Deutsche Bank Downgrades AXIS Capital (AXS) to Sell

December 2, 2013 8:50 AM EST
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Price: $65.12 +0.82%

Rating Summary:
    2 Buy, 11 Hold, 5 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 11 | Down: 20 | New: 54
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Deutsche Bank downgraded AXIS Capital (NYSE: AXS) from Hold to Sell with a price target of $40.00 (from $45.00)

The firm cut EPS estimates for 2014 and 2015 to $4.05 and $3.85, respectively, compared with their prior estimates of $4.30 for 2014 and $4.70 for 2015.

Analyst Joshua Shanker explains, "The essential differences between this outlook and our previous view is modeling $100 million of net favorable prior-year development in 2014 and $80 million in 2015 in contrast with our former expectations of $25 million and none, respectively, which is more than offset by increases in our expectation of accident-year loss ratio. AXIS's 2002-2008 existence was heavily oriented toward property catastrophe, which leads to low ex-cat loss ratios and typically yields a high degree of favorable prior-year development. AXIS has since moved toward more infrastructure-heavy insurance operations, which are less volatile, but have higher run-rate combined ratios. That said, ex-cat loss ratios are currently lower today at AXIS than they were in some of its earlier years. This is counter intuitive. One explanation may be that AXIS was liberal about loss assumptions then and is being aggressive today. This would explain why recent accident years have failed to produce any favorable development (unlike their 2004- 2008 counterparts, a circumstance described above) and would suggest that the assumption that AXIS habitually over-reserves for losses at a trend of about 7.5% per annum is ambitious."

For an analyst ratings summary and ratings history on AXIS Capital click here. For more ratings news on AXIS Capital click here.

Shares of AXIS Capital closed at $49.13 yesterday.

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