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Rating Action on AXIS Capital

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A.M. Best Co. reiterated the issuer credit ratings (“ICR”) of ‘bbb+’ and all existing debt ratings of AXIS Capital Holdings Limited (AXS - Free Report) . Concurrently, the rating agency reiterated the financial strength rating (“FSR”) of A (Excellent) and ICR of ‘a+’ of AXIS Specialty Limited, its operating unit. The outlook remains positive.

The ratings affirmation came on the back of strong risk-adjusted capitalization, continued better operational results and strong enterprise risk management. AXIS Capital has remained focused on delivering solid underwriting profitability along with a balanced risk profile.

With an expanded book of business (short to medium-tail lines of business with more emphasis on specialty risks including property, marine and political risk, besides property catastrophe coverages) and widespread global footprint, the company is well positioned amidst a weak macro environment in casualty market.

AXIS Capital has substantial exposure to catastrophe losses. This, along with weak casualty market condition dwarfs the positives. Also, A.M. Best continues to keep vigilance transition time as the higher management has been undergoing several changes over time.

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. On the other hand, rating downgrade adversely affects the business, besides increasing cost of future debt issuances. We believe strong scorings with rating agencies will help it write more business going forward.

Ratings could be revised upward if AXIS Capital continues to post solid operational results along with maintaining solid risk-adjusted capital levels.

Rating and/or outlook are subject to downgrade if the company fails to deliver favorable operational results, incurs massive catastrophe or investment losses, and experiences considerable adverse loss reserve development erosion in risk-adjusted capital.

We retain our Neutral recommendation on AXIS Capital Holdings Limited. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term. ACE Limited (ACE), which closely competes with AXIS Capital, shares a Zacks #3 Rank.

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