AXIS Capital Tops Zacks Consensus

AXIS Capital Holdings Ltd. (AXS: 30.41 +0.57 +1.91%) reported fourth-quarter earnings of $1.83 per share, well ahead of the Zacks Consensus Estimate of $1.31. This was primarily due to higher-than-expected revenue driven by investment income, increased premiums and low catastrophes. The company earned $1.09 per share a year ago.
 
However, adjusting for net realized investment losses and for its associated tax impact, the company reported a net income of $282 million or $1.87 per share, up from $131 million or 88 cents per share in the prior-year period.
 
For full year 2009, AXIS Capital reported a net income of $461 million or $3.07 per share, compared with $351 million or $2.26 per share in the prior year.
 
Gross premiums written were $574 million, up 9% year over year. Net premiums earned increased 8% year over year to $714 million. Results were primarily driven by growth in the Reinsurance segment.
 
Underwriting income for the quarter was $216 million, unchanged from the prior year quarter.  Though there was an increase in Reinsurance segment underwriting profit, it was offset by a decline in the Insurance segment’s underwriting income, which was impacted by an increase to credit and political risk loss reserves. Combined ratio deteriorated to 77.5% from 67.6% reported in the prior-year period.
 
The company experienced favorable prior-year reserve development of $120 million ($73 million from the Insurance segment and $47 million from the Reinsurance segment) compared with $125 million in the same period last year.
 
Around half of the net favorable reserve development in the reported quarter was generated from short-tailed lines while the rest came from professional lines and credit and political risk business.
 
Net investment income was $118 million, compared to net investment losses of $26 million in the prior-year quarter, reflecting improved investment market conditions. Net realized investment gains were $6 million, compared to losses of $33 million in the prior-year quarter.
 
Book value per share was $37.84 as of Dec 31, 2009, up from $35.54 as of Sept 30, 2009, and $29.08 at Dec 31, 2008.
 
Insurance segment reported $471 million of gross premiums written, up 5% year over year. Combined ratio deteriorated to 81.6% from 60.2% in the prior-year quarter. The company increased its reserves for the credit and political risk business which includes an increase in provisions for the Blue City project policy.
 
Reinsurance segment reported $103 million of gross premiums written, up 32% from the year-ago quarter, reflecting new property business as well as premium adjustments of prior year business. Combined ratio remain unchanged at 68.3%
 
AXIS Capital’s Board has also approved an additional $500 million in the quarter, which runs through Dec 31, 2011. The company has also extended the previous share buyback plan of 2007. During the quarter, AXIS Capital repurchased 5.9 million shares of common stock for $170 million at an average price of $28.99. The company also increased its quarterly cash dividend by 5% to 21 cents per common share.
 
Following Dec 31, 2009, the company bought back another 4.4 million shares for $125 million at an average price of $28.38. As of Feb 5, 2010, the company had approximately $417 million of remaining capacity under its share repurchase authorization.
 
With its conservative underwriting practices, the company remained well capitalized. It has a strong rating from the rating agencies as well. However, we believe that the near term results will remain curtailed given the current stress in the overall economy and the soft pricing environment.
 
Though rate increases and growth opportunities have resulted in increased premiums in the Reinsurance segment, a significant increase in premiums in its Insurance segment still remains elusive. Hence, we have a Neutral recommendation on the shares.