A.M. Best Affirms Ratings on AXIS - Analyst Blog

Rating agency A.M. Best Co. affirmed the issuer credit rating (ICR) of “bbb+” and existing debt ratings of AXIS Capital Holdings Limited (AXS). The rating agency also affirmed the financial strength rating (FSR) of A (Excellent) and ICR of “a+” of AXIS Specialty and its operating affiliates. The outlook for all ratings remains stable.

A.M. Best Co. noted that AXIS' portfolio is well diversified, both geographically and by line of business. The company operates in Bermuda, the U.S., Singapore and Europe, with a focus on specialty insurance lines including property, marine and political risk, along with property catastrophe and other specialty reinsurance coverages.

The rating affirmation is based on AXIS' consistent performance, solid risk-based capitalization, robust enterprise risk management controls and experienced management team. Also, AXIS has been delivering a five-year average return on equity in the mid double-digit range as well as a five-year average combined ratio of approximately 85%. A.M. Best expects AXIS to maintain a total debt-to-capital ratio in the mid-teens to low twenties over the near term.

On the flip side, the company's exposure to large catastrophe losses coupled with a tough macro environment weigh on its positives. Though the company suffered huge realized and unrealized investment losses in 2008 and losses on specific investments and certain underwriting decisions in 2009, it has been able to manage the crisis effectively.

AXIS Capital reported third-quarter operating income of $1.22 per share, beating the Zacks Consensus Estimate as well as the year-ago figure.

We believe conservative underwriting practices, a solid capital position, and positive ratings from rating agencies as well as share buyback programs and dividend hikes position AXIS Capital wellgoing forward.

However, the low investment yield environment added to a challenging property and casualty market keeps us on the sidelines. We maintain our Neutral recommendation on AXIS Capital. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

Incorporated in November 2001, AXIS Capital was one of the several insurance carriers formed to capitalize on heightened insurance demand following the 9/11 terrorist attacks. Bermuda-based AXIS Capital is a global provider of specialty lines of insurance and treaty reinsurance. The company's closest peer is ACE Limited (ACE).