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AXIS Capital Posts Q4 Preliminary Cat Loss, Shares Fall

AXIS Capital Holdings Limited AXS recently announced preliminary cat loss between $100 million and $120 million, net of estimated recoveries from reinsurance and retrocessional covers and including the impact of estimated reinstatement premiums. The loss can be primarily attributed to Hurricane Michael. Shares of the company lost 3.2% in the last couple of trading sessions, following the company’s announcement of cat loss estimates.

In the last reported quarter, the company’s results suffered due to Hurricane Lane that ripped through Hawaii. Catastrophe modeler Risk Management Solutions estimated insured losses in the range of $15-$20 billion, stemming from Hurricane Florence. AXIS Capital was also affected by cat events occurring in Southeastern United States and in Asia but the cat loss was lower than expected, reflecting operational excellence. Cat loss incurred in the last reported quarter was $92 million, primarily attributable to Hurricane Florence.

The Zacks Consensus Estimate for fourth quarter earnings is currently pegged at 60 cents per share, indicating 150% year-over-year increase. However, we expect the estimate to move down once analysts incorporate the cat loss in their figures. Nonetheless, the company noted that its loss estimate is in tune with industry insured losses of about $10 billion.

Notably, AXIS Capital delivered underwriting income through the first nine months of 2018 with combined ratio improving 2410 basis points on prudent underwriting. The company surpassed estimates in all the three reported quarters of 2018.

Exposure to catastrophe events dented the company’s underwriting results, rendering volatility in the company’s earnings. The U.S. property and casualty insurance industry suffered net underwriting loss of $29.3 billion in 2017, wider than $5.5 billion loss incurred in 2016 according to A.M. Best. Unprecedented landfall of hurricanes Harvey, Irma, Jose and Maria made 2017 the costliest year in term of catastrophe loss.

Shares of this Zacks Rank #3 (Hold) property and casualty insurer have gained 9.7% year to date, outperforming the industry’s increase of 6%. We expect the company’s focus on expanding its business lines and strategic acquisitions to drive premiums. A solid capital position should help to maintain stock momentum.

Recently, RLI Corp. RLI estimated losses from Hurricane Michael between $22 and $27 million, net of reinsurance.

Stocks to Consider

Some better-ranked stocks from the same space are Berkshire Hathaway Inc. BRK.B and Mercury General Corp. MCY, both sporting Zacks Rank #1 (Strong Buy). You can see _1link">the complete list of today’s Zacks #1 Rank stocks here.

Berkshire Hathaway engages in insurance, freight rail transportation, and utility businesses. The company delivered positive earnings surprise of 11.60% in the last quarter.

Mercury General engages in writing personal automobile insurance in the United States. The company delivered positive earnings surprise of 85.00% in the last quarter.

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