UPDATE: Bank of America Downgrades Axis Capital on Valuation, Challenging Environment

In a report published Tuesday, Bank of America analyst Jay A. Cohen downgraded Axis Capital AXS from Buy to Neutral, but reiterated the $48.00 price target.

In the report, Bank of America noted, “We are lowering our rating on Axis to Neutral from Buy due to valuation and a more challenging environment in its reinsurance operation. Axis shares are up almost 36% year to date and are within 2% of our price objective. The stock is now trading at 12% above the estimated 2Q book value, a valuation that seems fair given an expected ROE of 9.5%-10% for next year (after taking into account estimated unrealized losses in the 2Q). Although we expect a growing earnings contribution from the company's A&H unit, pricing pressure in catastrophe reinsurance should present a headwind for the earnings. Reinsurance accounts for just over 50% of Axis's net written premiums and catastrophe reinsurance makes up 20% of the reinsurance book. Although this contribution is quite manageable, the expected margins in the cat book are above the rest of the reinsurance business suggesting that pricing pressure in this could have an outsized impact on operating earnings.”

Axis Capital closed on Monday at $47.04.