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For Non-Life Insurers, It's 'All About M&A Now,' Barclays Proclaims

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In a report published Thursday, Barclays analyst Jay Gelb mentioned that although a modest book value decline and weakening prices were expected for the P&C insurance stocks, investors are likely to focus on “the next potential P&C M&A transaction.”

Against the backdrop of a tough P&C environment, Barclays said its “favored P&C stocks” were:

  • Allstate Corp (NYSE: ALL) and Marsh & McLennan Companies, Inc. (NYSE: MMC) - in view of their “persistent strong results
  • American International Group Inc (NYSE: AIG) and Hartford Financial Services Group Inc (NYSE: HIG) – due to their “prospects for significant share buybacks at attractive valuations”
  • BRK Inc (OTCBB: BRKK) – given its “exposure to an improving economy along with accretive acquisitions”

Referring to primary commercial P&C, analyst Jay Gelb recommended “high-quality specialty companies” such as ACE Limited (NYSE: ACE) and Arch Capital Group Ltd. (NASDAQ: ACGL).

In the report Barclays noted, “In 2Q, we model a 1.3% median decrease in linked-quarter book value for the P&C (re)insurers driven by solid core underwriting results, offset by challenged investment results and elevated spring weather losses.”

Gelb expects BRK, AIG and XL Group plc (NYSE: XL) to generate the most solid linked-quarter book value growth, at above 2 percent. Allstate, Aspen Insurance Holdings Limited (NYSE: AHL) and Chubb Corp (NYSE: CB) are expected to record the highest declines due to “negative mark-to-market valuations on investment portfolios.”

ACE has recently announced the proposed takeover of CB for $28bn. ACGL does not appear interested in large-scale M&A, since it is focusing on “generating attractive ROE in commercial P&C insurance and reinsurance than on its premium volume,” Gelb said, while adding, “Our sense is recent defensive M&A activity could continue to put pressure on Aspen to consider strategic alternatives following its successful defense of a hostile takeover by Endurance.”

Barclays maintained an Overweight rating on Allstate. Gelb reiterated an Equal-Weight rating on Chubb, while raising the price target from $98 to $125.

Latest Ratings for ALL

Jan 2017Goldman SachsUpgradesNeutralBuy
Jan 2017Credit SuisseDowngradesOutperformNeutral
Sep 2016BarclaysMaintainsOverweight

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Posted-In: BarclaysAnalyst Color Price Target Reiteration Analyst Ratings


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