officer

of Marsh & McLennan Companies, Inc., a position he held since 1986.

78. In addition, Marsh influenced AXIS’ business operations throughout the Class Period

by virtue of the substantial volume of business that it did with AXIS and its ability to steer additional

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business to AXIS. According to the 2003 10-K, Marsh wrote $765.2 million or 33.7% of AXIS’

gross premiums in fiscal 2003, and $419.9 million or 37.9 % of AXIS’ gross premiums in fiscal

2002. The 2003 10-K reported that:

We produce our business almost exclusively through insurance and reinsurance brokers worldwide . . . . Our management and underwriting team have longstanding relationships with key insurance and reinsurance brokers, such as Marsh (including its subsidiary, Guy Carpenter), Aon, Willis and Benfield, and with many ceding companies. 79. The Registration Statement also advised investors that March was material to AXIS’

operations and warned that “[s]ince 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.” The Registration Statement

also claimed that Charman, “has extensive customer relationships with leading . . . brokers around

the world, including Marsh and its subsidiary Guy Carpenter . . . .”

80. Further, according to the Registration Statement, AXIS Specialty entered into an

agreement in November 2001 with The Putnam Advisory Company, L.L.C., an affiliate of Marsh,

under which Putnam was appointed as an investment manager of AXIS’ investment portfolio. The

Registration Statement reported that during the years ended December 31, 2003 and 2002, AXIS

paid Putnam $704,000 and $671,000, respectively, in fees pursuant to the agreement.

81. Finally, the Registration Statement reported that AXIS used Marsh and its affiliates

for accounting and human resource consulting services during the Class Period. During the years

ended December 31, 2003 and 2002, AXIS incurred $619,000 and $570,000, respectively, in fees in

connection with those transactions.

VI. FALSE AND MISLEADING STATEMENTS

82. Throughout the Class Period, the AXIS Defendants knowingly or recklessly made

materially false and misleading statements concerning the Company’s business and financial results.

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The misrepresentations and material omissions of these defendants caused the Company’s stock

price to become and remain artificially inflated throughout the Class Period, causing harm and

damages to Lead Plaintiffs proposed class representative Durham and other Class members who

purchased at such artificially inflated prices and still held the shares as the truth was revealed and the

inflation in the price of the stock caused by Defendants’ misrepresentations and omissions came out

as the price of Axis Capital stock declined.

Second Quarter 2002

83. On August 6, 2003, AXIS issued a press release entitled, “AXIS Capital Reports Net

Income of $117.8 Million for Second Quarter 2003.” The press release stated in relevant part:

AXIS . . . today reported net income for the quarter of $117.8 million, or $0.81 per diluted share, compared to $30.0 million, or $0.22 per diluted share, for the second quarter ended June 30, 2002, an increase of $87.8 million, or $0.59 per diluted share. Net income for the six months ended June 30, 2003 rose 264% to $224.9 million, or $1.55 per diluted share, from $61.7 million, or $0.46 per diluted share, for the corresponding period in 2002.

Net income excluding net realized gains and losses on investments, net of tax for the second quarter of 2003 was $102.3 million, or $0.70 per diluted share, compared with $21.3 million, or $0.16 per diluted share, for the quarter ended June 30, 2002. Net income excluding net realized gains and losses on investments, net of tax for the six months ended June 30, 2003 was $198.4 million, or $1.36 per diluted share, compared with $52.3 million, or $0.39 per diluted share, for the six months ended June 30, 2002.

* * *

Gross premiums written for the second quarter of 2003 were $551.5 million compared to $260.7 million for the second quarter 2002 . . . For the quarter ended June 30, 2003 compared to the quarter ended June 30, 2002, net premiums written rose to $449.8 million from $234.0 million and net premiums earned increased to $335.6 million from $94.5 million.

(Emphasis added.)

84. Commenting on the second quarter results, Defendant Charman, AXIS President and

CEO, boasted:

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We are delighted to have produced such a strong set of financial results for our first reporting period as a public company. These results clearly demonstrate the differentiating AXIS franchise that has been built over the last eighteen months. All four of our underwriting segments are now fully operational, each has top quality ratings, excellent staff and well capitalized platforms from which we can not only sustain our profitability but, more importantly, from which we can generate future growth.

(Emphasis added.)

85. On August 7, 2003, a teleconference was held for research analysts that reported on

AXIS. Defendants Charman and Cook were present and spoke about the second quarter earnings for

2003. Charman touted:

Since our inception, we’ve distinguished ourselves from the marketplace, not only with our team of proven market leaders, but also by the model that I referred to as our underwriting machine, our strong balance sheet, our pattern of controlled growth and our global diversity.

Combined, these competitive advantages continue to attract an undoable client base in each of our four major business segments, global insurance, global reinsurance, U.S. insurance and U.S. reinsurance.

* * *

The Axis franchise as defined by its financial strength, client service and capabilities to write business across geographies and product lines. It is because of these defining characteristics, we are benefiting and we believe we will continue to benefit in all of our segments, from the flight to quality, which persists globally.

* * *

We remain one of the few global leaders who can deliver a broad suite of reliable, value-added products and services to our clients, which continues to translate to the attainment of premium prices for us. Axis is recognized by clients and intermediaries as a must-have market, and we continue to experience a transfer of business to us and away from weaker or less reliable carriers.

* * *

We expect to continue to grow through book building, the expansion of existing relationships and through new opportunities presented by the substantial dislocations taking place in Europe.

(Emphases added.)

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86. On August 8, 2003, AXIS filed its second quarter Form 10-Q with the SEC, which

defendants Cook and Charman both signed. The Form 10-Q reported net income of $116.87 million

for the quarter and $223.9 million for the six months ended June 2003. It also reported that gross

premiums written were $551.5 million for a total of $1.16 billion for the sixth months ended June 30,

2003, and net premiums earned were $335.6 million for the quarter and $638 million for the six

months ended June 30, 2003. The Form 10-Q also reported that acquisition costs for the quarter

were $55.9 million, of that $21 million was paid to related parties, and that acquisition costs for the

six months ended June 30, 2003, were $108 million, and of that $39.3 million was paid to related

parties.

87. The 10-Q also stated in relevant part:

On an ongoing basis, our sources of funds primarily consist of premiums written, investment income and proceeds from sales and redemptions of investments. Cash is used primarily to pay reinsurance, losses and loss expenses, brokerage, commissions, excise taxes and general and administrative expenses and to purchase new investments.

(Emphasis added.)

88. Also on August 8, 2003, defendants Charman and Cook filed a certification with the

SEC attesting that the Form 10-Q filed for the quarter did “not contain any untrue statement of a

material fact or omit to state a material fact necessary to make the statements made not misleading,”

and “present[ed] . . . all material respects [of] the financial condition, results of operations and cash

flows of the registrant as of, and for, the periods presented in this report.”

89. The statements made by the AXIS Defendants during the second quarter, which

reported that AXIS net income was $117.8 million, its gross premiums were $551.5 million and net

premiums were $335.6 million, were materially false and misleading when made because AXIS

failed to disclose that its revenue and income was reliant upon and unsustainable in the absence of its

payment of incentive commissions involving a “hidden pay-to-play” scheme wherein “illegal

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kickbacks” were paid to Marsh and other insurance brokers to steer business to AXIS and away from

AXIS’ competitors.

90. The statements made by the AXIS Defendants during the second quarter 2003

concerning competition between itself and other insurance companies, including, but not limited to,

its statements that it had the ability to “transfer of business to us and away from weaker or less

reliable carriers” because of its “strong balance sheet . . . pattern of controlled growth . . . global

diversity” and “financial strength, client service and capabilities to write business,” were materially

false and misleading when made because AXIS did not compete with other insurance companies for

clients. Instead, the AXIS Defendants and MMC were aware of and/or participated in the drafting of

incentive commission agreements that provided for the payment of improper incentive commissions

to insurance brokers in a “hidden pay-to-play scheme.” In addition, it was false and misleading to

suggest that AXIS’ “financial strength, client service and capabilities to write business across

geographies and product lines,” were the reasons behind AXIS’ apparent success and future

prospects without revealing that such results were being achieved through “secret payments” from

AXIS to Marsh for improperly steering business to AXIS and away from AXIS’ competitors.

91. The statements made by the AXIS Defendants during the second quarter 2003

concerning acquisition costs were materially false and misleading when made because the statements

failed to inform investors what acquisition costs included, and led investors to believe that

acquisition costs were the costs of doing business rather than illicit incentive commission payments

to brokers in exchange for steering business to AXIS and away from AXIS’ competitors.

Third Quarter 2003

92. On November 5, 2003, AXIS issued a press release entitled, “AXIS Capital Reports

Net Income of $147.0 Million for Third Quarter 2003.” The press release stated, in relevant part:

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AXIS . . . today reported net income for the quarter of $147.0 million, or $0.90 per diluted share, compared to $92.1 million, or $0.68 per diluted share, for the third quarter ended September 30, 2002, an increase of $54.9 million, or $0.22 per diluted share. Net income for the nine months ended September 30, 2003 rose 142% to $371.9 million, or $2.46 per diluted share, from $153.8 million, or $1.13 per diluted share, for the corresponding period in 2002.

Net income excluding net realized gains and losses on investments, net of tax for the third quarter of 2003 was $152.6 million, or $0.93 per diluted share, compared with $85.3 million, or $0.63 per diluted share, for the quarter ended September 30, 2002. Net income excluding net realized gains and losses on investments, net of tax for the nine months ended September 30, 2003 was $351.0 million, or $2.32 per diluted share, compared with $137.6 million, or $1.01 per diluted share, for the nine months ended September 30, 2002.

* * *

Gross premiums written for the first nine months of 2003 were $1,794.0 million compared to $778.7 million for the first nine months of 2002 . . . . For the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002, net premiums written increased to $1,524.3 million from $694.6 million and net premiums earned rose to $1,035.5 million from $317.8 million.

(Emphasis added.)

93. Commenting on the third quarter results, Defendant Charman, proclaimed:

We are delighted to show continuing significant high quality premium growth in all four of our underwriting segments despite the third quarter being a traditionally slow production period for many of our business lines. As the irreversible flight of quality to quality continues unabated, AXIS is appropriately recognized across all our business lines as security that is safe, capable, consistent and highly service-oriented. Hence, our global AXIS Capital franchise has been able to produce for our shareholders strong, real net income for the quarter.

We will commence expensing stock options under the transitional provisions of FAS 148 in the fourth quarter of 2003. This is consistent with our actions that have put us at the forefront of direct, effective corporate governance and transparent financial reporting since our inception.

(Emphases added.)

94. On November 6, 2003, defendants Charman and Cook participated in a

teleconference with research analysts that report on AXIS. During the teleconference Charman

exclaimed:

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[T]he AXIS franchise is extremely well positioned and defined by its financial strength, client service and capabilities to write business across geography and products. Because of these defining characteristics, we are benefiting and believe we will continue to benefit in all of our segments from the irresistible and irreversible flight of quality to quality, which persists globally.

(Emphasis added.)

95. On November 7, 2003, AXIS filed its third quarter Form 10-Q with the SEC, which

Defendants Cook and Charman both signed. In the 10-Q, AXIS reported net income of $420 million

for the quarter and $1.12 billion for the nine months ended September 2003. Gross premiums

written were $633.9 million and $1.8 billion for the nine months. Net premiums earned were $397.4

million for the third quarter and were $1.03 billion for the nine months. The 10-Q also reported that

acquisition costs for the quarter ended September 30, 2003, were $65.8 million compared to $31.0

million for the quarter ended September 30, 2002, an increase of $34.8 million. For the quarter

ending September 30, 2003, $20.8 million in acquisition costs were paid to related parties compared

to $10.9 million for the quarter ending September 2002.

96. Also on November 7, 2003, Defendants Charman and Cook filed a certification with

the SEC and attesting that the 10-Q filed for the quarter did “not contain any untrue statement of a

material fact or omit to state a material fact necessary to make the statements made” and

“present[ed] . . . all material respects [of] the financial condition, results of operations and cash flows

of the registrant as of, and for, the periods presented in this report.”

97. On December 2, 2003, at the Bermuda Angle 12th Annual Conference Cook touted

that “AXIS is synonymous with financial strength.” He attributed AXIS’ continued growth to the

“ongoing expansion of [AXIS’] global insurance and reinsurance segments and the commencement

of [AXIS’] U.S. Insurance and reinsurance segments during the first and second quarter of” 2003.

He claimed that AXIS’ “efforts to build the AXIS franchises . . . are delivering meaningfully better

financial results than the industry as a whole.”

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98. The statements made by the AXIS Defendants during the third quarter 2003 that

AXIS’ net income was $147.0 million, its gross premiums were $633.9 million, and net premiums

were $397.4 million, were materially false and misleading when made because AXIS failed to

disclose that the results were reliant upon and unsustainable in the absence of its payment of

incentive commissions that involved a “hidden pay-to-play” scheme wherein “secret” payments,

characterized as “illegal kickbacks,” were paid to Marsh and other insurance brokers to steer

business to AXIS and away from AXIS’ competitors. Moreover, the Company’s financial reporting

was not “transparent” and the AXIS Defendants could not credibly claim that it was “at the forefront

of direct, effective corporate governance and transparent financial reporting,” because the AXIS

Defendants failed to disclose the existence of AXIS’ participation in the illicit scheme to manipulate

the insurance market through the improper incentive commission payments.

99. The statements made by the AXIS Defendants during the third quarter 2003

concerning competition between other insurance companies, including, but not limited to, its

statement that it “is extremely well positioned and defined by its financial strength, client service and

capabilities to write business across geography and products,” were materially false and misleading

when made because AXIS did not compete with other insurance companies for clients. Instead, the

AXIS Defendants and MMC were aware of and/or participated in the scheme to “stifle competition”

through the payment of improper incentive commissions, wherein “the size of the payment”

determined where Marsh steered insurance business. In addition, it was false and misleading to

suggest that its “financial strength, client service and capabilities to write business” were the reasons

behind AXIS’ apparent success and future prospects without also mentioning that such results were

being achieved through improper incentive commission payments to Marsh and other brokers.

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100. The statements made by the AXIS Defendants during the third quarter 2003

concerning acquisition costs were materially false and misleading when made because the AXIS

Defendants did not inform investors what acquisition costs included, and failed to disclose that

acquisition costs included the illicit incentive commission payments.

Fourth Quarter and Year-End 2003

101. On February 11, 2004, AXIS issued a press release entitled, “AXIS Capital’s Net

Income Doubles to $532.3 Million for 2003.” The press release stated, in relevant part:

AXIS … today reported a 100% increase in net income for the year ended December 31, 2003 of $532.3 million, or $3.42 per diluted share, compared to $265.1 million, or $1.91 per diluted share, for the year ended December 31, 2002, an increase of $267.2 million, or $1.51 per diluted share.

Net income for the quarter ended December 31, 2003 rose 44.2% to $160.5 million, or $0.97 per diluted share, from $111.3 million, or $0.80 per diluted share, for the fourth quarter ended December 31, 2002.

Net income excluding net realized gains and losses on investments, net of tax for the year ended December 31, 2003 was $509.2 million, or $3.28 per diluted share, compared with $239.2 million, or $1.72 per diluted share, for the year ended December 31, 2002.

Net income excluding net realized gains and losses on investments, net of tax for the fourth quarter of 2003 was $158.4 million, or $0.96 per diluted share, compared with $101.6 million, or $0.73 per diluted share, for the quarter ended December 31, 2002.

Shareholders’ equity was in excess of $2.8 billion at December 31, 2003. This includes the net proceeds of $316.0 million received from the Company’s initial public offering completed in July 2003. Diluted book value per share at December 31, 2003 was $17.48, compared to $13.96 at December 31, 2002.

* * *

Gross premiums written for the year ended December 31, 2003 were $2,273.6 million compared to $1,108.0 million for the year ended December 31, 2002. . . . For the year ended December 31, 2003 compared to the year ended December 31, 2002, net premiums written rose to $1,908.4 million from $1,018.3 million and net premiums earned increased to $1,436.2 million from $536.9 million.

(Emphasis added.)

102. Commenting on the year-end results, Charman, proclaimed:

- 35 -

During 2003, we have generated over a 100% increase in our gross written premiums, $1.3 billion of operating cash flow as well as a 100% increase in net income. Our return on equity was in excess of 22%. Against every measure of financial performance we have clearly demonstrated the continuing, outstanding daily achievements of AXIS since our inception. We have been and will continue to be dedicated in our pursuit of creating real, significant and strategic long-term value for our shareholders.

(Emphasis added.)

103. In a teleconference held on February 12, 2004, Cook boasted:

This quarter represented a great finish to an already excellent year for Axis Capital . . . . Our gross premiums written for the year were $2.3 billion, representing growth in excess of 105% over 2002. This growth includes a 23% growth rate in our global insurance segment and a 48% growth rate in our global reinsurance segment.

(Emphasis added.)

As a reminder, our U.S. insurance and U. S. reinsurance segments were not fully operational until the end of the first quarter 2003. Despite this late start, together they represented 71% of our overall growth in gross premiums written and will continue to contribute significantly on a going forward basis, as both segments were fully operational for the very important 1/1 renewal date this year.

104. During that same teleconference Charman also added:

This was a year of continuing significant and strategic achievement for Axis. We more than doubled both our gross premiums written and our net income, and delivered our shareholders a return on average equity of just over 22% for the year. To achieve these results we have built on the strong and diversified leadership positions previously established throughout our global insurance and global reinsurance segments, and rapidly expanded our business model in the U.S. marketplace with the establishment and development of U.S. insurance and U.S. reinsurance segments.

* * *

For Axis overall, our 2004 year will drive strong and focused growth. Disciplined global risk management and capital deployment, as well as organizational stability. We will maximize the opportunities that present themselves to our more fully established global network. Our daily underwriting focus, market penetration, product diversity, and global presence will allow us to continue to take full advantage of the substantial high quality business available to an underwriting machine like ours.

(Emphases added.) - 36 -

105. On February 27, 2004, AXIS filed its fiscal 2003 financial results with the SEC of

Form 10-K. The 2003 10-K was signed by defendants Charman and Cook. The 2003 10-K included

the Company’s consolidated financial statements, which the Company claimed were prepared in

accordance with U.S. GAAP. The financial statements reported that AXIS had $2.2 billion in gross

premiums compared with $1.1 billion for the previous year, and had $1.4 billion in net premiums

earned in fiscal 2003, compared with $536.9 million in 2002, which represented an increase of

$899.4 million. The financial statement also reported that AXIS’ acquisition costs in fiscal 2003

were $229.7 million, compared to $103.7 million in 2002, an increase of $126.0 million. The

statement also reported that $86 million in acquisition costs for the year-end were paid to a “related

party” compared to $34.3 million in 2002.

106. The Management Discussion and Analysis (“MD&A”) section of the 2003 10-K

provided, in relevant part:

During the year ended December 31, 2003, gross premiums written increased in all lines of business. These increases were partially the result of the addition of underwriting staff in the second quarter of 2002, which enabled us to improve our market penetration at key renewal dates in 2003. In addition, the continuing flight to quality led to improved market penetration. (10-K at 46).

* * *

At December 31, 2003, our shareholders’ equity was $2,817.1 million compared to $1,961.0 million at December 31, 2002, an increase of 43.7%. This increase was primarily due to net income of $532.3 million for the year ended December 31, 2003, net proceeds of $316.0 million from our initial public offering and an increase of $0.3 million in the unrealized appreciation on our investment portfolio.

(Emphasis added.)

107. The 2003 10-K also provided:

We produce our business almost exclusively through insurance and reinsurance brokers worldwide, who receive a brokerage commission usually equal to a percentage of gross premiums. Our management and underwriting team have longstanding relationships with key insurance and reinsurance brokers, such as

- 37 -

Marsh (including its subsidiary, Guy Carpenter), Aon, Willis and Benfield, and with many ceding companies.

* * *

The Company produces its business through brokers and direct relationships with insurance companies. During the year ended December 31, 2003, three brokers accounted for approximately 64.5% (2002: 69.2%; 2001: 81.8%) of the total gross premiums written by the Company. One broker accounted for approximately 33.7% (2002: 37.9%; 2001: 22.7%), the second for approximately 19.3% (2002: 20.7%; 2001: 39.5%) and the third for approximately 11.5% (2002: 10.6%; 2001: 19.6%). Each of these brokers is a large, well established company. No other broker and no one insured or reinsured accounted for more than 10% of gross premiums written in the years ended December 31, 2003 and 2002 and the period ended December 31, 2001.

* * *

Acquisition costs relate to the fees, commissions and taxes paid to obtain business. Typically, these are based on a percentage of the premium written and will vary by each line of business that we underwrite.

* * *

Acquisition costs, primarily fees paid to brokers, commissions and taxes, vary with and are directly related to the acquisition of policies and are deferred and amortized over the period in which the related premiums are earned.

(Emphases added.)

108. The 10-K also addressed the competitive nature of the industry and stated:

The insurance and 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 and with underwriting syndicates, some of which have greater financial, marketing and management resources than we do. We also compete with new companies that continue to be formed to enter the insurance and reinsurance markets. (2003 10-K at 19)

(Emphasis added.)

109. On February 26, 2004, defendants Charman and Cook filed a notarized certification

with the SEC attesting that that they reviewed the 2003 10-K and that it did “not contain any untrue

statement of a material fact or omit to state a material fact necessary to make the statements made”

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and “present[ed] . . . all material respects [of] the financial condition, results of operations and cash

flows of the registrant as of, and for, the periods presented in this report.”

110. The Company’s 2003 Annual Report to Shareholders also provided information

substantially similar to the 2003 10-K. In addition, the 2003 Annual Report contained a letter to

shareholders signed by Defendant Butt that stated, in relevant part:

This report marks a year during which we became a public company and the second year since our formation. During this time, our industry has undergone a belated and fundamental change. In my 40 years in the business, I have not seen such a rapid and remarkable change. The deferred recognition of past problems, balance sheet impairment and continuing low interest rates have rightly refocused the industry on pure underwriting profit.

As a result, our company has been able to capitalize on the opportunity and fill the vacuums created at an even faster rate than we anticipated when we began. We have created a franchise in two years that would, at other times, have taken six years or more.

* * *

The emphasis on management accountability and transparency in financial reporting is forcing a new reality for the industry. This accrues to our benefit by differentiating us in our shareholders’ minds and providing solid security to our clients. We have been committed since our inception to upholding the highest standards of corporate governance. We will continue to emphasize this commitment throughout the organization. (Emphasis added.)

111. In the 2003 Annual Report, Charman also added:

In creating AXIS Capital, our vision was - and continues to be - to create a transformational model for the insurance and reinsurance industry. One focused on ultimate profitability. We align extraordinary talent with substantial, unencumbered capital and harness our high-quality underwriting aptitude to a global, state-of-the-art trading platform.

* * *

Let me begin the new year with sincere thanks to our shareholders, customers and brokers who continue to provide enthusiastic support and encouragement. As we at AXIS Capital continue to successfully execute our long-term strategy, we look forward to a long and mutually successful future.

- 39 -

(Emphases added.)

112. The statements made by the AXIS Defendants during the fourth quarter 2003 and

fiscal year 2003 that its net income was $160.5 million, its gross premiums were $2,273.6 million,

net premiums were $1,908.4 million, and that it was “transparen[t]” in its “financial reporting,” were

materially false and misleading when made because AXIS failed to disclose that the financial results

were reliant upon and unsustainable in the absence of its participation in a “hidden pay-to-play”

wherein AXIS paid Marsh and other insurance brokers “secret” and “illegal kickbacks” to steer

business to AXIS and away from AXIS’ competitors. Moreover, the Company’s financial reporting

was not “transparent” because it failed to disclose the existence of these agreements.

113. The statements made by the AXIS Defendants during the fourth quarter 2003 and

fiscal year 2003 concerning competition between other insurance companies, including, but not

limited to, its statement that “[t]he insurance and reinsurance industry is highly competitive,” were

materially false and misleading because AXIS did not compete with other insurance companies for

clients. Instead, the AXIS Defendants and MMC were aware that the insurance market was

manipulated and competition was stifled through their participation in the drafting of incentive

commission agreements that provided for “secret” payments of improper incentive commissions to

insurance brokers in exchange for steering clients to AXIS and away from AXIS’ competitors. In

addition, it was false and misleading to suggest that the “the continuing flight to quality” was the

reason behind AXIS’ apparent success and future prospects without also mentioning that such results

were being achieved through illicit incentive commission payments to brokers to improperly

manipulate the insurance market.

114. The statements made by the AXIS Defendants during fourth quarter 2003 and fiscal

year 2003 concerning acquisition costs were materially false and misleading, including, but not

limited to, the statement that “Acquisition costs relate to the fees, commissions and taxes paid to - 40 -

obtain business. Typically, these are based on a percentage of the premium written and will vary by

each line of business that we underwrite,” because these statements led investors to believe that

acquisition costs included broker commissions that were fixed based upon a certain percentage of the

premium, rather than based on the annual book of business referred to the Company, which,

according to the NYAG, is on which the incentive commissions were based. In addition, the

statements that acquisition costs for the year ended were $229.7 million and that $86 million of that

was paid to a “related party,” also were misleading because AXIS did not disclose that $39.1 million

of its acquisition costs included incentive commission payments, and that $18.1 million of these

payments was paid to Marsh.

115. The statements made by the AXIS Defendants during fourth quarter 2003 and fiscal

year 2003 concerning AXIS’ reliance on commissions paid to brokers including, but not limited to

the statement that AXIS produced its “business almost exclusively through insurance and

reinsurance brokers worldwide, who receive a brokerage commission usually equal to a percentage

of gross premiums,” were materially false and misleading when made because AXIS failed to

disclose that beyond normal and customary commissions paid in the industry, AXIS participated in a

“secret” “pay-to-play scheme” in which it entered PSAs and paid “kickbacks” to Marsh and others to

manipulate the insurance market and to steer business based upon the size of the illicit incentive

commission payments.

Secondary Offering

116. On or about March 26, 2004, AXIS filed the Registration Statement for the Secondary

Offering. The Registration Statement was signed by defendants Charman, Cook and Butt.

117. The Registration Statement set forth selected consolidated financial information for

the year ending December 31, 2003, which were materially false and misleading for the reasons set

forth above. - 41 -

118. The Registration Statement also provided, in relevant part:

We seek to use our management’s extensive expertise, experience and long-standing market relationships to identify and underwrite attractively priced risks while delivering innovative insurance and reinsurance solutions to our customers. . . . We intend to continue to exercise highly disciplined underwriting practices and manage a diverse book of business while seeking to maximize our profitability and generate superior returns on equity.

119. In connection with its relationship with various brokers, including Marsh, the

Registration Statement provided:

Our management and underwriting team have longstanding relationships with key insurance and reinsurance brokers, such as Marsh Inc. (“Marsh”), including its subsidiary, Guy Carpenter & Company, Inc. (“Guy Carpenter”), Aon Corporation (“Aon”), Willis Group Holdings Ltd. (“Willis”) and Benfield Group (“Benfield”), and with many ceding companies.

* * *

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 worldwide primarily through insurance and reinsurance brokers. Marsh, including its subsidiary Guy Carpenter, Aon, Willis and Benfield provided 33.7%, 19.3%, 11.5% and 4.0% (for a total of 68.5%), respectively, of our gross premiums written in the year ended December 31, 2003. We believe these brokers also have, or may in the future acquire, ownership interests in insurance and reinsurance companies that may compete with us, and these brokers may favor their own insurers or 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.

* * *

We use Marsh and its affiliates for accounting and human resource consulting services. During the years ended December 31, 2003 and 2002, we incurred $619,000 and $570,000, respectively, in fees in connection with these transactions. In addition, we pay brokerage fees and commissions to Marsh and its affiliates, which vary based on the amount of business produced. During the years ended December 31, 2003, 2002 and 2001, we incurred $86.1 million, $34.3 million and $44,000, respectively, in brokerage fees and commissions in connection with these transactions.

* * *

- 42 -

The Company produces its business through brokers and direct relationships with insurance companies. During the year ended December 31, 2003, three brokers accounted for approximately 64.5% (2002: 69.2%; 2001: 81.8%) of the total gross premiums written by the Company. One broker accounted for approximately 33.7% (2002: 37.9%; 2001: 22.7%), the second for approximately 19.3% (2002: 20.7%; 2001: 39.5%) and the third for approximately 11.5% (2002: 10.6%; 2001: 19.6%). Each of these brokers is a large, well established company. No other broker and no one insured or reinsured accounted for more than 10% of gross premiums written in the years ended December 31, 2003 and 2002 and the period ended December 31, 2001.

* * *

Acquisition costs relate to the fees, commissions and taxes paid to obtain business. Typically, these are based on a percentage of the premium written and will vary by each line of business that we underwrite.

(Emphases added.)

The Registration Statement further provided that AXIS’ ability to “operate in a highly

competitive environment,” stemmed from its “competitive strengths.” Specifically, the

Registration Statement provided, in relevant part:

The insurance and 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 and with underwriting syndicates, some of which have greater financial, marketing and management resources than we do. We also compete with new companies that continue to be formed to enter the insurance and reinsurance markets. In addition, capital market participants have recently created alternative products that are intended to compete with reinsurance products. Increased competition could result in fewer submissions, lower premium rates and less favorable policy terms and conditions, which could have a material adverse impact on our growth and profitability.

* * *

We believe our competitive strengths have enabled, and will continue to enable, us to capitalize on the significant dislocation in the insurance and reinsurance marketplace. These strengths include:

• Experienced Management and Underwriting Team with Proven Track Record. The extensive depth and knowledge of our management and underwriting teams provide us with the ability to successfully select and price complex risks.

- 43 -

• Long-Standing Market Relationships. Our underwriters have well-established personal relationships with our insureds, cedents and brokers.

(Emphases added.)

120. On April 6, 2004, AXIS filed an Amended Registration Statement with the SEC on

Form S-1/A in connection with the Secondary Offering, which contained substantially the same

information as the Registration Statement. Defendants Charman, Butt and Cook also signed the

Amended Registration Statement.

121. On April 16, 2004, AXIS filed the Prospectus with the SEC on Form 424b4, that

contained substantially the same information as the Registration Statement, and the Amended

Registration Statement filed on April 6, 2004.

122. The statements made by the AXIS Defendants in the Registration Statement were

materially false and misleading when made because AXIS failed to disclose that its financial results

and the nature of its business was reliant upon and unsustainable in the absence of the illicit

incentive commission payments that served to “manipulate” the insurance market through a

“hidden” “pay-to-play scheme.” Moreover, the Company’s financial reporting was not “transparent”

because it failed to disclose the existence of the illicit agreements.

123. The statements made by the AXIS Defendants in the Registration Statement

concerning competition between other insurance companies, including, but not limited to its

statement that AXIS operated in a “highly competitive environment,” were materially false and

misleading when made because AXIS did not compete with other insurance companies for clients.

Instead, the AXIS Defendants and MMC were aware of and/or participated in the drafting of

incentive commission agreements that served to “stifle competition” by steering business based on

the size of the incentive commission payment, otherwise known as a kickback. In addition, it was

false and misleading to suggest that its “competitive strengths” were the reason behind AXIS’

- 44 -

apparent success and future prospects without also mentioning that such results were being achieved

through improper market manipulation, as detailed herein.

124. The statements made by the AXIS Defendants in the Registration Statement

concerning acquisition costs, including, but not limited to, “Acquisition costs relate to the fees,

commissions and taxes paid to obtain business. Typically, these are based on a percentage of the

premium written and will vary by each line of business that we underwrite” were materially false

and misleading when made because the statements led investors to believe that acquisition costs

included broker commissions that were fixed based upon a percentage of the premiums, rather than

based on the annual book of business referred to the Company.

125. The statements made by the AXIS Defendants in the Registration Statement

concerning AXIS’ reliance on brokers and commissions paid to them including, but not limited to,

the statements that AXIS “pa[id] brokerage fees and commissions to Marsh and its affiliates, which

vary based on the amount of business produced” and that its “management and underwriting team

have longstanding relationships with key insurance and reinsurance brokers, such as Marsh Inc.,”

were materially false and misleading when made because AXIS failed to disclose that beyond the

normal and customary commissions paid in the industry, AXIS participated in a “secret” “pay-to-

play scheme” in which it paid “kickbacks” pursuant to undisclosed PSAs that AXIS entered with

Marsh and others to manipulate the insurance market and to steer business to AXIS and away from

AXIS’ competitors.

First Quarter 2004

126. On May 3, 2004, AXIS issued a press release entitled, “AXIS Capital Reports Net

Income of $166.8 Million for First Quarter 2004.” The press release stated, in relevant part:

AXIS … today reported a 56% increase in net income for the quarter ended March 31, 2004 to $166.8 million, or $1.00 per diluted share, from $107.1 million, or $0.75 per diluted share, for the quarter ended

- 45 -

March 31, 2003. This was generated by increased underwriting profits and investment income. Annualized return on shareholders’ equity was 22.9% for the quarter ended March 31, 2004 compared to 21.2% for the quarter ended March 31, 2003.

Net income excluding net realized gains and losses on investments, net of tax, for the quarter ended March 31, 2004 was $157.6 million, or $0.94 per diluted share, compared with $96.0 million, or $0.67 per diluted share, for the quarter ended March 31, 2003. Net income excluding net realized gains and losses on investments, net of tax, is a non-GAAP financial measure. A reconciliation of this measure to net income is presented at the end of this release.

* * *

Gross premiums written for the quarter ended March 31, 2004 were $1,044.1 million compared to $608.6 million for the quarter ended March 31, 2003, an increase of 72%. For the quarter ended March 31, 2004 compared to the quarter ended March 31, 2003, ceded premiums increased to $144.9 million from $68.4 million and our net premiums written rose to $899.2 million from $540.1 million. Net premiums earned increased to $471.2 million from $302.4 million. The increase reflects the increase in our gross premiums written over the last twelve months.

For the quarter ended March 31, 2004, net investment income was $31.3 million and realized gains were $10.1 million, compared with $11.4 million in net investment income and $11.2 million in realized gains for the quarter ended March 31, 2003. The increase in net investment income was due to increased invested assets on which we obtained improved investment yields. Cash flow generated from operations was $365.5 million compared with $264.4 million for the quarter ended March 31, 2004.

(Emphasis added.)

127. During a May 4, 2004, teleconference, at which defendants Charman, Butt and Cook

were present, Charman attributed its first quarter growth to “our strong balance sheet in the

ongoing flight to quality as it is skirted by exceptional professional underwriting talent and

further differentiated by a superior service to our global clients.” In addition, Charman

- 46 -

identified the impact of AXIS’ addition of its global franchise. He boasted, “We have achieved

significant penetration on our global insurance business over the last two years. If you think back to

when we started AXIS, we saw a unique opportunity rather than wait anywhere between five and

seven years to build a diversified portfolio . . . and we have substantially achieved that.”

128. On May 5, 2004, AXIS filed its First Quarter 2004 Form 10-Q, which was signed by

defendants Charman and Cook. The 10-Q reported that AXIS’ gross premiums were $1.1 billion

in the first quarter of 2001, compared with $608.6 million for the quarter ended March 31,

2003, an increase of $435.5 million. Its total revenue for the quarter was $512 million compared to

$326 million in the first quarter of 2003, and the net income realized for the quarter was $168

million, compared to $107 million for the first quarter in 2003. Net premiums earned increased to

$471.2 million from $302.4 million in the same quarter in 2003. Acquisition costs for the quarter

were $57.0 million compared to $44.3 million for the first quarter of 2003, an increase of

$12.7 million. Of that, $24.6 million in acquisition costs was paid to a “related party.”

129. The 10-Q also stated, in relevant part:

The markets in which we operate have historically been cyclical. During periods of excess underwriting capacity, as defined by availability of capital, competition can result in lower pricing and less favorable policy terms and conditions for insurers and reinsurers.

We derive our revenues primarily from the sale of our insurance policies and reinsurance contracts. Insurance and reinsurance premiums are a function of the number and type of contracts we write, as well as prevailing market prices.

* * *

Our expenses primarily consist of net losses and loss expenses, acquisition costs and general and administrative expenses.

* * *

- 47 -

Acquisition costs relate to the fees, commissions and taxes paid to obtain business. Typically, these are based on a percentage of the premium written and will vary by each line of business that we underwrite.

(Emphases added.)

130. Also on May 5, 2004, defendants Charman and Cook filed a certification with the

SEC attesting that that 10-Q filed for the quarter did “not contain any untrue statement of a material

fact or omit to state a material fact necessary to make the statements made” and “present[ed] . . . all

material respects [of] the financial condition, results of operations and cash flows of the registrant as

of, and for, the periods presented in this report.”

131. The statements made by the AXIS Defendants during the first quarter 2004 that its net

income was $166.8 million, its gross premiums were $1044.1 million and net premiums were $471.2

million, were materially false and misleading when made because AXIS’ financial results were

reliant upon and unsustainable in the absence of an illicit agreement to pay incentive commissions to

Marsh and others to steer business to AXIS and away from AXIS’ competitors.

132. The statements made by the AXIS Defendants during to its first quarter 2004

concerning competition between other insurance companies, including, but not limited to, its

statement that “competition can result in lower pricing and less favorable policy terms and

conditions for insurers and reinsurers,” were materially false and misleading when made because

AXIS did not compete with other insurance companies for clients. Instead, the AXIS Defendants

and MMC were aware of and/or participated in a “hidden” “pay-to-play scheme” in which AXIS

paid Marsh to steer business to AXIS and away form AXIS’ competitors. In addition, it was false

and misleading to suggest that AXIS’ “strong balance sheet . . . exceptional professional

underwriting talent and . . . superior service to our global clients,” were the reasons behind AXIS’

- 48 -

apparent success and future prospects without also mentioning that such results were being achieved

through illicit incentive commission payments to brokers.

133. The statements made by the AXIS Defendants during the first quarter 2004

concerning acquisition costs including, but not limited to, the statement that “Acquisition costs relate

to the fees, commissions and taxes paid to obtain business. Typically, these are based on a

percentage of the premium written and will vary by each line of business that we underwrite,” were

materially false and misleading when made because the statements led investors to believe that

acquisition costs included broker commissions that were fixed based upon certain premiums, rather

than based on the annual book of business referred to the Company.

Second Quarter 2004

134. On August 4, 2004, AXIS issued a press release entitled, “AXIS Capital Reports Net

Income of $140.9 Million for Second Quarter 2004.” The press release stated, in relevant part:

AXIS … today reported net income for the second quarter of 2004 of $140.9 million, or $0.84 per diluted share, compared to $117.8 million, or $0.81 per diluted share, for the second quarter ended June 30, 2003, an increase of $23.1 million, or $0.03 per diluted share. Net income for the six months ended June 30, 2004 rose 37% to $307.6 million, or $1.84 per diluted share, from $224.9 million, or $1.55 per diluted share, for the corresponding period in 2003.

* * *

[O]ur net premiums written rose to $487.9 million from $449.8 million. Net premiums earned increased to $486.4 million from $335.6 million. The increase in net premiums earned reflects the increase in our gross premiums written over the last twelve months.

* * *

Gross premiums written for the quarter ended June 30, 2004 were $629.3 million compared to $551.5 million for the quarter ended June 30, 2003, an increase of 14%.

(Emphasis added.)

- 49 -

135. Commenting on the second quarter results, Charman exclaimed:

Our results across all segments were once again very strong in the quarter, reflecting our continuing penetration of our targeted markets coupled with our low loss activity. While the market continues to struggle against the senseless price cutting practiced by a limited number of major carriers, we remain optimistic with respect to the opportunities afforded to an entrepreneurial, diverse and financially strong carrier like AXIS where risk selection remains paramount.

(Emphasis added.)

136. On August 6, 2004, AXIS filed its Second Quarter 2004 Form 10-Q, which was

signed by defendants Charman and Cook. In the 10-Q, AXIS reported substantially the same

financial results as contained in the August 4, 2004 press release. The 10-Q also provided that

acquisition costs for the quarter were $257.8 million of which $21.7 million was paid to a “related

party.”

137. The 10-Q also stated, in relevant part:

The markets in which we operate have historically been cyclical. During periods of excess underwriting capacity, as defined by availability of capital, competition can result in lower pricing and less favorable policy terms and conditions for insurers and reinsurers.

* * * We derive our revenues primarily from the sale of our insurance policies and reinsurance contracts. Insurance and reinsurance premiums are a function of the number and type of contracts we write, as well as prevailing market prices.

* * *

Our expenses primarily consist of net losses and loss expenses, acquisition costs and general and administrative expenses.

* * *

Acquisition costs relate to the fees, commissions and taxes paid to obtain business. Typically, these are based on a percentage of the

- 50 -

premium written and will vary by each line of business that we underwrite. In addition, we offset override commissions received on ceded premiums against acquisition costs. (Emphasis added.)

138. On August 4, 2004, defendants Charman and Cook filed a notarized certificate with

the SEC attesting that that 10-Q filed for the quarter did “not contain any untrue statement of a

material fact or omit to state a material fact necessary to make the statements made” and

“present[ed] . . . all material respects [of] the financial condition, results of operations and cash flows

of the registrant as of, and for, the periods presented in this report.”

139. During an August 5, 2004, teleconference, at which defendants Charman and Cook

were present, Defendant Cook boasted:

This quarter represented another solid quarter for Axis Capital. Net income, including realized losses, was $141 million for the quarter or 84 cents of diluted earnings per share versus $118 million or 81 cents of diluted per share during the second quarter of last year. We continue to drive shareholder value ending the quarter with over $3 billion in shareholders equity and diluted book value per share on an as if converted basis of $18.76.

* * *

Gross premiums written for the quarter were more than $629 million and represented a growth rate of 14 percent over the corresponding quarter in 2003. Net premiums written for the quarter were nearly $488 million growing 8 percent over the corresponding quarter in 2003. (Emphasis added.)

140. The statements made by the AXIS Defendants during the second quarter 2004 that its

net income was $140.9 million, its gross premiums were $629.3 million, and net premiums earned

were $488 million, were materially false and misleading when made because AXIS failed to disclose

that the payments were reliant upon and unsustainable in the absence of illicit agreement between

- 51 -

AXIS and various insurance brokers, including Marsh, to steer business to AXIS and away from

AXIS’ competitors.

141. The statements made by the AXIS Defendants during to its second quarter 2004

concerning competition between other insurance companies including, but not limited to, its

statement that “competition can result in lower pricing and less favorable policy terms and

conditions for insurers and reinsurers,” were materially false and misleading when made because

AXIS did not compete with other insurance companies for clients. Instead, the AXIS Defendants

and MMC were aware of and/or participated in the drafting of incentive commission agreements that

provided for the payment of improper incentive commissions to insurance brokers in exchange for

steering business to AXIS and away from AXIS competitors.

142. The statements made by the AXIS Defendants during its first quarter 2004 concerning

acquisition costs including, but not limited to, the statement that “[a]cquisition costs relate to the

fees, commissions and taxes paid to obtain business. Typically, these are based on a percentage of

the premium written and will vary by each line of business that we underwrite,” were materially

false and misleading when made because the statements led investors to believe that acquisition

costs included broker commissions that were fixed based upon certain premiums, rather than based

on the annual book of business referred to the Company.

VII. THE TRUTH BEGINS TO EMERGE

143. On September 1, 2004, AXIS issued a press release and revealed that on August 26,

2004, AXIS U.S. Holdings, the holding company for AXIS’ United States operations, had received a

subpoena from the NYAG. The press release merely disclosed that the subpoena sought information

“regarding incentive commission agreements between [AXIS] and insurance brokers.” The press

release did not reveal the amount of incentive commissions that AXIS paid to insurance brokers or

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whether AXIS had even paid incentive commissions at all, and the press release revealed no

information about the true nature of the incentive commissions or the extent to which AXIS’

financial results and business operations were reliant on the payment of “incentive commissions.”

144. On September 20, 2004, AXIS U.S. Holdings received two additional subpoenas

from the NYAG, seeking information regarding “fictitious and inflated quotes submitted by

insurance companies to insurance brokers.” AXIS did not reveal its receipt of the September 20

subpoena until November 3, 2004, at the end of a Company press release announcing “positive”

2004 third quarter results. The disclosure occurred more than a month after receipt of the subpoena

and several weeks after the NYAG and the New York State Insurance Department announced their

investigation into “widespread corruption” that plagued the insurance industry, as detailed below.

145. On October 14, 2004, after approximately six months of investigation into

improprieties within the insurance industry, the NYAG issued a press release entitled “Investigation

Reveal Widespread Corruption in Insurance Industry: Leading Brokerage Firm Sued for Fraud and

Antitrust Violations; Insurance Company Executives Plead Guilty; Major Insurance Firms

Implicated.” According to the press release, the NYAG had uncovered an elaborate scheme in

which Marsh had “steered unsuspecting clients to insurers with whom it had lucrative payoff

agreements…”

146. The October 14 press release announced that the NYAG had filed a civil complaint in

Supreme Court, New York County against Marsh (the “Spitzer Complaint”), charging Marsh with

numerous causes of actions arising under New York state law, including fraudulent business

practices in violation of Executive Law § 63(12); antitrust activities in violation of Gen. Bus. Law §

430 et seq., securities fraud in violation of Gen. Bus. Law § 352-c and unjust enrichment. Other

major insurance companies were named in the complaint as participants in the improper conduct,

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including ACE Ltd, American International Group (“AIG”), The Hartford Financial Services Group,

and Munich American Risk Partners. In addition, the NYAG announced that “other insurance

companies are still under investigation.”

147. The Spitzer Complaint revealed that since at least the late 1990s insurance companies

had paid Marsh hundreds of millions of dollars each year in so-called “contingent” or “incentive

commissions” that were paid above and beyond those normally understood to be paid to insurance

brokers. According to the Spitzer Complaint, the incentive commissions took the form of placement

service agreements (“PSAs”) that were based on the volume or profitability of the business that

Marsh directed to the insurance companies. The Spitzer Complaint divulged that, in return for the

payments, Marsh had agreed to “steer” unsuspecting clients to purchase policies from the insurance

companies that paid Marsh the largest incentive commissions.

148. The Spitzer Complaint exposed one senior Marsh executive who sent a message to his

colleagues stating, “[w]e need to place our business in 2004 with those [insurance companies] that

have superior financials, broad coverage and pay us the most.” The Spitzer Complaint also revealed

that another Marsh executive had instructed a subordinate that the size of incentive commissions

determines “who [we] are steering business to and who we are steering business from.”

149. According to the NYAG’s October 14 press release:

Marsh received special payments from insurance companies that were above and beyond normal sales commissions. These payments -- known as “contingent commissions” -- were characterized as compensation for “market services” but were, in fact, rewards for the business that Marsh and its independent brokers steered and allocated to the insurance companies. Industry representatives defend this long-standing practice as acceptable and even beneficial to clients, but the Attorney General’s office has uncovered extensive evidence showing that it distorts and corrupts the insurance marketplace and cheats insurance customers.

(Emphasis added.)

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150. On October 14, 2004, the NYAG attended a joint news conference with the New

York State Insurance Superintendent Gregory V. Serio (“Superintendent Serio”), and declared that

“if the practices identified in our suit are as widespread as they appear to be, then the industry’s

fundamental business model needs major corrective action and reform.” Superintendent Serio added

that “this has gone from an inquiry into failure to disclose compensation to an active investigation of

bid rigging and improper steering. This certainly proves the adage that where there is smoke, there

is fire.”

151. On October 14, 2004, CBS NewsWatch commented on the NYAG investigation in an

article entitled “Spitzer attacks insurance industry; NY Attorney General sues Marsh over

commissions.” The article quoted Adam Klauber, a research analyst at Cochran, Caronia & Co.,

who stated that:

the prevailing thought within the insurance community was that this investigation would result in minor disclosure changes or a slap on the wrist… The fact that there are criminal charges suggests that Spitzer thinks parts of this business are really wrong and need changing. 152. On October 14, 2004, when the NYAG announced its investigation into the wide-

spread corruption, the price of AXIS stock, which had traded as high as $32.95 during the Class

Period, dropped from an opening price of $25.85 per share to close at $24.20 per share, and it then

closed at $23.36 per share on October 15, 2004, on enormous trading volume, a two-day drop of

approximately 10%.

VIII. POST CLASS PERIOD DEVELOPMENTS

153. On October 21, 2004, AXIS U.S. Holdings received yet another subpoena from the

NYAG seeking information regarding “tying, or conditioning direct insurance on the placement of

reinsurance.” AXIS did not reveal its receipt of the October 21 subpoenas until November 3, 2004,

and at the end of a Company press release announcing “positive” 2004 third quarter results, several

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weeks after its receipt and after the NYAG and the New York State Insurance Department

announced their investigation into “widespread corruption” that plagued the insurance industry.

154. In the November 3, 2004 press release, AXIS also announced that as a result of the

NYAG investigation, “we have ceased entering into, and have suspended making payments under,

incentive commission agreements.” AXIS also announced that “[t]o confirm that our employees

have not engaged in any of these improper business practices, we are conducting an internal

investigation led by outside counsel to examine the subjects raised by the [NYAG]. We believe that

this is in the best interests of the Company, our shareholders and our employees.”

155. On November 4, 2004, during a conference call that the Individual Defendants had

with research analysts at major investment banks that covered AXIS, Charman disclosed for the first

time that AXIS paid Marsh “incentive commissions” pursuant to placement service agreements

(“PSAs”). Specifically, Charman admitted that:

As a matter of fact, I have overseen the negotiations of PSAs through AXIS since our inception… In 2003, we paid $39.1 million in PSAs globally, or 1.7 percent of 2003 gross written premiums. Of this, $18.1 million was paid to Marsh. 156. During the same call, defendant Cook, the Company’s CFO responsible for

establishing and maintaining disclosure controls and procedures and for certifying AXIS’ financial

results, acknowledged that AXIS had included PSAs “in our overall acquisition costs since our

inception.” Astonishingly, during the call Charman admitted that:

Finally, I would like to say that all of us at AXIS have been dismayed by the findings of the [NYAG] investigation, and do not condone this type of alleged behavior… Following the [NYAG] investigation, I believe this industry’s future well-being lies in eradicating all potential conflicts of interest, not merely disclosing them. In order to help achieve this, the market should work together to ensure that brokers over time solely receive their compensation from their clients. 157. On December 7, 2004, AXIS announced that its United States operating subsidiaries

had received additional subpoenas or requests for information from “various state insurance

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regulators regarding incentive commission agreements, fictitious and inflated quotes, tying and

related issues.” AXIS’ December 7 press release cautioned investors that the inquiries “are part of

industry-wide investigations in these jurisdictions and we understand that officials from other

jurisdictions in which we do business have also initiated investigations into similar matters.

Accordingly, we may in the future receive additional subpoenas and requests for information.”

158. In a press release dated January 31, 2005, the NYAG announced that it had reached

an $850 million settlement with Marsh to resolve allegations of fraud and anti-competitive practices.

In addition, the press release disclosed that Marsh had “agreed to adopt dramatic new reforms,

including an agreement to limit its insurance brokerage compensation to a single fee or commission

at the time of placement, a ban on contingent commissions, and a requirement that all forms of

compensation will be disclosed.” (Emphasis added.)

159. On January 31, 2005, Marsh issued a press release that confirmed the settlement and

the discontinued practice of receiving contingent commissions from insurance providers such as

AXIS, effective October 1, 2004. In a stunning admission, the Marsh press release attached a memo

summarizing certain factual findings of an internal investigation conducted by Marsh’s outside

counsel, Davis Polk & Wardwell. The factual findings of the internal investigation included, among

others, that the prospect of incentive commission revenue “was often a factor in discussions among

brokers concerning the desirability of doing business with particular insurance carriers, as well as a

significant topic of discussion between placement brokers and the insurances carriers themselves.”

160. The improper use of incentive commissions extended beyond Marsh. On March 4,

2005, the NYAG filed a complaint in New York Supreme Court, New York County against Aon, the

world’s second largest insurance broker and largest reinsurer. The complaint accused Aon of having

“entered into numerous agreements to obtain compensation from insurers in exchange for increasing

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the volume or profitability of insurance policies it places with these insurers … and having misled

clients about the nature and amount of this compensation, concealing the obvious conflicts of interest

it creates.”

161. According to a NYAG press releases issued on March 4, 2005, the complaint filed

against Aon alleged that:

For years Aon received special payments from insurance companies that were above and beyond normal sales commissions. These payments -- known as “contingent commissions” -- were characterized as compensation for “services to underwriters” but were, in fact, rewards for the business that Aon steered and allocated to the insurance companies. Industry representatives defend this long-standing practice as acceptable and even beneficial to clients, but Spitzer’s office and the Insurance Department have uncovered extensive evidence showing that the practice distorts and corrupts the insurance marketplace and cheats insurance customers.

(Emphasis added.)

162. On that same day, the NYAG and Acting New York State Insurance Superintendent

Howard Mills (“Superintendent Mills”), together with Connecticut Attorney General Richard

Blumenthal, Illinois Attorney General Lisa Madigan and Illinois Acting Director of Insurance

Deirdre Manna, attended a joint press conference and announced a settlement agreement with Aon to

resolve the allegations of fraud and anticompetitive practices. At the joint press conference,

Superintendent Mills said: “Aon will under the terms of this settlement bring greater transparency to

the insurance marketplace…”

163. Attorney General Blumenthal admonished that:

This hidden ‘pay to play’ scheme severely hit both public and private purses, including ordinary consumers, towns and cities, taxpayers and major educational institutions. AON demanded kickbacks from insurers in exchange for business, even as it was paid by customers. The scheme inflated prices and stifled competition. Today’s action compels AON to cease this illegal, unethical practice immediately and pay restitution.

(Emphasis added.)

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164. Attorney General Madigan commented that:

“Our investigation revealed that AON Corporation accepted secret payments from insurers for steering them business. Aon’s acceptance of these secret payments was a direct conflict of interest that harmed Aon’s clients. Aon’s acceptance of kickbacks was not only unethical, but illegal. This settlement will guard against future conflicts of interest and help to return integrity to this industry.”

(Emphasis added.)

165. The terms of the settlement required AON to pay $190 million in restitution to

policyholders and to adopt a new business model designed to avoid conflicts of interest. The

settlement agreement also appended an apology by Aon’s Chairman and CEO who acknowledged

that some Aon personnel had engaged in improper conduct that violated the principles embodied in

Aon’s Code of Conduct and Aon’s Values Statement. Specifically, the public apology, appended to

the Aon settlement agreement as Exhibit 1, stated:

As these investigations have revealed, Aon and other insurance brokers and consultants entered into contingent commission agreements and other arrangements that created conflicts of interest. I deeply regret that we took advantage of those conflicts. This conduct violated the longstanding principle embodied in our Code of Conduct and Aon’s Values Statement that our clients must always come first. Such conduct was improper and I apologize for it. 166. Similar to Marsh, as an element of the settlement agreement, Aon agreed to eliminate

the practice of receiving incentive commissions, effective October 1, 2004.

IX. NO SAFE HARBOR

167. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to the false statements alleged herein. Many of the statements pleaded

herein were not specifically identified as “forward-looking statements” when made, and many were

representations about the Company’s present status and thus were not “forward-looking.” To the

extent there were and forward-looking statements: (a) there were no meaningful cautionary

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statements identifying the important then-present factors that could cause actual results to differ

materially from those in the purportedly forward-looking statements; and (b) the particular speakers

of such forward-looking statements knew that the particular statements were false or misleading,

and/or the forward-looking statements were authorized and/or approved by an executive officer of

AXIS who knew that those statements were false when made.

168. Any purported warnings contained in the press releases and statements quoted herein

were generic and unparticularized boilerplate statements of risks, and thus lacked meaningful

cautionary language necessary to insulate and purportedly forward-looking statements.

X. CLAIMS FOR RELIEF

COUNT ONE

Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder Against the AXIS Defendants

169. Lead Plaintiffs and proposed class representative Durham repeat and reallege each

and every allegation above, as set forth fully herein. This Count is brought pursuant to Section 10(b)

of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R.

240.10b-5, on behalf of all Class members against the AXIS Defendants for material

misrepresentations and omissions.

170. Throughout the Class Period, the defendants named in this Count directly and

indirectly, by the use of means and instrumentalities of interstate commerce, the United States mails

and national securities exchange, employed devices, schemes and artifices to defraud, made untrue

statements of material fact and omitted to state material facts necessary in order to make the

statements made, in light of the circumstances under which they were made, not misleading, and

engaged in acts, practices and a course of business which operated as a fraud and deceit upon Lead

Plaintiffs, proposed class representative Durham and members of the Class.

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171. The Individual Defendants, as directors and/or the most senior officers of AXIS

during the Class Period, are liable as direct participants in all of the wrongs complained of herein.

Through their positions of control and authority, as well as their stock ownership, the Individual

Defendants were in a position to control all of the Company’s false and misleading statements and

omissions, including the contents of the 2003 10-K, the quarterly results on Forms 10-Q and press

releases, as set forth above. In addition, all of these statements constitute “group published

information,” which the defendants named in this Count were responsible for creating.

172. As detailed herein, throughout the Class Period, each of the Individual Defendants

named in this Count orchestrated the fraudulent scheme and had actual knowledge of the

misrepresentations and omissions of material facts set forth above at ¶¶ 82-143, or acted with

reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even though

such facts were available to them. Such material misrepresentations and/or omissions were made

knowingly or recklessly and for the purpose and effect of concealing the improper and

anticompetitive agreements that AXIS had entered into with Marsh and others to steer business to

AXIS and away from AXIS’ competitors.

173. Facts unveiled in investigations by the NYAG, Connecticut Attorney General Richard

Blumenthal and Illinois Attorney General Lisa Madigan into illicit incentive commissions paid under

“placement service agreements” (“PSAs”), give rise to a strong inference that the Defendants named

in this Count knowingly or recklessly concealed the true nature of the incentive commissions and

PSAs to avoid detection and prosecution. As detailed herein, according to the Attorneys General,

the incentive commissions and PSAs involved “illegal kickbacks” that were part of a “hidden pay-to-

play scheme” that “inflated prices and stifled competition.” Attorney General Madigan described

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succinctly that the PSAs amounted to “secret payments from insurers for steering them business”

and that acceptance of these secret payments “was not only unethical, but illegal.”

174. That AXIS condemned the practices admonished by the NYAG gives rise a strong

inference of the defendants’ scienter. In a letter to AXIS’ shareholder included in the 2004 Annual

Report, Charman admitted that:

We have been dismayed by the findings of this industry-wide investigation and do not in anyway condone this type of alleged behavior… I believe the well-being of the industry lies in eradicating all potential conflicts of interest, not merely disclosing them.

(Emphasis added.)

175. In a press release dated November 3, 2004, AXIS announced that “[a]s a result of this

[NYAG] investigation, we have ceased entering into, and have suspended making payments under,

incentive commission agreements.” That AXIS stopped making PSA payments just weeks after the

NYAG announced its investigation into the practice gives rise to a strong inference that the

defendants named in this Count knew of the impropriety of the PSAs and had deliberately chosen to

conceal their existence during the Class Period.

176. Recently, Marsh and Aon settled the actions brought by the NYAG. In connection

with the settlement, Marsh and Aon paid $850 million and $190 million, respectively, and both

companies agreed to terminate the practice of entering PSAs. The enormous payments and the

termination of PSAs gives rise to a strong interference that the defendants knew that the PSAs

amounted to an improper if not illegal practice and had deliberately chosen to conceal their existence

during the Class Period.

177. That NYAG subpoenaed AXIS on September 20, 2004, seeking information

regarding “fictitious and inflated quotes submitted by insurance companies to insurance brokers,”

and on October 21, 2004, seeking information regarding “tying, or conditioning direct insurance on

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the placement of reinsurance.” That AXIS did not disclose its receipt of the subpoenas until

November 3, 2004, more than a month after the September 20 subpoena and several weeks after the

October 14 announcement of the NYAG investigation, gives rise to a strong inference that the

defendants knew that the PSAs amounted to an illegal practice and had deliberately chosen to

conceal their existence during the Class Period.

178. The magnitude of the amount that AXIS paid Marsh and others under the PSAs, and

the fact that the defendants never disclosed their existence, gives rise to a strong inference of the

defendants’ scienter. According to Charman, AXIS paid brokers more than $39.1 million in

“incentive” commissions under the PSAs in 2003, representing more than 17% of AXIS’ total

acquisition costs in 2003.

179. That Marsh and its related entities, including Trident II, controlled AXIS by virtue of

its ownership of a substantial number of AXIS’ shares throughout the Class Period, as detailed above

at ¶¶ 75-76, gives rise to a strong inference that the defendants named in this Count had deliberately

concealed the existence of the PSAs in order to prevent detection of the fraud and avoid adverse

consequences upon Marsh, which if publicized would have jeopardized the relationship between

Marsh and AXIS.

180. Indeed, the fallout from disclosing the PSAs would have likely brought severe

consequences on AXIS relationship with Marsh and Aon. According to the Spitzer Complaint,

Marsh was “furious” when Munich-American Risk Partners, an AXIS competitor, revealed the

existence of contingent commissions to a client. Specifically, the Spitzer Complaint alleged that:

Munich disclosed the existence of its contingent commission agreement with Marsh to a significant client to explain the contingent commissions that were being passed on to the client. Marsh was furious, and chastised Munich. A senior vice-president at Munich, apologized to Marsh in an email: ‘We acknowledge this was inappropriate behavior….’ He told Marsh that Munich would: ‘do the necessary to eliminate all documentation, electronic or otherwise, that references or otherwise

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alludes to the [contingent commissions]. I apologize for the consternation that this has caused within the Marsh organization.’ 181. The extent to which AXIS was depended on Marsh and Aon for the majority of its

business in 2003, gives rise to a strong inference that the defendants deliberately concealed the true

nature of the PSAs in order to protect those business relationships and avoid material harm to AXIS’

gross premiums and net income. As AXIS disclosed in the Registration Statement, Marsh and Aon

wrote 33.7% and 19.3% of AXIS’ gross premiums in 2003, respectively, and the “loss of business

provided by any one of them could adversely affect us.”

182. The following facts also give rise to a strong inference of scienter:

a. Charman participated in a conference call on November 4, 2004, and admitted

that he had personally overseen negotiations for the PSAs “since [AXIS’] inception.” Cook admitted

that he included the PSA payments in acquisition costs “since [AXIS’] inception.” That both

Charman and Cook knew about the existence of the PSAs “since our inception” and the amounts

paid under the PSAs, but deliberately chose to conceal them, gives rise to a strong inference of their

scienter.

b. At all times relevant to this Complaint, the Individual Defendants were

members of AXIS senior management team. According to the 2003 Annual Report, as a members of

senior management, they were “deeply embedded in the day-to-day underwriting operations,” and

had “extensive customer relationships to take advantage of the current dislocation in the insurance

market, generate new business and establish [AXIS] as a leading writer of specialty lines and treaty

reinsurance.” The Company also boasted that its senior management team “ha[d] extensive customer

relationships with leading … brokers around the world, including Marsh and its subsidiary Guy

Carpenter…” Because Charman, Butt and Cook were “deeply embedded” in the underwriting

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operations and had extensive customer relationships with brokers, there is a strong inference that

they had knowledge of the PSAs and was involved in their concealment.

c. In addition, Charman and Cook signed the 2003 10-K and each of AXIS’

quarterly reports filed on Form 10-Q during the Class Period, and were responsible for establishing

and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a -15(e) and

15d-15(e). Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Charman and Cook certified

the 2003 10-K and quarterly reports filed with the SEC during the Class Period, and attested that

AXIS had “designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed … to ensure that material information relating to [AXIS], including its

consolidated subsidiaries, is made known to us by others within those entities … [and had] evaluated

the effectiveness of [AXIS’] disclosure controls and procedures . . . .” The fact that Charman and

Cook were primarily responsible for establishing disclosure controls and procedures gives rise to a

strong inference that they knew of the existence of the PSAs and were involved in the deliberate

concealment.

183. In bringing these claims, Lead Plaintiffs proposed Class Representative Durham and

the members of the Class are entitled to the presumption of reliance established by the fraud-on-the-

market doctrine. At all times relevant to this Complaint, the market for AXIS common stock was an

efficient market for the following reasons, among others:

(i) AXIS stock was traded on the NYSE, a highly efficient market.

(ii) As a regulated issuer, AXIS filed periodic public reports with the SEC;

(iii) AXIS common stock was followed by numerous securities analysts employed by

major brokerage firms, such as J.P. Morgan Securities Inc., Wachovia Capital

Markets, LLC and Fox-Pitt, Kelton Inc., that wrote reports that were distributed

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to the sales force and certain customers of their respective firms. Each of these

reports was publicly available and entered the public marketplace;

(iv) AXIS regularly issued press releases, which were carried by national and

international news wires. Each of these releases was publicly available and

entered into the public marketplace; and

(v) the market price of AXIS’ common stock reflected the effect of news

184. As a direct and proximate result of the wrongful conduct described herein, Lead

Plaintiffs, proposed class representative Durham and other members of the Class suffered damages

in connection with their purchases of AXIS common stock. Had Lead Plaintiffs, proposed class

representative Durham and the other members of the Class known of the material adverse

information not disclosed by the defendants, or been aware of the truth behind the defendants’

material misstatements, they would not have purchased AXIS stock at artificially inflated prices.

185. This claim was brought within two years of the discovery of this fraud and within five

years of making the misstatements alleged herein to be materially false and misleading.

186. By virtue of the foregoing, the defendants named in this Count violated Section 10(b)

of the Exchange Act and Rule 10b-5 promulgated thereunder and are liable to Lead Plaintiffs,

proposed class representative Durham and the members of the Class, each of whom has been

damaged as a result of the violations.

COUNT TWO

Violation of Section 10(b) of the Exchange Act and Rule 10b-5(c) Promulgated Thereunder Against Defendant MMC

187. Lead Plaintiffs repeat and reallege each and every allegation above, as set forth fully

herein. This Count is brought pursuant to Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b),

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and Rule 10b-5(c) promulgated thereunder, 17 C.F.R. 240.10b-5, on behalf of all Class members

against MMC.

188. Throughout the Class Period, MMC directly and indirectly, by the use of means and

instrumentalities of interstate commerce, the United States mails and national securities exchange,

engaged in acts, practices and a course of business which operated as a fraud and deceit upon Lead

Plaintiffs and members of the Class, by selling AXIS common stock while in possession of material

adverse information concerning the Company in violation of the federal securities laws.

189. MMC is liable as a direct participant in the wrongdoing alleged herein by virtue of

having sold material portions of AXIS stock while in possession of material, adverse non-public

information without disclosing such information. Through its position of control and authority, as

well as its stock ownership, MMC was in a position to know of and did know of AXIS’ false and

misleading statements and omissions, as set forth above.

190. MMC and its related entities sold 3,555,100 shares of AXIS common stock on the

Secondary Offering. Specifically, Trident II sold 3,324,048 shares; Marsh & McLennan Capital

Professionals Fund, L.P. sold 93,061 shares; Marsh & McLennan Employees’ Securities Company,

L.P. sold 93,575 shares; Putnam Investments Holdings, LLC sold 16,907 shares; Putnam

Investments Employees’ Securities Company I LLC sold 14,533 shares; and Putnam Investments

Employees’ Securities Company II LLC sold 12,976 shares.

191. At the time these sales were made, as set forth above, MMC was intimately familiar

with the non-public information in that it was a direct participant in the illegal incentive commission

program. Facts unveiled in investigations into PSAs by the NYAG, Connecticut Attorney General

Richard Blumenthal and Illinois Attorney General Lisa Madigan, give rise to a strong inference that

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Marsh knowingly or recklessly concealed the true nature of the PSAs to avoid detection and

prosecution.

192. Recently, Marsh settled the action brought by the NYAG. In connection with the

settlement, Marsh paid $850 million and agreed to terminate the practice of entering PSAs. The

astonishing payments and the cessation of their use of PSAs gives rise to a strong interference that

Marsh knew that the PSAs amounted to an illegal practice and that AXIS had deliberately chosen to

conceal their existence during the Class Period.

193. So aware of the sensitive nature of the materially false and misleading information

was Marsh that according to the Spitzer Complaint, Marsh was “furious” when Munich-American

Risk Partners, an AXIS competitor, revealed the existence of contingent commissions to a client.

Specifically, the Spitzer Complaint alleged that:

Munich disclosed the existence of its contingent commission agreement with Marsh to a significant client to explain the contingent commissions that were being passed on to the client. Marsh was furious, and chastised Munich. A senior vice-president at Munich, apologized to Marsh in an email: ‘We acknowledge this was inappropriate behavior….’ He told Marsh that Munich would: ‘do the necessary to eliminate all documentation, electronic or otherwise, that references or otherwise alludes to the [contingent commissions]. I apologize for the consternation that this has caused within the Marsh organization.’ 194. As a direct and proximate result of the wrongful conduct described herein, Lead

Plaintiffs, proposed class representative Durham and other members of the Class suffered damages

in connection with their purchases of AXIS common stock. Had the members of the Class known of

the material adverse information not disclosed by the AXIS Defendants, they would not have

purchased AXIS stock at artificially inflated prices.

195. In bringing these claims, Lead Plaintiffs, proposed class representative Durham and

the members of the Class are entitled to the presumption of reliance established by the fraud-on-the-

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market doctrine. At all times relevant to this Complaint, the market for AXIS common stock was an

efficient market for the reasons set forth above in Count One.

196. This claim was brought within two years of the discovery of this fraud.

197. By virtue of the foregoing, MMC violated Section 10(b) of the Exchange Act and

Rule 10b-5(c) promulgated thereunder and is liable to Lead Plaintiffs, proposed class representative

Durham and the members of the Class, each of whom has been damaged as a result of the violations.

COUNT THREE

Violation of Section 20(a) of the Exchange Act Against Defendants Charman, Cook and MMC

198. Lead Plaintiffs and proposed class representative Durham repeat and reallege each

and every allegation above as though set forth fully herein. This Count is brought pursuant to

Section 20(a) of the Exchange Act, 15 U.S.C. §78t(a), on behalf of all Class Members against

defendants Charman, Cook and MMC.

199. For all of the reasons set forth above in Count One, AXIS is liable to Lead Plaintiffs

and Class Members who purchased AXIS common stock based on the materially false and

misleading statements and omissions set forth above, pursuant to 10(b) of the Exchange Act, 15

U.S.C. §78j(b), and Rule 10b-5, 17 C.F.R. §240.10b-5, promulgated thereunder.

200. Throughout the Class Period, defendants Charman, Cook and MMC were controlling

persons of AXIS within the meaning of Section 20(a) of the Exchange Act, as more particularly set

forth below, and were culpable participants in AXIS’ fraud, as more particularly set forth in Counts

One and Two above.

201. In fact, AXIS stated in its 2003 Annual Shareholder Report that its senior

management team was “deeply embedded in the day-to-day underwriting operations.” The same

report identified Charman and Cook as members of the senior management team.

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202. The Registration Statement and Prospectus also stated that AXIS’ senior management

was instrumental in its overall business strategy and that it relied on senior management’s “extensive

customer relationships to take advantage of the current dislocation in the insurance market, generate

new business and establish ourselves as a leading writer of specialty lines and treaty reinsurance.” It

also attributed the senior management’s “extensive depth and knowledge” as allowing AXIS to

“successfully select and price complex risks.”

203. In addition, the following facts demonstrate the control that Charman, Cook and

MMC had over AXIS’ day-to-day operations.

Charman

204. Throughout the Class Period, Charman was President, CEO and a director of AXIS.

Charman also served as CEO and President of AXIS Specialty Limited and was a director of AXIS

Ireland Holdings, AXIS Re, AXIS Specialty Europe and AXIS Specialty (Barbados) Limited.

Charman also was a member of the Company’s Executive Committee throughout the Class Period,

and in this capacity was responsible for exercising the authority of the board of directors when the

entire board was not available to meet.

205. The Registration Statement reported that AXIS’ competitive strengths and success

were dependent on “Experienced Management and Underwriting Team with Proven Track Record.”

The Company also stated, “Our management team is led by our Chief Executive Officer and

President, John R. Charman, who has over 30 years of industry experience.” As a member of the

senior management team, Charman also supervised the investment of AXIS’ funds “by several

professional investment advisory management firms.” The Company also stated that its success was

dependent on “the ability to retain the services of our existing key executives” and the loss of their

services “could adversely affect our ability to conduct our business.”

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206. Charman’s control also is evident by his position on AXIS’ Board of Directors during

the Class Period. According to the Company’s website, as a member of the Board, Charman

managed the business of the Company. The Board had the power to: appoint the managing director

or chief executive officer, the manager and attorneys; authorize specific actions; delegate to a

committee; dismiss or appoint employees; borrow and change property; and purchase or change

shares of or discontinue the Company.

207. Charman was also a control person within the meaning of this Count by virtue of his

significant shareholdings in the Company. According to the Registration Statement, Charman held

5,730, 994 shares of which he directly held 482,064 shares and indirectly held 1,804,908 common

shares owned by Dragon Holdings Trust (“Dragon Trust”); 597,704 common shares owned by JR

Charman Children’s Settlement (“Children’s Settlement”); and 1,416,742 common shares issuable

upon exercise of vested option. During the Class Period, Charman also was the highest paid officer

of AXIS with a base salary of $1,000,000, a bonus of $2,500,000 and an allowance of $130,978,

including a housing allowance of $86,000 during 2003. In 2004 Charman was paid a base salary of

$1,250,000, a bonus of $3,000,000 and allowance $245,419 including a housing allowance of

$185,782.

208. During the Class Period, Charman signed the Registration Statement and each of the

Company’s 2003 annual report and quarterly reports filed with the SEC. In connection with the

2003 annual report and quarterly reports, Charman also submitted certifications pursuant to Section

302 of the Sarbanes-Oxley Act of 2002, attesting that he was responsible for establishing and

maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and

15d-15(e)) for AXIS and had disclosure such controls and procedures, or caused such disclosure

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controls and procedures to be designed to ensure that material information relating to AXIS,

including AXIS’ consolidated subsidiaries, was made known to the investing public.

209. In addition, Charman was one of the AXIS’ primary spokespersons who, throughout

the Class Period, highlighted the Company’s claimed achievements in press releases and

teleconferences held in conjunction with announcements of the Company’s annual and quarterly

financial results.

210. Charman’s employment agreement also demonstrates that he was a control person of

AXIS. His employment agreement contained both non-competition and non-solicitation provisions

that precluded Charman from engaging in competitive activities for one year after termination of his

employment. The agreement also contained confidentiality and non-disparagement provisions.

Furthermore, under the agreement, if certain circumstances including change of control should

occur, Charman would be entitled to a generous severance package including “(1) three times the

amount of the separation bonus, instead of two, (2) immediate vesting of his previously unvested

stock options and restricted shares as if his employment continued until the third anniversary of the

date of his termination, with the stock options to remain exercisable for no longer than one year, and

(3) continued coverage for two years under all benefit programs.”

Cook

211. Throughout the Class Period, Cook was the CFO and Executive Vice President of

AXIS, positions that he held since AXIS’ inception in November, 2001. The Registration Statement

and 2003 10-K identified Cook as a director of AXIS Specialty Limited, AXIS U.S. Holdings, AXIS

Specialty U.S. Services, Inc., AXIS Insurance, AXIS Reinsurance, AXIS Surplus, AXIS Ireland

Holdings, AXIS Re, AXIS Specialty Europe, AXIS UK Holdings, AXIS UK and AXIS Barbados

and Chief Financial Officer and Executive Vice President of AXIS Specialty Limited. According to

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the Registration Statement, Cook also was AXIS Specialty’s principal representative in Bermuda, as

required under Bermuda law.

212. As the CFO, Cook was responsible for the accounting policies of the Company, as

well as the preparation and accuracy of the Company’s financial statements. According to AXIS’

Proxy Statement, Cook also was obligated to confer with the Company’s audit committee

concerning: “(i) all significant deficiencies and material weaknesses in the design or operation of

internal control over financial reporting which are reasonably likely to adversely affect the

Company’s ability to record, process, summarize and report financial information and (iii) any fraud,

whether or not material, involving management or other employees who have a significant role in

the Company’s internal control over financial reporting.”

213. During the Class Period, Cook signed the Registration Statement and each of the

Company’s annual and quarterly reports filed with the SEC. In connection with the 2003 annual

report and quarterly reports, Cook also submitted certifications pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002, attesting that he was responsible for establishing and maintaining

disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d-15(e)) for

AXIS and had disclosure such controls and procedures, or caused such disclosure controls and

procedures to be designed to ensure that material information relating to AXIS, including AXIS’

consolidated subsidiaries, was made known to the investing public.

214. In addition, Cook was one of the AXIS’ primary spokesperson who, throughout the

class period, highlighted the Company’s claimed achievements in teleconferences held in

conjunction with announcements of the Company’s annual and quarterly financial results. Cook also

was bound by the Company’s Code of Business Conduct.

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215. Cook also controlled AXIS by virtue of his significant shareholdings in the Company.

According to the Registration Statement, Cook had 276,667 shares of stock including 210,000

common shares and 66,667 common shares issuable upon exercise of vested options. Cook was also

one of the highest paid officers of AXS and received a base salary of $375,000 and a bonus of

$843,750 in 2003.

216. Cook’s employment agreement also demonstrated that Cook was a control person of

AXIS. The employment agreement contained both non-competition and non-solicitation provisions

that precluded Cook from engaging in competitive activities for six months after termination of his

employment and ongoing confidentiality requirements.

MMC

217. Throughout the Class Period, MMC was a control person within the meaning of

Section 20(a) of the Exchange Act by virtue of its ownership of a substantial amount of AXIS

common stock. According to the IPO, Trident II, a subsidiary of MMC, beneficially owned

37,792,080 shares of AXIS stock, or approximately 24.2% of the outstanding shares prior to the IPO.

This included 18,936,664 common shares and 16,846,336 common shares issuable upon the exercise

of warrants held by Trident II, and 1,063,336 common shares and 945,744 common shares issuable

upon exercise of warrants held by various Marsh related entities. Following the IPO, Trident II and

various Marsh related entities beneficially owned 36,499,519 shares of AXIS stock, or

approximately 21.5% of the Company’s then outstanding shares.

218. MMC and its related entities also controlled AXIS based upon their shared

investment power with respect to all common shares of AXIS that were, or may have been deemed

to have been, beneficially owned by each of the subsidiaries.

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219. In addition, Marsh influenced AXIS’ business operations throughout the Class Period

by virtue of the fact that many of AXIS’ officers and directors were current or former officers and

directors of Marsh, MCC and/or MCC Capital, as detailed above in ¶ 77.

220. None of the defendants named in this Count made a reasonable investigation or

possessed reasonable grounds for the belief that the statements contained in the Registration

Statement and Prospectus were accurate and complete in all material respects. Had they exercised

reasonable care, they could have known of the material misstatements and omissions alleged herein.

221. This claim was brought within two years after the discovery of this fraud and within

five years of the making of false and misleading statements alleged above.

222. By virtue of the foregoing, Charman, Cook and MMC are liable pursuant to Section

20(a) of the Exchange Act to Lead Plaintiffs and Class members, each of whom has been damaged

as a result of AXIS’ underlying violations.

COUNT FOUR

Violation of Section 20A of the Exchange Act Against Defendant MMC

223. Plaintiffs incorporate by reference and re-allege each of the foregoing paragraphs as if

fully set forth herein. This Count is brought pursuant to Section 20A of the Exchange Act, 15

U.S.C. §78t-1, on behalf of proposed class representative Durham and other members of the Class

who purchased AXIS common stock contemporaneous with the sale of AXIS stock by MMC.

224. MMC and its related entities sold 3,555,100 shares of AXIS common stock on the

Secondary Offering at $27.91 per share contemporaneous with purchases of AXIS common stock by

Durham. Specifically, Trident II, L.P. sold 3,324,048 shares; Marsh & McLennan Capital

Professionals Fund, L.P. sold 93,061 shares; Marsh & McLennan Employees’ Securities Company,

L.P. sold 93,575 shares; Putnam Investments Holdings, LLC sold 16,907 shares; Putnam

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Investments Employees’ Securities Company I LLC sold 14,533 shares; and Putnam Investments

Employees’ Securities Company II LLC sold 12,976 shares.

225. According to AXIS’ Registration Statement, the sole general partner of Trident II,

L.P. is Trident Capital II, L.P. The manager of Trident II, L.P. is MMC Capital, Inc., a wholly

owned subsidiary of Marsh & McLennan Risk Capital Holdings, Ltd. Marsh & McLennan Risk

Capital Holdings, Ltd. is a wholly owned, indirect subsidiary of MMC. The general partners of

Trident Capital II, L.P. are Marsh & McLennan GP I, Inc., a wholly owned subsidiary of Marsh &

McLennan Risk Capital Holdings, Ltd., and two single member limited liability companies that are

owned by individuals who are senior executive officers of MMC. Putnam Investments Holdings,

LLC is a subsidiary of MMC and is the managing member of Putnam Investments Employees’

Securities Co. I LLC and Putnam Investments Employees’ Securities Co. II LLC. The Registration

Statement also stated that, as the ultimate parent corporation of its various subsidiaries, MMC shares

voting and investment power with respect to all of AXIS’ common shares that are, or may be

deemed to be, beneficially owned by each of MMC’s subsidiaries. MMC disclaimed any beneficial

ownership of common shares and warrants to purchase common shares that were, or may be deemed

to be to have been, beneficially owned by Trident II, L.P. and Trident Capital II, L.P., except to the

extent of its pecuniary interest therein.

226. By virtue of its control of AXIS common stock and its direct participation in the illicit

scheme to manipulate the insurance market through improper and illegal anticompetitive

agreements, under which AXIS paid Marsh to steer business to AXIS and away from AXIS’

competitors, MMC was in possession of material, non-public information about AXIS at the time of

its collective sales of more than 3.5 million shares of AXIS stock to proposed Class Representative

Durham and members of the Class at artificially inflated prices.

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227. By virtue of its participation in the scheme to defraud investors described herein, its

control over AXIS and/or its sale of stock while in possession of material non-public information

about the adverse information detailed herein, MMC violated the Exchange Act and applicable rules

and regulations thereunder.

228. Durham and all other members of the Class who purchased shares of AXIS stock

contemporaneously with the sale of AXIS stock by MMC: (1) have suffered substantial damages in

that they paid artificially inflated prices for AXIS stock as a result of the violations of §§ 10(b) and

20(a) of the Exchange Act and Rule 10b-5 herein described; and (2) would not have purchased AXIS

stock at the prices they paid, or at all, if they had been aware that the market prices had been

artificially inflated by the AXIS Defendants’ false and misleading statements.

COUNT FIVE

Violations of Section 11 of the Securities Act against AXIS, the Individual Defendants and the Underwriter Defendants

229. This Count is brought by proposed class representative Durham pursuant to Section

11 of the Securities Act, 15 U.S.C. § 77k on behalf of all Class members who purchased AXIS

common stock pursuant to the Registration Statement filed with the SEC on March 26, 2004, as

amended on April 6, 2004, in the Secondary Offering. This claim is not based on and does not

sound in fraud.

230. This Count is asserted against AXIS, the Individual Defendants who signed the

Registration Statement, and the Underwriter Defendants who, pursuant to their underwriting

agreements, were the co-lead underwriters and sellers of the common stock sold in the Secondary

Offering within the meaning of the Securities Act.

231. AXIS was the issuer of the Registration Statement, which was materially false and

misleading and contained untrue statements of material fact and omitted to state material facts

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necessary to make the statement made therein, under the circumstances in which they were made,

not misleading, as set forth above in ¶¶ 82-143.

232. None of the defendants named in this Count made a reasonable investigation or

possessed reasonable grounds for the belief that the statements contained in the Registration

Statement were accurate and complete in all material respects. Had they exercised reasonable care,

the defendants named in this Count could have known of the material misstatements and omissions

alleged herein.

233. At the time Durham purchased shares in the Secondary Offering, neither Durham nor

any member of the Class knew, or by the reasonable exercise of care could have known of the

material misstatements and omissions alleged herein.

234. In connection with the Secondary Offering and sale of stock, the defendants, directly

or indirectly, used the means and instrumentalities of interstate commerce, the United States mails

and a national securities exchange.

235. This claim was brought within one year after discovery of the untrue statements and

omissions in the Registration Statement and within three years after the AXIS common stock was

sold to Class members in connection with the Secondary Offering. Durham acquired AXIS stock in

the Secondary Offering before AXIS made generally available to its security holders an earning

statement covering a period of at least twelve months beginning after the effective date of the

registration statement.

236. By reason of the misconduct alleged herein, the defendants named in this Count

violated Section 11 if the Securities Act and are liable to Durham and the Class members who

purchased or acquired AXIS common stock in the Secondary Offering pursuant to the Registration

Statement, each of whom has been damaged as a result of such violations.

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COUNT SIX

Violations of Section 12(a)(2) of the Securities Act Against Defendant MMC and the Underwriter Defendants

237. This Count is brought by proposed class representative Durham pursuant to Section

12(a)(2) of the Securities Act, 15 U.S.C. § 77(a)(2), on behalf of all Class members who purchased

AXIS common stock in the Secondary Offering pursuant to the Prospectus. This claim is not based

in and does not sound in fraud.

238. This claim is asserted against the Underwriter Defendants and MMC, each of whom

offered and sold shares of AXIS common stock to Class members by the use of communication in

interstate commerce and the United States mails, by means of the Prospectus.

239. Specifically, pursuant to the Underwriting Agreement, the underwriters purchased a

total of 20 million shares of AXIS common stock at the public offering price, less an underwriting

discount. Of the 20 million shares, Morgan Stanley sold at least 6,534,000 shares and Citigroup sold

at least 3,960,000 shares. In addition, as co-lead underwriters, these defendants also controlled the

distribution of the remaining securities by the other members of the underwriting syndicate.

240. The Underwriter Defendants participated in the preparation and dissemination of the

false and misleading Prospectus for their own financial benefit. But for their participation in the

Secondary Offering, including their solicitation as set forth herein, the Secondary Offering could not

and would not have been accomplished. Specifically, these defendants:

i. Made the decision to conduct the Secondary Offering and do it at the price

set forth in the offering documents. These defendants drafted, revised and/or

approved the Prospectus. The Prospectus was calculated to create interest in

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AXIS common stock and were widely distributed by or on behalf of these

defendants for that purpose;

ii. Finalized the Prospectus and caused it to become effective; and

iii. Conceived and planned the Secondary Offering and orchestrated all activities

necessary to affect the sale of these securities to the investing public, by

issuing securities, promoting the securities and supervising their distribution

and ultimate sale to the investing public.

241. As set forth more specifically above at ¶¶ 116-126, the Prospectus contained untrue

statements of material fact and omitted to state material facts necessary in order to make the

statements, in light of circumstances in which they were made, not misleading.

242. In connection with the Secondary Offering, Trident II, a subsidiary of MMC, sold

1,223,769 shares; Marsh & McLennan Capital Professionals Fund, L.P. sold 34,299 shares; and

Marsh & McLennan Employees’ Securities Company, L.P. sold 34,493 shares. Therefore, MMC

also is liable under Section 12(a)(2).

243. Durham and the Class members did not know, nor could they have known, of the

untruths or omissions contained in the Prospectus.

244. The defendants named in this Count were obligated to make a reasonable and diligent

investigation of the statements contained in the Prospectus to ensure that such statements were true

and that there was no omission of material fact required to be stated in order to make the statements

contained therein not misleading. None of the defendants named in this Count made a reasonable

investigation or possessed reasonable grounds for the belief that the statements contained in the

Prospectus were accurate and complete in all material respects. Had they done so, these defendants

could have known of the material misstatements and omissions alleged herein.

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245. This claim was brought within one year after discovery of the untrue statements and

omissions in the Prospectus and within three years after AXIS common stock was sold to the Class

in connection with the Secondary Offering.

246. By reason of the misconduct alleged herein, the defendants named in this Count

violated Section 12(a)(2) of the Securities Act and are liable to Durham and Class members who

purchased or acquired AXIS common stock in the Secondary Offering pursuant to the Prospectus,

each of whom has been damaged as a result of such violation.

COUNT SEVEN

Violation of Section 15 of the Securities Act Against Defendants Charman, Cook and MMC

247. This Count is brought by proposed class representative Durham pursuant to Section

15 of the Securities Act, 15 U.S.C. § 77o, on behalf of Class members who purchased AXIS

common stock in the Secondary Offering pursuant to the Registration Statement and Prospectus.

This claim is not based on and does not sound in fraud.

248. Throughout the Class Period, defendants Charman, Cook and MMC each of whom

was a control person of AXIS within the meaning of Section 15 of the Securities Act, as more

particularly set forth in Count Three above, by virtue of, among other things, their positions as senior

officers, directors and/or principal shareholders of AXIS.

249. For all the reasons set forth above in Count Five, AXIS is liable to Durham and the

members of the Class who purchased AXIS common stock on the Secondary Offering based on the

materially false and misleading statements and omissions contained in the Registration Statement

and were damaged thereby.

250. None of the defendants named in this Count made a reasonable investigation or

possessed reasonable grounds for the belief that the statements contained in the Registration

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Statement and Prospectus were accurate and complete in all material respects. Had they exercised

reasonable care, they could have known of the material misstatements and omissions alleged herein.

251. This claim was brought within one year after discovery of the untrue statements and

omissions in the Registration Statement and Prospectus and within three years after AXIS common

stock was sold to the Class in connection with the Secondary Offering.

XI. PRAYER FOR RELIEF

WHEREFORE, Lead Plaintiffs and proposed class representative Durham, on their own

behalf and on behalf of the Class, pray for judgment as follows:

A. Declaring the action to be a proper class action and certifying Lead Plaintiffs as class

representatives under Rule 23 of the Federal Rule of Civil Procedure;

B. Awarding compensatory damages in favor of Lead Plaintiffs and the other Class

members against all defendants, jointly and severally, for the damages sustained as a result of the

wrongdoings of defendants, together with interest thereon;

C. Awarding Lead Plaintiffs fees and expenses incurred in this action, including

reasonable allowance of fees for Lead Plaintiffs’ attorneys, and experts;

D. Granting extraordinary equitable and/or injunctive relief as permitted by law, equity

and federal statutory provisions sued on hereunder; and

E. Granting such other further relief as the Court may deem just and proper.

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XII. JURY TRIAL DEMANDED

Lead Plaintiffs demand a jury of trial of all issues so triable.

DATED: May 13, 2005 LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP SAMUEL H. RUDMAN (SR-7957) DAVID A. ROSENFELD (DR-7564)

/S/ SAMUEL H. RUDMAN

200 Broadhollow Road, Suite 406 Melville, NY 11747 Telephone: 631/367-7100 631/367-1173 (fax)

Attorneys for Plaintiff