Today we explore my third most favorite insurance company at the moment, AXIS Capital Holdings Limited (AXS). The key to making big money in insurance is the underwriting. An insurance company with strong underwriting discipline gains access to invest-able float at a negative interest rate. AXS is a strong example with a 10 year average combined ratio of 90.5. Axis operates in a niche marine insurance segment where they are able to consistently outperform the competition.
Axis is attractively valued. Price to sales is 0.98, very cheap. Price to book is a very reasonable 1.18. The low valuation leads to the second best current yield in my list at 2.3%. AXS is also in the process of acquiring the number 5 company on my list, PRE. I expect this addition will be immediately accretive earnings and will add scale allowing further improvements in combined ratio.
Over the past 10 years, AXS has grown investments 307% for a compounded annual growth rate of 11.87%. That’s pretty nifty for a conservative investor like an insurance company. The company has also repurchased stock about twice the rate it expends funds on dividend distributions. That gives us, before any potential multiple expansion, expected annual returns of almost 19% (investment growth of 11.87% plus dividend yield of 2.3% plus bonus repurchase yield of 4.6% or 18.77%). That is a very attractive growth rate for a safe and boring industry.
Devour your prey raptors!