AXIS Capital's (AXS) Escalating Expenses Raise Concern

On Jul 13, 2016, we issued an updated research report on AXIS Capital Holdings Limited (NYSE:AXS) .

Given that AXIS Capital is a property and casualty (P&C) insurer it remains exposed to catastrophe losses. As a result, the company has been witnessing weak underwriting results over the past few years. Both the underwriting income and combined ratio deteriorated in the first quarter of 2016.

Moreover, increasing competition in the reinsurance industry can slow down growth and lower profitability for the company. Further, AXIS Capital’s operational results might be hampered by currency fluctuations.

AXIS Capital has been witnessing a rise in expenses over the last few years. Higher net losses and loss expenses, general and administrative expenses, higher acquisition costs and increase in interest expenses and financing costs have led to the overall increase in expenses. The company should strive to improve its magnitude of revenues more than that of increase in expenses, else margin could suffer. Nonetheless, AXIS Capital intends to lower expenses by $50 million to $60 million by the end of 2017.

Moreover, the Zacks Consensus Estimate has witnessed downward revision for the second quarter over the last 60 days.

Nevertheless, AXIS Capital remains committed on strengthening its three businesses – Specialty Insurance, Reinsurance, and Accident & Health – for long-term growth. The company also remains focused to make organizational changes to support growth.

AXIS Capital has also been engaging in shareholder friendly moves and intends to pay back at least 100% of annual operating earnings via common dividends and share repurchases until other growth avenues are found.

AXIS Capital is set to release its second-quarter 2016 earnings on Jul 26, 2016. The Zacks Consensus Estimate is currently pegged at 94 cents. Our proven model does not conclusively show that the company is likely to beat estimates this quarter. This is because the company has an Earnings ESP of +7.45% but a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks are Argo Group International Holdings, Ltd. (NASDAQ:AGII) , Third Point Reinsurance Ltd. (NYSE:TPRE) and MS&AD Insurance Group Holdings, Inc. (OTC:MSADY) . While both MS&AD Insurance and Third Point Reinsurance sport a Zacks Rank #1 (Strong Buy), Argo Group holds a Zacks Rank #2 (Buy).

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