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Given substantial exposure to losses resulting from natural disasters, man-made catastrophes and other catastrophic events and sluggish top-line growth, we retain our Underperform recommendation on AXIS Capital Holdings Ltd. (AXS - Analyst Report).

The company suffered huge catastrophe losses in the first quarter. Catastrophe losses, net of reinstatement premiums, totaled $87 million from the Australian Floods, $203 million from the New Zealand Earthquake and $287 million from the Japanese Earthquake. The combined ratio deteriorated substantially to 161.3% in the first quarter from 98.3% in the year-ago quarter.

AXIS Capital’s top line continues to deliver sluggish growth. Although the reinsurance market remains disciplined and prices are gaining momentum, the insurance market remains competitive. Most of the business lines in insurance, especially casualty, continue to see price declines, albeit at a slower rate.

Counting on the positives, AXIS continues to remain strongly capitalized. The company’s financial flexibility remains very strong, with a debt to total capital ratio of 16%, a debt and preferred to total capital ratio of 24.2%. Also, AXIS Capital continues to boost its shareholder value, through share buybacks and dividend hikes. In December, the company approved a 9.5% increase in its quarterly dividend.

AXIS Capital has always focused on strategic acquisitions that have helped improve its top line.New business opportunities across several of its lines of business and geography have helped the company to achieve growth in premium writings.

AXIS Capital posted operating loss of $3.65 per share in the first quarter, wider than the Zacks Consensus Estimate of a loss of $3.36. Results also compared unfavorably with $0.67 per share earned in the prior-year period.

The Zacks Consensus Estimates for second-quarter 2011 is $1.07 per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, loss of 24 cents and earnings of $4.04 per share.

The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

Headquartered in Pembroke, Bermuda, AXIS Capital is a global provider of specialty lines of insurance and treaty reinsurance. It competes with ACE Limited (ACE - Analyst Report).

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