A month has gone by since the last earnings report for Axis Capital (AXS). Shares have added about 12.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Axis Capital due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
AXIS Capital Q3 Earnings Miss Estimates, Increase Y/Y
AXIS Capital Holdings Limited posted third-quarter 2022 operating income of 3 cents per share, which missed the Zacks Consensus Estimate by about 25% but beat our estimate of a loss of 38 cents. The bottom line increased two-fold year over year.
The insurer’s results reflect higher net premiums earned and lower expenses, partially offset by a decrease in net investment income. Combined ratio improved on the back of lower catastrophe and weather-related losses.
Quarterly Operational Update
Total operating revenues of $1.4 billion increased 3.6% year over year on higher net premiums earned. Net investment income decreased 17.8% year over year to $88.2 million, primarily attributable to losses from other investments compared to gains from these investments in the prior year. The decrease was partially offset by an increase in income from fixed maturities attributable to increased yields. The figure was lower than our estimate of $103.8 million.
Total expenses in the quarter under review decreased 4.9% year over year to $1.2 billion, attributable to lower amortization of intangible assets and interest expense and financing costs.
Pre-tax catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, decreased 15.2% year over year to $212 million. The losses were due to Hurricane Ian, higher net loss estimate attributable to June European Convective Storms and other events. AXIS Capital’s underwriting loss of about $29 million was narrower than the year-ago loss of $58.8 million. The combined ratio improved 310 basis points (bps) to 104.3.
Insurance: Gross premiums written improved 12% year over year to $1.3 billion, driven by increases in liability, professional lines and marine lines due to favorable rate changes, accident and health, and credit and political risk lines due to new business. Net premiums earned increased 14.8% year over year to $782.1 million.
Underwriting income of $15.7 million increased 51.9% year over year. The combined ratio improved 50 bps to 98%. Pre-tax catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, increased 7.6% year over year to $113 million. The losses were due to Hurricane Ian and other events.
Reinsurance: Gross premiums written decreased 17% year over year to $389.9 million due to decreases in catastrophe and property lines owing to the exit from these lines of business in June 2022. The decline was partially offset by increases in agriculture lines driven by new business and timing differences. Net premiums earned decreased 5.2% year over year to $502.7 million.
Underwriting income of $44.8 million narrower than the year ago loss of $69.2 million. The combined ratio improved 530 bps year over year to 109.1. Pre-tax catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, decreased 31.7% year over year to $99 million. The losses stemmed from Hurricane Ian, an increase of $23 million in the net loss estimate due to June European Convective Storms as well as other weather-related events.
AXIS Capital exited the third quarter with cash and cash equivalents of $1.2 billion, up 43.3% over the level from 2021 end. Debts were $1.3 billion at quarter-end, up 0.1% from the 2021-end level.
Book value per share decreased 8.7% sequentially to $43.50, as of Sep 30, 2022, due to net unrealized losses reported in other comprehensive income (loss), the net loss generated and common share dividends declared. Annualized operating return on equity was 0.3% in the third quarter, expanded 20 bps year over year.
Capital Deployment Update
AXIS Capital bought back shares for $35 million. As of Sep 30, 2022, AXIS had $65 million remaining under authorization.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
At this time, Axis Capital has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Axis Capital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Axis Capital belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, RLI Corp. (RLI), has gained 4.4% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
RLI Corp. reported revenues of $312.74 million in the last reported quarter, representing a year-over-year change of +15.3%. EPS of $0.50 for the same period compares with $0.65 a year ago.
For the current quarter, RLI Corp. is expected to post earnings of $1.08 per share, indicating a change of -14.3% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
RLI Corp. has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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