Axis Capital Holdings Limited (AXS) Earnings & Analysis

Latest quarter

AXIS Capital reported third-quarter revenue of $1.8 billion, above the $1.7 billion consensus. Adjusted earnings per share were $3.12, also above the $2.97 consensus.

Revenue rose from $1.7 billion a year earlier. In its filing, AXIS attributed insurance premium growth primarily to marine and aviation, new business associated with its capacity-solutions capability, and accident and health renewals and new business. The filing also said reinsurance net premiums earned fell, driven by liability and motor lines.

The company’s gross margin fell to 24.8% from 32.7%, while operating margin declined to 14.7% from 22.3%. AXIS attributed an increase in the insurance current accident-year loss ratio partly to higher catastrophe and weather-related losses. CFO Matt Kirk said the combined ratio rose from a year earlier and acquisition expenses increased as the business mix shifted toward higher-commission lines.

AXIS reported free cash flow of $866.2 million, up from $657.6 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Vincent Tizzio said insurance growth came from the company’s capacity-solutions business, expanded classes and its core insurance book. He also pointed to growth in North American retail classes and an increase in submissions, while describing competition across most insurance lines.

On pricing, Tizzio said property rates declined and AXIS was becoming more selective in segments where pricing no longer met its standards. Liability rates increased, he said, but the company reduced exposures where prices fell short of expectations. Tizzio described the approach as cycle management: “Where conditions deteriorate, we act early to protect underwriting margins.”

Tizzio said AXIS continued to see opportunities in marine war and terrorism and in expanded classes where it had historically been underrepresented. He also said third-party capital allows its capacity-solutions business to offer clients more capacity while generating fees. In reinsurance, he said AXIS continued to favor specialty short-tail lines and remained selective in liability and professional business.

CFO Matt Kirk said the insurance attritional loss ratio rose because of business mix and a more competitive property and casualty market. He said acquisition costs also increased as AXIS wrote more higher-commission business, including marine war. Those costs, he said, can be offset by lower losses, lower internal expenses or fee income. Kirk added that investment income benefited from operating cash flow and improving yields.

In the question-and-answer session, Kirk said war premiums were a new factor in the acquisition ratio and offered a higher fourth-quarter proxy than the ratio he had previously guided to. Tizzio said, “The market is softening.” He declined to provide guidance on double-digit growth for the following year and said he did not expect a material change in AXIS’s selective cyber underwriting strategy.

Guidance

Kirk said the net investment income outlook had improved as AXIS added higher-yielding securities, and he suggested about $200.0 million as a fourth-quarter proxy. He also offered a higher fourth-quarter acquisition-ratio proxy than his earlier guidance, citing higher-commission war business. Tizzio declined to give guidance on double-digit growth for the following year.