We retain our neutral recommendation on
AXIS Capital Holdings Ltd.
), following the second quarter earnings results. Its earnings
missed the Zacks Consensus Estimate but fared well year over year.
Higher premiums as well as lower expenses fueled the performance.
The company also benefited from lower catastrophe activities with
the bottom line being buoyed by share buybacks.
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New business generation and platform expansion continuously helped
the company to fuel its top-line growth. A sturdy capital position,
strong scores with the credit rating agencies and continued focus
on enhancing shareholders value are among the other positives.
However, a low interest rate environment keeps us on the sidelines.
New business opportunities across several AXIS Capital's lines of
business and geography have helped the company achieve growth in
premium writings. The Insurance sector in particular, continues to
drive solid numbers.
AXIS remains strongly capitalized. Its financial flexibility is
robust, with a debt-to-total capital ratio of 14.9%, a debt and
preferred to total capital ratio of 22.4%. The company also lowered
the cost of its preferred capital by redeeming preferred share with
higher coupon and issuing preferred shares at lower coupon.
AXIS Capital continues to boost its shareholder value. It spent $90
million to buyback 2.7 million shares in the second quarter and is
left with $415 million under its authorization. With a strong
capital position and liquidity we expect the company to enhance
shareholders' value going forward.
On the back of a solid operating performance, superior risk based
capitalization, effective risk management and a strong management
team, A.M. Best reiterated the financial strength rating of A
(Excellent) and issuer credit rating of 'a+' of AXIS Specialty
Limited. We believe the company's strong ratings scores will help
retain investor confidence and lead to business growth, going
On the flip side, AXIS Capital continues to report lower net
investment income. It declined 26% in the second quarter of 2012,
attributable to lower returns from other investments and fixed
maturities. The company expects net investment income to remain
constrained as it expects fixed maturity book yield of 2.8% to meet
the current market yield of 1.9%.
Additionally, it has a substantial exposure to losses resulting
from natural disasters, man-made catastrophes and other
catastrophic events. Though the entire industry benefited from
lower cat loss, yet exposure to cat activities will always remain a
concern as occurrence of natural disasters can affect the results
AXIS Capital currently holds a Zacks #3 Rank (short term Hold
rating) for the company, indicating no clear directional pressure
on the stock over the near term.
), which closely competes with the company, also shares a Zacks #3