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AXIS Capital (AXS) Announces Wider-than-Expected Q3 Loss

AXIS Capital Holdings Limited AXS reported third-quarter 2017 operating loss of $5.35 per share, slightly wider than the Zacks Consensus Estimate of a loss of $5.34. Also, the operating loss in the reported quarter compared unfavorably with the operating income of $1.78 in the year-ago quarter. The massive catastrophe losses incurred in the reported quarter were mainly responsible for such a dismal earnings performance.

Axis Capital Holdings Limited Price, Consensus and EPS Surprise

 

Axis Capital Holdings Limited Price, Consensus and EPS Surprise | Axis Capital Holdings Limited Quote

Including net realized investment gains of 15 cents, foreign exchange losses of 34 cents, and transaction related expenses of 7 cents, net loss came in at $5.61 per share, which compared unfavorably with the net income of $1.96 per share in the prior-year quarter.

Operational Update

Operating revenues of about $1.1 billion beat the Zacks Consensus Estimate of $972 million. Revenues increased 4.9% year over year.

Gross premiums written improved 23.5% year over year to about $1.2 billion. This improvement was driven by 55% higher premiums written in the Reinsurance segment and 10.2% higher premiums written in the Insurance segment.

Net investment income declined 18.6% year over year to $95.2 million, driven by change in fair value of alternative investments.

Total expense in the quarter shot up 85.9% year over year to $1.6 billion due to higher net losses and loss expenses, acquisition costs, foreign exchange losses and transaction related expenses.

AXIS Capital reported underwriting loss of $512.9 million against the underwriting income of approximately $104 million. Combined ratio deteriorated 6030 basis points (bps) to 152.9%. Catastrophe and weather-related pre-tax net losses were $317 million, largely attributable to Hurricanes Harvey, Irma, Maria and Mexico earthquakes. The figure is significantly wider than the loss of $15 million in the year-ago quarter.

Segment Results

Insurance: Gross premiums written increased 10.2% year over year to $744 million owing to better performing liability lines of business, credit and political risk lines driven by new business as well as an increase in our aviation lines associated with the acquisition of Aviabel. However, a reduction in premiums written after the company’s exit from some U.S. retail insurance operations last year, partially offset the upside.

Net premiums earned increased 11.5% year over year to $496 million on premium growth in accident, health and property lines along with the aviation lines of business in recent periods. Also, a decline in ceded premiums earned in the property lines of business added to the upside.

Underwriting loss of $282 million, compared unfavorably with the underwriting income of $25.2 million in the year-ago quarter. Combined ratio deteriorated 6250 bps to 156.9%.

Reinsurance: Gross premiums written in the quarter jumped 55% year over year to $441 million, largely on the back of a higher level of premiums in the liability, catastrophe, property and motor lines.

Net premiums earned increased 6.4% year over year to $521.1 million on premium growth in the motor line as well as favorable premium adjustments impacting the catastrophe lines. However, a rise in ceded premiums earned in the catastrophe lines partially offset the upside.

Underwriting loss of $231.2 million compared unfavorably with the underwriting income of $78.8 million in the year-ago quarter. Combined ratio improved 5860 bps year over year to 143.7%.

Financial Update

AXIS Capital exited the quarter with cash and cash equivalents of $1.4 billion, up nearly 30% from the 2016-end level.

Cash flow from operations was $163 million compared with $203 million in the year-ago quarter.

As of Sep 30, 2017, diluted book value per share was $55.33, down 8% year over year.

Share Repurchase and Dividend Update

During the third quarter, the company repurchased 3 million shares. As of Oct 25, 2017, AXIS Capital has $739 million remaining authorization under the common shares’ repurchase program up to Dec 31, 2017. But it has been suspended due to the acquisition of Novae.

The company declared a dividend of 38 cents per common share.

Zacks Rank

AXIS Capital presently carries a Zacks Rank #5 (Strong Sell).

You can see https://www.zacks.com/stocks/buy-list/?ADID=zp_1link&ICI... _1link">the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Among other players from the insurance industry that have reported third-quarter earnings so far, the bottom lines of The Progressive Corporation PGR, The Travelers Companies, Inc. TRV and RLI Corp. RLI surpassed the respective Zacks Consensus Estimate.

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