We believe conservative underwriting practices will help AXIS Capital Holdings Ltd. (AXS) remain well capitalized. A strong capital management via share repurchases should help grow earnings. Also, the company enjoys a strong rating from the rating agencies. As such we are upgrading the company to Neutral from Underperform.
AXIS continues to remain strongly capitalized. The company’s financial flexibility remains very strong, with a debt to total capital ratio of 16%. Also, AXIS Capital continues to boost its shareholder value, through share buybacks and dividend hikes. In December, the company approved a 9.5% increase in its quarterly dividend.
AXIS Capital has always focused on strategic acquisitions that have helped improve its top line. New business opportunities across several of its lines of business and geography have helped the company to achieve growth in premium writings.
On the flip side, AXIS Capital has substantial exposure to losses resulting from natural disasters, man-made catastrophes and other catastrophic events. The company suffered huge catastrophe losses in the first quarter.
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. The combined ratio deteriorated substantially to 161.3% in the first quarter from 98.3% in the year-ago quarter.
AXIS Capital’s top line continues to deliver sluggish growth. Although the reinsurance market remains disciplined and prices are gaining momentum, the insurance market remains competitive. Most of the business lines in insurance, especially casualty, continue to see price declines, albeit at a slower rate.
The Zacks Consensus Estimates for second-quarter 2011 is 98 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, loss of 32 cents and earnings of $4.09 per share.
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).
