Strong 3Q at AXIS Capital – Analyst Blog
AXIS Capital Holdings Limited (AXS) reported third quarter 2012 operating earnings of $1.63 per share, substantially beating the Zacks Consensus Estimate by 62 cents and surging ahead of 74 cents earned in the year ago-quarter. Operating income was $201 million in the quarter, soaring nearly 112% over the prior-year quarter. The quarter experienced low level [...]

AXIS Capital Holdings Limited (AXS) reported third quarter 2012 operating earnings of $1.63 per share, substantially beating the Zacks Consensus Estimate by 62 cents and surging ahead of 74 cents earned in the year ago-quarter. Operating income was $201 million in the quarter, soaring nearly 112% over the prior-year quarter.

The quarter experienced low level of catastrophe and large loss activity as well as favorable impact of strong equity markets on investment returns with the bottom line being buoyed by share buybacks.

Including net realized investment gains of $46.2 million, or 38 cents per share and foreign exchange loss of $23.6 million, or 19 cents per share, the company reported net income of $223 million, or $1.82 per share. This compares favorably with $212.1 million or $1.66 per share in the prior-year quarter.

The year-ago quarter included net realized investment gains of $56.6 million or 44 cents per share and foreign exchange gains of $60.7 million or 48 cents per share.

Operational Performance

Gross premiums written in the quarter decreased 2% year over year to $848 million.

Net premiums earned in the reported quarter were $862 million, up 3.7% year over year.

Net investment income more than doubled year over year to $103.6 million, largely driven by alternative investments.

Total revenue grossed $1.02 billion in the quarter, improving 7.4% from the year-ago quarter. The top line comfortably surpassed the Zacks Consensus Estimate of $930 million.

Total expenses in the quarter were $775.5 million, escalating 7.3% year over year, largely due to higher acquisition cost and general and administrative expenses.

Underwriting profit of $337 million in the quarter reversed the loss of $342 million in the year-ago quarter. The combined ratio improved 2550 basis points to 90.8% in the quarter.

Segment Update

Insurance Segment: Gross premiums in the quarter under review improved 7% year over year to $530 million, driven largely by better performances at liability, professional lines and accident & health line of business. However, it was partially offset by lower property business.

Net premiums earned augmented 8% year over year to $398 million on the back of improving accident & health and property businesses.

The third quarter booked underwriting income of $76 million, surging 85% from the year-ago quarter.

The combined ratio for the quarter improved 830 basis points to 81.1%.

Reinsurance Segment: Gross premiums written in the quarter declined 7% year over year to $318 million, largely due to lower business from catastrophe and property lines of business.

Net premiums earned waned 1.1% in the quarter.

The segment had an underwriting profit of $79 million in the quarter, soaring 58% year over year.

The combined ratio improved 640 basis points to 83.1% in the quarter.

Financial Position

AXIS Capital exited the quarter with cash and cash equivalents of $0.869 billion, declining from $1.08 billion reported at the end of 2011.

Total capitalization as of June 30, 2012, was $6.9 billion, including $1.0 billion of long-term debt and $0.5 billion of preferred equity.

Book value per share was $43.57 as of September 30, 2012, up 18% year over year.

Return on equity was 15.2% in the quarter compared with 7.8% in the year-ago quarter.

Net cash flows from operations were $424 million for the quarter.

Share Repurchase and Dividend

During the third quarter, AXIS Capital spent $179 million to buy back 5.2 million shares at an average price of $43.57 per share. On October 31, 2012, the company had approximately $236 million remaining under its authorization for common share repurchases through December 31, 2012.

The Board declared a dividend of 24 cents in the quarter, illustrating a year-over-year increase of 4.3%.

Peer Comparison

ACE Limited (ACE), which competes with AXIS Capital, reported third quarter operating income of $2.01 per share, breezing past the Zacks Consensus Estimate by 15 cents. Earnings however, declined 9% from $2.20 earned in the year-ago quarter.

The results were substantially affected by drought conditions in the U.S. that hampered the company’s crop business. Nevertheless, ACE Limited delivered sturdy underwriting results.

Zacks Rank

The quantitative Zacks #1 Rank (short-term Strong Buy rating) for the company indicates an upward boost on the shares over the near term.

 
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AXIS CAP HLDGS (AXS): Free Stock Analysis Report
 
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