AXIS Capital trades at $97 per share and has stayed right on track with the overall market, gaining 8.7% over the last six months. At the same time, the S&P 500 has returned 4.1%.
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Why Is AXIS Capital Not Exciting?
We're swiping left on AXIS Capital for now. Here are three reasons why AXS doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
In general, insurance companies earn revenue from three primary sources. The first is the core insurance business itself, often called underwriting and represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from various sources such as policy administration, annuities, or other value-added services.
Regrettably, AXIS Capital’s revenue grew at a sluggish 3.8% compounded annual growth rate over the last five years. This was below our standard for the insurance sector. 
2. Net Premiums Earned Points to Soft Demand
Markets consistently prioritize net premiums earned growth over investment and fee income, recognizing its superior quality as a core indicator of the company’s underwriting success and market penetration.
AXIS Capital’s net premiums earned has grown at a 2.5% annualized rate over the last two years, much worse than the broader insurance industry and slower than its total revenue.
3. Previous Growth Initiatives Haven’t Impressed
Return on equity (ROE) is a crucial yardstick for insurance companies, measuring their ability to generate returns on the capital provided by shareholders. Insurers that consistently deliver superior ROE tend to create more value for their investors over time through strategic capital allocation and shareholder-friendly policies.
Over the last five years, AXIS Capital has averaged an ROE of 9.5%, uninspiring for a company operating in a sector where the average shakes out around 12.5%.
Final Judgment
AXIS Capital isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 1.3× forward P/B (or $97 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better investments elsewhere. We’d recommend looking at our favorite semiconductor picks and shovels play.
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