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We retain our Neutral recommendation on AXIS Capital Holdings Ltd. (AXS - Analyst Report) as the positives are dwarfed by the company’s exposure to catastrophe losses, a competitive market and foreign currency fluctuations. The property and casualty insurer carries a Zacks Rank #3 (Hold).

Why the Reiteration?

Counting on the positives, new business opportunities across AXIS Capital’s lines of business and geography have helped the company achieve growth in premium writings. The company noted improved pricing scenario in the insurance market extending across classes and geographies, and expects the development to continue going forward. AXIS Capital expects gross premiums written to increase in 2013, given that favorable pricing momentum sustains in the primary insurance market.

Riding on the back of increasing premiums, the top line showed continued improvements. This coupled with lower expenses helped the company maintain continued margin expansion.

AXIS Capital continues to boost its shareholder value through share buybacks and dividend hikes. The dividend of $0.25 per share currently yields 2.30%, positioning AXIS Capital better than other industry majors such as ProAssurance Corp. (PRA - Analyst Report) with a dividend yield of 2.14%; State Auto Financial Corp. (STFC - Snapshot Report) with a dividend yield of 2.09%; and Everest Re Group Ltd. (RE - Analyst Report) with a yield of 1.32%.

The company expects to return an amount closer to 100% of its earnings in 2013, in the form of regular dividends and share repurchases. With a solid financial position, we expect the company to continue paying back shareholders, thereby retaining investor confidence in the stock.  

However, AXIS Capital is highly exposed to losses resulting from natural disasters, man-made catastrophes and other catastrophic events. This in turn weighs on its underwriting results. Exposure to catastrophe activities will always remain a concern because of the uncertainty of occurrence as well as the magnitude of impact.

Increasing competition in the insurance industry can also result in slow growth and lower profitability for AXIS Capital. Moreover, its operational results are subject to risks of currency fluctuations.

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