We retain our Neutral recommendation on
AXIS Capital Holdings Ltd
) based on its high exposure to catastrophic losses and
increasing expense trend. However, sustained efforts to improved
premiums, increasing investment income and continued focus on
enhancing shareholders' value overshadow the negatives. The
property and casualty insurer presently carries a Zacks Rank #3
Why the Retention?
AXIS Capital is highly exposed to losses resulting from natural
disasters, man-made catastrophes and other catastrophic events.
The severe and frequent occurrence of such events caused a poor
trend of underwriting income for the company in the recent
AXIS Capital has been witnessing rising expenses over the last
few years primarily due to higher net losses and loss expenses,
general and administrative expenses and also higher acquisition
costs. This rising expense level is hurting the operating margins
of the company.
Additionally, we believe increasing competition in insurance
industry and recent alternative products issued by capital market
participants to replace reinsurance products can result in slow
growth and lower profitability for AXIS Capital.
Nonetheless, AXIS Capital is experiencing solid top-line growth
riding on the back of improved written premiums results across
both insurance and reinsurance segment.
The company is also engaged in enhancing its shareholders' value
through share repurchase and dividend payments. With respect to
dividend increase, the approval of 8% dividend hike in Dec 2013
marked the 10th consecutive year of dividend increase by the
The dividend of 27 cents per share currently yields 2.34%,
which is better than other industry majors like
Allied World Assurance Company Holdings, AG
) with a dividend yield of 1.82%, and
State Auto Financial Corp.
) with a dividend yield of 1.81%.
ALLIED WORLD AS (AWH): Free Stock Analysis
AXIS CAP HLDGS (AXS): Free Stock Analysis
MAIDEN HOLDINGS (MHLD): Free Stock Analysis
STATE AUTO FINL (STFC): Free Stock Analysis
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AXIS Capital also continues to benefit from rate increases on the
back of improved pricing scenario in the insurance market.
The company also scores well with rating agencies owing to its
strong risk-adjusted capitalization, continued better operational
results, robust enterprise risk management, and continued focus
on delivering solid underwriting profitability, along with a
balanced risk profile.
We expect new business and product generation, and platform
expansion to aid AXIS Capital's performance going forward.
Investors interested in the industry may consider better-ranked
Maiden Holdings, Ltd.
) with a Zacks Rank #1 (Strong Buy).