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Axis Capital Banks on Solid Premiums, Cost Concerns Linger

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AXIS Capital Holdings Limited AXS is well-poised for growth, driven by lower level of catastrophe losses, improved pricing, growing new business and prudent capital deployment.

AXIS Capital has been witnessing a positive trend in net premiums earned, driven by premium growth at both its Insurance and Reinsurance segments. Higher premiums earned in motor, property and agriculture lines, an increase in gross premiums earned in liability lines and professional lines, decreases in ceded premiums earned in agriculture and catastrophe lines, new business and favorable rate changes are expected to drive premiums going forward.

AXIS Capital continues to witness rate increases across its Insurance and Reinsurance segments. In the Insurance segment, rate increases have been witnessed in almost every line of business. There have been double-digit rate increases in numerous property, casualty and marine classes. It has been witnessing double-digit growth in core insurance lines of business supported by strong rate increases across virtually every line of business. Industry issues such as low interest rates, lower levels of favorable development, social inflation and the coronavirus pandemic should drive pricing improvements in 2021.

Over 80% of AXIS’ portfolio is in markets witnessing the strongest improvements including excess & surplus property, excess & surplus casualty, Lloyd’s, professional lines and a number of areas in Reinsurance segment. Growth in lines such as marine cargo, cyber and renewable energy continue to provide strong double-digit return on equity opportunities.

Further, net investment income, an important driver of the top line, grew at a four-year CAGR (2015 – 2019) of 11.9%. Despite the current low interest rate environment, increase in income from fixed maturities, a larger allocation of the portfolio to fixed maturities, higher returns from collateralized loan obligations (CLO)-equities will continue to drive net investment income.

Loss ratio, indicating the ratio of losses to premiums earned, has decreased over the years. Lower level of catastrophe and weather-related losses, improved pricing over loss trends and changes in business mix are expected to drive improved loss ratios coupled with greater stability.

AXIS has one of the highest dividends yields among its peers at 4.1%. It has returned over $6 billion to shareholders since start of its operations. The company has increased its dividend at a six-year (2014-2020) CAGR of 11.9%. Its recent dividend hike marked the 15th straight year of dividend increase.

However, we remain concerned about the company’s high expenses incurred, which has been putting pressure on margins.

Other Players

Other key players in the property and casualty industry include Donegal Group Incorporation DGICA, Fidelity National Financial Inc., FNF and The Allstate Corporation ALL.

Donegal surpassed estimates in each of the last four quarters, with the average being 86.44%.

Fidelity National surpassed estimates in each of the last four quarters, with the average being 32.13%.

Allstate surpassed estimates in each of the last four quarters, with the average being 25.24%.

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The Allstate Corporation (ALL) : Free Stock Analysis Report
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Donegal Group, Inc. (DGICA) : Free Stock Analysis Report
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