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AXIS Capital (AXS) Banks on Premiums Amid Cost Concerns

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·3 min read
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AXIS Capital Holdings Limited AXS has been benefiting from rate increases, growing underwriting income, improved returns from alternative assets and effective capital deployment.

Major repositioning of the portfolio over the past three years should continue to drive improvements in underlying results. The company witnessed core margin improvement for seven consecutive quarters.

AXIS Capital is steadily witnessing a positive trend in net premiums earned, driven by premium growth at both its Insurance and Reinsurance segments.

The Insurance segment witnessed the 15th consecutive quarter of overall rate increases and the fifth consecutive quarter of double-digit average rate hikes in the second quarter. The rates continue to increase in double digits. AXIS Capital is witnessing growth in lines such as Excess Casualty, Renewable Energy, A&H and Marine that continue to provide a strong double-digit return on equity opportunities. Increases in professional lines, property and liability lines owing to new business, and favorable rate changes are expected to boost the premiums of the Insurance segment. Riding on the insurer’s growing underwriting income, its combined ratio is improving.

The Reinsurance segment is expected to benefit from increases in accident and health, motor, catastrophe, and credit and surety lines as well as increases in liability and professional lines owing to premium adjustments, primarily related to favorable market conditions, new business growth and increased rates on business in North America and Global Markets.

Industry issues such as low interest rates,  social inflation and the COVID-19 pandemic are estimated to drive further pricing improvements through 2022.

Enhanced pricing, improved terms and conditions, lower limits coupled with greater stability, portfolio construction and an improved mix of business, and disciplined underwriting should continue to improve the loss ratio.

Enhanced use of reinsurance, retro and third-party capital is likely to drive risk-adjusted returns with lower volatility.

Positive returns from alternative assets, principally credit funds, real estate funds, and private equity funds are likely to boost the investment income of the insurer.

The company has increased its dividend for 17 straight years at an eight-year (2013-2021) CAGR of 6.7%, which makes the stock an attractive pick for yield-seeking investors.

AXIS Capital, being a property and casualty insurer, is exposed to catastrophe losses. Catastrophe losses were primarily related to winter storms and other weather-related events. Such high levels of losses induce underwriting volatility.

The insurer witnessed escalated expenses over the last several years due to higher net losses and loss expenses, general and administrative expenses, higher acquisition costs, and an increase in interest expense as well as financing costs. Such costs tend to weigh on the company’s margins.

Other Insurers

Some other property and casualty insurance sector players include American Financial Group, Inc. AFG, Berkshire Hathaway Inc. (BRK.B) and Fidelity National Financial, Inc. FNF.

The bottom line of American Financial surpassed estimates in each of the last four quarters, the average being 52.82%.

Berkshire Hathaway surpassed estimates in three of the last four quarters and missed in one, the average earnings surprise being 6.8%.

Fidelity National’s earnings surpassed estimates in each of the last four quarters, the average being 37.32%.


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