Risk-Reward Balanced at AXIS Capital - Analyst Blog

On Jun 13, 2014, we issued an updated research report on AXIS Capital Holding Limited AXS.

AXIS Capital's first-quarter earnings lagged the Zacks Consensus Estimate and deteriorated year over year. This Zacks Rank #4 (Sell) property and casualty insurer fell short of expectations in three of the last four quarters.

Escalating expenses have been restricting margin expansion at AXIS Capital. As expenses rose largely due to higher net losses and loss expenses, general and administrative expenses, higher acquisition costs as well as increase in interest expense and financing costs, operating margin contracted 620 basis points. If the magnitude of increase in revenues fails to exceed the magnitude of increase in expenses, operation margin expansion will be affected going forward.

The insurer also suffered due to the prevailing weak interest rate that weighed on investment results. Net investment income decreased due to weak results at hedge funds.

With respect to estimate revisions, the Zacks Consensus Estimate for 2014 and 2015 decreased as most of the estimates were lowered over the last 60 days. With 8 of 10 estimates moving south, the Zacks Consensus Estimate for 2014 was dragged down 4.3% to $4.41. The same for 2015 now stands at $4.66, down 3.5% as 7 of 10 estimates moved south.  

Nonetheless, new business opportunities across AXIS Capital's lines of business and geography have helped it to achieve growth in premium writings. The top line has been growing on the strength of higher premiums. The commencement of Lloyds franchise for the new AXIS syndicate 1686 marked another milestone in the expansion of its global underwriting platform.

Through continued dividend hikes and share repurchases, AXIS Capital remains committed to enhance its shareholders' value. The approval of 8% dividend hike last December marked the 10th consecutive year of payout increase with a yield better than the sector's. With respect to buybacks, the company repurchased $216 million till April and was left with $550 million remaining under its authorization.

Other Stocks to Consider

Some better-ranked property and casualty insurers worth reckoning are W.R. Berkley Corporation WRB, AmTrust Financial Services, Inc. AFSI and Aspen Insurance Holdings Ltd. AHL. All these stocks sport a Zacks Rank #1 (Strong Buy).

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