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Coverage Initiation: Axis Capital Holdings
The Value Line Investment Survey recently initiated coverage of AXIS Capital Holdings (AXS), the Bermuda-based holding company of the AXIS group of companies. AXIS capital provides specialty insurance and reinsurance on a worldwide basis through operating subsidiaries and branch networks in Bermuda, the United States, and Europe. The business consists of two distinct global underwriting platforms, AXIS Insurance and AXIS Re.
The company was founded in November, 2001, with the mission of addressing the need for global insurance and reinsurance products following the attacks of September 11th. AXIS went public in July, 2003, raising $462 million from the initial public offering, giving the company the financial flexibility necessary to compete with the industry leaders.
In the years since, AXIS has grown substantially, and now has over 880 employees and a market capitalization of about $4 billion. The company has carved out a niche in the specialty insurance industry, focusing on low-frequency, high-potential loss policies. AXIS often custom-tailors policies deemed too exotic by other insurers. An example is the company’s terrorism insurance division, which provides coverage for physical damage and business interruption due to an act of terrorism. It was the first product AXIS offered, following the attacks of September 11th.
In 2009, the company acquired Dexta Corporation Pty Ltd., an underwriting agency in Australia. Later in the year, the company established a new Global Accident and Health line of businesses within its insurance segment.
Following the initial public offering, the company registered five consecutive years of top-line gains, peaking in 2007. But like much of the insurance and reinsurance industry, the company found itself in a challenging operating environment in 2008. However, AXIS was able to use its size and flexibility to navigate a soft pricing market in 2009 and recorded its highest net earned premiums total in the company’s short history. It achieved this by shifting the business mix to more profitable plans and limiting its exposure to large catastrophe losses.
The first half of 2010 was marked by record industry catastrophe losses. Although AXIS lost $147 million from the Chilean earthquake and the French windstorm Xynthia, the company’s exposure was relatively low and the losses could have been far more costly. We look for AXIS to post a modest top-line gain this year despite the aforementioned catastrophe losses.
The company has been actively repurchasing stock since 2006. AXIS’s strong balance sheet and large cash position assist in creating and increasing shareholder value. Share buybacks have also allowed the company to bolster per share earnings.
AXIS’s growing book of business and global scale lead to our long-term optimism for growth. Management has displayed the ability to adjust to rapidly changing market conditions and position the company for future advances. We think AXIS is well situated to take advantage of the likely industry recovery we project over the coming 3- to 5-years.