We are upgrading
AXIS Capital Holdings Ltd.
) to Outperform from Neutral on the back of its
better-than-expected third quarter performance, with both the top
and bottom line surpassing the Zacks Consensus Estimates and
year-ago numbers. The quarter experienced a low level of
catastrophe and large loss activity as well as favorable impact
of strong equity markets on investment returns with the bottom
line being buoyed by share buybacks.
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After a long hiatus, AXIS Capital enjoyed higher investment
income in the third quarter. Net investment income more than
doubled year over year to $103.6 million, largely driven by
New business opportunities across several of 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. The company noted improved
pricing scenario in insurance market place extending across
classes and geographies and also expects the momentum to
AXIS Capital also spent $179 million to buyback 5.2 million
shares that buoyed the bottom line. It is left with $236 million
under its authorization.
Rating affirmations or upgrades from credit rating agencies play
an important part in retaining investor confidence in the stock
as well as maintaining creditworthiness in the market. A.M.
Best Co. reiterated the issuer credit ratings of the company
while Fitch Ratings, on the other hand, reiterated the Issuer
Default Rating. We believe the company's strong score with the
credit rating agencies will help it write more business going
However, exposure to cat losses always remains a concern. Though
the entire industry benefited from lower cat loss, the occurrence
of Superstorm Sandy in the final quarter of the year will weigh
on the results. Catastrophe loss modeling companies project the
loss to be approximately $20 billion for the industry.
Additionally, AXIS Capital's total expense is on a rise. If the
magnitude of increase in revenue fall is below the magnitude of
expense increase, the resultant effect is contraction in margins
and lower income.
AXIS Capital carries a Zacks #3 Rank, implying a short-term Hold
), which competes with AXIS Capital, shares the same Zacks Rank.