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Will AXIS Capital's (AXS) Cat Loss Hurt Earnings in Q4?

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AXIS Capital Holdings Limited (AXS - Free Report) recently released preliminary pre-tax loss estimates ranging between $125 million and $150 million stemming from California wildfires occurring in November this year, having destroyed thousands of residential and commercial properties. The insurer’s fourth-quarter results will likely be affected by these losses.

The loss estimate is net of estimated recoveries from reinsurance and retrocessional covers. and include the impact of estimated reinstatement premiums.

The estimate also includes losses generated from the aggregate excess of loss reinsurance treaties, which will also bear the impact of the losses emanating from other catastrophe and weather-related events in 2018. Moreover, the estimate is in line with the industry insured losses of up to $20 billion. Chubb Limited (CB - Free Report) issued an after-tax gross catastrophe loss estimate of $195 million while Mercury General Corporation’s (MCY - Free Report) pre-tax gross catastrophe loss estimate totaled $253 million, stemming from Camp Fire and Woolsey Fire.

According to the report published in Insurance Journal on Dec 12, 2018, the official figure pertaining to the insured losses from the California wildfire came in at $9.05 billion. The most recent projection from catastrophe modeler AIR Worldwide for the Camp and Woolsey Fires is in the band of $9-$13 billion in insured losses.

Per estimates released by Moody’s in the Insurance Journal, the total insured losses (from the California wildfires) of property/casualty insurers and reinsurers can range between $10 billion and $15 billion. Moreover, per Moody’s, although the insured losses are anticipated to erode fourth-quarter earnings for primary insurers and reinsurers, the metric will remain within the estimated levels.

In mid-November, catastrophe modeling firm Risk Management Solutions Inc. projected losses from the wildfires to be in the range of $9-$13 billion, which will include property and auto damage, business interruption, additional living expenditure and contents loss. Interestingly, Moody’s estimates matched the abovementioned forecasts by the catastrophe modeler.

Additionally, per the industry data provider CoreLogic, total losses resulting from the wildfires in Northern and Southern California can vary between $15 billion and $19 billion.

Earlier, this Zacks Rank #3 (Hold) insurer estimated losses from Hurricane Michael to be between $100 million and $120 million. The company now expects the same to be in the upper end of the guidance.

RLI Corp. (RLI - Free Report) anticipates cat loss between $22 million and $27 million, net of reinsurance from Hurricane Michael.

AXIS Capital’s status as a P&C insurer has made it fairly susceptible to loss from natural disasters, man-made catastrophes and other weather-oriented events. This has further caused volatility in its underwriting results.

In the first nine months of the current year, the property and casualty (P&C) insurer suffered a catastrophe loss of nearly $162 million, way lower than $702 million incurred in the same period of 2017. However, with the occurrence of the California wildfires and other weather-related events, the insurer’s fourth-quarter results might be adversely impacted.

Shares of this Zacks Rank #3 (Hold) P&C insurer have gained 4.3% year to date against the industry’s decrease of 4.2%.



The Zacks Consensus Estimate for fourth-quarter earnings is currently pegged at 3 cents per share, slumping 87.5% on a year-over-year basis. We expect the consensus mark to move south as analysts incorporate the cat loss impact.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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