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Kinsale or Axis Capital: Which is a Better-Positioned Stock?

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The Zacks Property and Casualty (P&C) Insurance industry has been benefiting from increased exposure driving business growth, higher retention, streamlined operations, global presence, better pricing, solid underwriting and a strong capital position. With the ongoing economic expansion, insurers remain well-poised for growth. However, catastrophe events, both natural and man-made, might have weighed on underwriting profit.

The industry has risen 27.1% in the past year, outperforming the Zacks S&P 500 composite’s increase of 23.3% and the Finance sector’s 23.9% growth.

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Here we focus on two property and casualty insurers, namely Kinsale Capital Group, Inc. (KNSL - Free Report) and Axis Capital Holdings Limited (AXS - Free Report) .

Kinsale Capital, with a market capitalization of $8.92 billion and being a specialty insurance company, is engaged in the provision of property and casualty insurance products in the United States. Axis Capital, with a market capitalization of $6.25 billion, provides various specialty insurance and reinsurance products worldwide. KNSL and AXS carry a Zacks Rank #3 (Hold) each at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Global commercial insurance rates rose 1% in the first quarter of 2024, per Marsh Global Insurance Market Index.

Price hikes, operational strength, higher retention, strong renewal and the appointment of retail agents should help write higher premiums. Per Deloitte Insights, gross premiums are estimated to increase six-fold to $722 billion by 2030.

Per Fitch Ratings, personal auto is likely to deliver a better performance this year. This, coupled with better investment results and lower claims, should fuel insurers' performance in 2024. Analysts at Swiss Re Institute predict premiums to grow 5.5% in 2024.

Per reports in Aon, total economic losses were $380 billion in 2023, while insured losses were $118 million. According to AM Best, the total net underwriting loss was $38 billion in 2023, marking a 10-year high, largely attributable to weather-related losses, high inflation and reinsurance pricing pressure.

Exposure growth, improved pricing, prudent underwriting, favorable reserve development and a sturdy capital position will help absorb catastrophe losses. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.

The insurance industry is rate-sensitive. An improving rate environment is a boon for insurers, especially long-tail insurers. The Fed held interest rates unchanged at 5.25-5.5% at the December FOMC meeting. With a large invested asset base, investment income should remain healthy, even if the Fed cuts rates later this year.

A solid capital level supports insurers in pursuing strategic mergers and acquisitions to gain market share, expand in niche areas and diversify operations into new business lines and geography, as well as increase dividends, pay special dividends and buy back shares. Deloitte estimates more mergers and acquisitions in the reinsurance space in 2024.

The P&C insurance industry is witnessing increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation that expedite business operations and save costs. Insurers continue to invest heavily in technology to improve basis points, scale and efficiencies.

Let’s delve deeper into specific parameters to ascertain which P&C insurer is better positioned at the moment.

Price Performance  

Shares of Axis Capital have climbed 39.5% in the past year, outperforming the industry’s growth of 27.1% and Kinsale Capital’s rise of 11.5%.

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Return on Equity (ROE)   

Kinsale Capital, with a ROE of 31.2%, exceeds Axis Capital’s ROE of 19.1% and the industry average of 7.8%.

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The price-to-book value is the best multiple used for valuing insurers. Compared with Kinsale Capital’s P/B ratio of 7.63, Axis Capital is cheaper, with a reading of 1.26. The P&C insurance industry’s P/B ratio is 1.54.

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Axis Capital’s debt-to-capital ratio of 25.6 is higher than the industry average of 17.8 and Kinsale Capital’s reading of 13.5. Therefore, KNSL has an advantage over AXS on this front.

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Growth Projection      

The Zacks Consensus Estimate for 2024 earnings indicates 2.5% growth from the year-ago reported figure for Axis Capital, while the same for Kinsale Capital implies an increase of 19.6%.

Earnings Surprise History   

Kinsale Capital outpaced expectations in each of the last seven reported quarters. Axis Capital surpassed estimates in six of the last seven reported quarters.

Combined Ratio         

AXS’ combined ratio was 91.1% in the first quarter of 2024, whereas that of KNSL was 79.5% in the said time frame. Thus, the combined ratio of Kinsale Capita is better than that of Axis Capital.

Dividend Yield    

Axis Capital’s dividend yield of 2.38% is better than Kinsale Capital’s dividend yield of 0.16%. Thus, AXS has an advantage over KNSL on this front.

VGM Score   

VGM Score rates each stock on its combined weighted styles, helping to identify those with the most attractive value, best growth and most promising momentum. Axis Capital has a VGM Score of A, while Kinsale Capital has a VGM Score of C. Thus, AXS is better placed.

Revenue Estimates   

The Zacks Consensus Estimate for Kinsale Capital's and Axis Capital's 2024 revenues implies a year-over-year increase of 27.4% and 4.4%, respectively.
Therefore, KNSL is at an advantage on this front.

To Conclude

Our comparative analysis shows that Kinsale Capital is better positioned than Axis Capital with respect to return on equity, leverage, growth projection, earnings surprise history, combined ratio and revenue estimates. Meanwhile, Axis Capital scores higher in terms of price, valuation, dividend yield and VGM Score. With the scale majorly tilted toward Kinsale Capital, the stock appears to be better poised.

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