AXIS Capital Retained at Neutral

AXIS Capital Holdings Ltd. (AXS - Analyst Report) continues an incremental trend in premiums written. The company also remains strongly capitalized with focus on enhancing shareholders value. It also scores strongly with the rating agencies.

However, its exposure to catastrophe losses and the low interest rate environment keeps us on the sidelines. Thus, we retain our Neutral recommendation on the company.

New business opportunities across several AXIS Capital’s lines of trade and geography have helped the company achieve growth in premium writings. Gross premium written in the insurance segment grew 23%, half of which was driven by a 120% increase in accident and health business, while the rest was driven by property and marine lines of business.

AXIS continues to remain strongly capitalized. Its financial flexibility remains extremely strong, with a debt-to-total capital ratio of 15.4%. The company also lowered the cost of its preferred capital by redeeming preferred share with higher coupon and issuing preferred shares at lower coupon.

The company spent $48 million to buyback 1.5 million shares and is left with $505 million under its authorization at the end of the first quarter of 2012. With a strong capital position and liquidity we expect the company to enhance shareholders value going forward.

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 has financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of ‘a+’ of AXIS Specialty Limited.

We believe the company’s strong ratings scores will help retain investor confidence and help it to write more businesses going forward, thereby augmenting the results.

On the flip side, AXIS Capital has substantial exposure to losses resulting from natural disasters, man-made catastrophes and other catastrophic events. Though the entire industry benefited from lower catastrophes in the first quarter, exposure to cat activities will always remain a concern as occurrence of natural disasters can affect the results adversely.

Further, fixed maturities yielded lower income in the first quarter of 2012 due to lower yields in both the U.S. and European markets. Pre-tax yield on fixed maturities declined 52 basis points to 2.9% in the first quarter.

The quantitative Zacks #3 Rank (short-term Hold rating) on the stock 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. The company competes with ACE Limited (ACE - Analyst Report).