UPDATE 2-Axis Capital reports lower Q1 operating earnings

(Recasts; adds details, background, analyst comments)

By Supantha Mukherjee BANGALORE, April 28 (Reuters) - Axis Capital Holdings Ltd (AXS.N), a Bermuda insurer and reinsurer, posted a higher first-quarter net profit, but lower operating earnings that missed analysts' estimates.

"The results were mediocre at best," Stifel Nicolaus analyst Michael Paisan said, adding that Axis missed consensus numbers primarily because of massive losses in the investment income side due to the turmoil in credit markets.

Axis Capital's operating earnings fell to $205 million, or $1.28 a share, from $227 million, or $1.37 a share, a year ago. Operating earnings, excluding foreign exchange gains, was $1.16 a share.

Analysts on average expected the company to earn $1.39 a share, before special items, according to Reuters Estimates.

Analysts use operating earnings, which exclude net realized gains from investments, to measure performance at insurance companies.

Net investment income fell 32 percent to $85.7 million for the quarter, hurt by a $61 million reduction in pre-tax net investment income from its alternative investment portfolio.

The insurer, which provides backup coverage to property insurers, posted net income available to common shareholders of $237.7 million, or $1.48 a share, compared with $227.6 million, or $1.37 a share, in the year-ago quarter.

Net premiums earned fell 4 percent to $658.6 million.

CONSISTENT COMPARISONS

While the insurer's operating earnings fell, its "20 percent return-on-equity was significantly better" than just about any of its peers, Paisan said.

"There's a lot of accounting gimmickry going on in the industry," Paisan, who has a "buy" rating on the stock, said.

While it's beneficial for companies to exclude things that they have not historically excluded such as alternative investments, Axis continues to report in the same way they have always reported, Paisan said.

"I would certainly think that going forward the results for Axis would be better than their industry peers."

Shares of the company were down 65 cents at $34.10 in trading after the bell on the New York Stock Exchange. (Editing by Himani Sarkar, Anthony Kurian)