AXIS Capital Q4 Earnings Miss on Soft Investment Results - Analyst Blog
AXIS Capital Holdings Limited’s (AXS) fourth-quarter 2014 earnings per share of $1.18 missed the Zacks Consensus Estimate by a couple of cents. Earnings declined 16% year over year.
A soft interest rate environment weighed on investment results. Also, heightened competition, especially in Reinsurance, affected the bottom line. Nonetheless, strong underwriting results driven by low cat activity, favorable reserve development and a broadly diversified, well-constructed portfolio of risks were the breathers.
Including net realized investment loss of 1 cent and foreign exchange loss of 43 cents, AXIS Capital reported net income of $1.60 per share, up 5.3% year over year.
Operational Update
A 31% year-over-year drop in net investment income overshadowed a 1.8% rise in premiums earned, resulting in a 51% drop in total revenue. Revenues of $1.04 billion also missed the Zacks Consensus Estimate of $1.06 billion.
Total expense in the quarter decreased about 5.8% year over year to $48 million.
Underwriting income of AXIS Capital increased 20% year over year to $112.7 million. Combined ratio improved 100 basis points (bps) to 91.5%.
Full-Year 2014 Review
AXIS Capital’s operating income of $5.32 per share missed the Zacks Consensus Estimate by 0.4% and declined 3% over 2013.
Net income came in at $7.29, up 23% over 2013.
Revenues improved 2.3% year over year to $4.2 billion.
Segment Result
Insurance Segment: Gross premiums written increased 3% year over year driven by better performing property lines, and liability lines fueled by growing U.S. excess casualty markets.
Net premiums earned increased about 3% year over year owing to improvement in accident and health business lines.
Underwriting income increased more than threefold to $34 million. Combined ratio improved 510 bps year over year to 92.7%.
Reinsurance Segment: Gross premiums written in the quarter decreased 7% year over year to $138 million, largely due to soft performing professional and property lines.
Net premiums earned increased 2.8% year over year.
While underwriting income decreased 6%, combined ratio improved 170 bps year over year.
Financial Update
AXIS Capital exited the quarter with cash and cash equivalents of $1.3 billion, up 22% from the 2013-end level.
Total capitalization at quarter end was $6.8 billion, including $1 billion of long-term debt and $0.6 billion of preferred equity. The company repaid $500 million of 5.75% senior unsecured notes.
Cash flows from operations of $887 million decreased 19.4% year over year.
Book value per share was $50.63 on Dec 31, 2014, up 11% year over year.
Capital Deployment
During the reported quarter, AXIS Capital repurchased 1.5 million shares for $75 million taking the full year tally to 11.8 million shares bought back for $543 million. The board of directors also increased the authorization by $750 million.
The board increased the quarterly dividend by 7% to 29 cents per share.
AXIS Capital-PartnerRe Ink Merger Deal
In the last week of January, PartnerRe Ltd. (PRE) and AXIS Capital announced their intention to join in a stock swap merger agreement. The deal is expected to culminate by the second half of 2015.
AXIS shareholders will receive one share of the merged company against each existing share, while PartnerRe investors will own 2.18 shares of the new entity for each of its present share. Accordingly, the swap will give PartnerRe a 51.6% stake in the merged company, whereas AXIS will have the remaining 48.4%.
The merged entity is presently worth about $11 billion. Moreover, post amalgamation, the new entity would have gross premiums of over $10 billion, an investment portfolio of over $33 billion and total capital of more than $14 billion, along with a $2.5 billion worth of underwriting business.These figures estimate the combined PartnerRe-AXIS to be among the top-five global reinsurers in terms of premiums.
PartnerRe and AXIS expect pre-tax cost synergies worth $200 million from the merger within the first 1.5 years only. (Read PartnerRe-AXIS Inks Merger Deal, AXIS Hits 52-Week High for further details)
Zacks Rank
AXIS Capital presently carries a Zacks Rank #3 (Hold).
Performance by Other P&C Insurers
The bottom lines at RLI Corporation (RLI) and The Travelers Companies Inc. (TRV) outperformed their respective Zacks Consensus Estimate in the fourth quarter.
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