AXIS Capital Holdings Limited (AXS) reported a first-quarter operating loss of $3.65 per share, wider than the Zacks Consensus Estimate of a loss of $3.36. Results compared unfavorably with 67 cents earned in the prior-year period. Operating loss was $414 million in the quarter, compared to a profit of $96 million in first quarter 2010.
The quarter suffered hugely due to the Australian Flooding in January, the New Zealand Earthquake in February and the Tohoku Earthquake in March.
Catastrophe losses, net of reinstatement premiums, totaled $87 million from the Australian Floods, $203 million from the New Zealand Earthquake and $287 million from the Japanese earthquake.
Including net realized investment gains of $30 million or 26 cents per share, the company reported a net loss of $384 million or $3.39 per share compared with net income of $112 million or 79 cents in the prior-year quarter. The year-ago quarter included net realized investment gains of $16 million or 12 cents per share.
Operational Performance
Net premiums earned were $788 million, up 13% from $696 million in the prior-year quarter.
Net investment income increased 6% year over year to $111 million, largely due to higher returns from our alternative investments.
Total revenue increased 14% year over year to gross $929.8 million in the quarter. Total reported revenue beat the Zacks Consensus Estimate of $887 million. The improvement was largely due to higher premiums earned as well as higher net investment income.
Total expenses in the quarter were $1.3 billion, increasing substantially from $685 million in the year ago quarter, due largely to a whopping increase in net losses and loss expenses.
The combined ratio deteriorated to 161.3% in the quarter from 98.3% in the year ago quarter. Excluding the catastrophe events, combined ratio deteriorated to 88.1% from 77% in the year ago quarter.
Segment Update
Insurance Segment: Gross premium written increased 14% year over year to $425 million driven by new Global Accident & Health operations. Net premiums written in the quarter increased 40% year over year while net premiums earned increased 28%. The increase stemmed from changes in ceded reinsurance purchasing and the increase in gross premiums written.
First quarter underwriting loss of $48 million, compared to an income of $33 million in the year ago period. Combined ratio deteriorated to 114.9% form 87.2% in the year ago quarter.
Reinsurance Segment: Gross premiums written in the first quarter was $1.12 billion, improving 7% from the year-ago period driven by strength at motor reinsurance lines.
Net premiums written in the quarter increased 7% year over year while net premiums earned increased 5%.
Underwriting loss in the quarter totaled $413 million, wider than the loss of $5 million in the year ago period. Combined ratio deteriorated to 189.7% in the quarter from 101.1% in the year-ago quarter.
Financial Position
Cash and cash equivalents of AXIS Capital at the end of the quarter improved 4% to $963.3 million from $788.6 billion at the end of 2010.
Total capitalization as of March 31, 2011, was $6.2 billion, including $1.0 billion of long-term debt and $0.5 billion of preferred equity.
Book value per share was $41.17 as of March 31, 2011, up 20% from $45.60 as of December 31, 2010.
Return on equity was a negative 33.7% in the quarter compared with a positive return of 7.7 % in the year ago quarter.
Share Repurchase and Dividend
AXIS Capital had not bought back any shares during the quarter. On April 28, 2011, the company had approximately $593 million of remaining authorization for common share repurchases through December 31, 2012.
The board declared a dividend of 23 cents in the quarter, a 9.5% year-over-year increase.
Our Take
We believe conservative underwriting practices, solid capital position and positive ratings from ratings agencies as well as share buyback programs and dividend hikes strongly position AXIS Capital going forward. Also, the company’s substantial investment in the underwriting platform will help widen its scale of operations.
However, the company remains heavily exposed to losses resulting from natural disasters, man-made catastrophes and other catastrophic events.
The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
Headquartered in Pembroke, Bermuda, AXIS Capital is a global provider of specialty lines of insurance and treaty reinsurance. It competes with ACE Limited (ACE).
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