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AXIS Capital Holdings Limited (AXS - Analyst Report) reported fourth-quarter 2013 net operating income of $1.41 per share, which fell short of the Zacks Consensus Estimate by 5.4%. However, results were better from an operating loss of 23 cents per share reported in the prior-year quarter.

Including net realized investment gains, AXIS Capital reported net income of $1.52 a share, which also grew significantly from a net loss of 16 cents a share recorded in the year-ago quarter.

A sturdy top line, largely driven by higher premium aided the year-over-year improvement. A lower share count also added to the upside.

Operational Update

Gross premiums written at AXIS Capital improved 9.8% year over year to nearly $826 million, aided by a 4.6% improvement in insurance segment and a significant growth of 27.3% in the reinsurance segment.

Net premiums earned by AXIS Capital in the reported quarter were $941.9 million, up 10% year over year.

Net investment income of AXIS Capital moved up 31.1% year over year to $113.9 million.

On the back of higher net premiums as net investment income, total revenue of AXIS Capital increased 10.5% year over year to $1.08 billion. The top line also surpassed the Zacks Consensus Estimate by 2.8%.

Total expense in the quarter slid 9.7% year over year to approximately $901 million. The improvement was owing to lower net losses and loss expenses, and lower foreign exchange losses. However, the decline in expenses was partially offset by higher general and administrative expenses.

Top-line growth coupled with reduced expenses led to a substantial margin expansion during the quarter. Operating margin stood at 14.7% comparing favorably with operating loss reported in the previous-year quarter.

Underwriting income totaled $94.2 million compared with underwriting loss of $74.3 million in the year-ago quarter.

Segment Result

Insurance Segment: Gross premiums written in this segment improved 4.6% year over year to $606.6 million, driven by consistent growth in accident & health business and new activities in professional line outside the U.S. Also, the segment gained in its liability lines from improvements and new business in the U.S. excess and surplus umbrella market.

Net premiums earned increased 17.7% year over year due to growth in accident & health business line and lower ceded premiums.

Underwriting income in this segment came in at $11 million, up from an underwriting loss of $46 million reported in the prior-year quarter. Combined ratio improved 1440 basis points (bps) year over year to 97.8%.

Reinsurance segment: Gross premiums written in the quarter increased 27.3% year over year to $219.4 million, largely driven by professional line business.

Net premiums earned increased 3.9% in the quarter to $491.4 million.

Underwriting income in the segment was approximately $84 million compared to underwriting loss reported in the prior-year quarter. Current year loss ratio improved 2240 bps year over year to 62% in the fourth quarter. The improvement was primarily due to non-occurrence of significant weather or catastrophe losses during the quarter. Combined ratio improved 2260 bps to 83.4%.

Full-year 2013 Highlights

For full year 2013, AXIS Capital reported $5.49 per share of net operating net income, which surged 61% from the 2012 number.

Including net realized investment gains, AXIS Capital’s net income came in at $5.93 per share, up 32.5% year over year.

Total expense also increased 2.5% from 2012 level amounting to $3.46 billion in the year.

Financial update

AXIS Capital exited 2013 with cash and cash equivalents of $923.3 million, up 21.5% from 2012-end level.

Total capitalization as of 2013-end was $6.8 billion, including $1.0 billion of long-term debt and $0.6 billion of preferred equity. It remained in line with the Dec 31, 2012 level.

Book value per share was $45.80 at the end of 2013, up 7% year over year.

Share Repurchase Update

During 2013, AXIS Capital repurchased 10.8 million of its common shares for $472 million. As of Feb 4, the company had remaining authorization of $750 million under its common share repurchase program that will expire on Dec 31, 2015.

Zacks Rank

AXIS Capital presently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the property and casualty insurance space include Endurance Specialty Holdings Ltd. (ENH - Snapshot Report), RLI Corp. (RLI - Analyst Report) and Navigators Group Inc. (NAVG - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).
 

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