Market Overview

Sterne Agee CRT's Five Favorite Ways To Invest In P&C Insurance

  • Vinay Misquith of Sterne Agee CRT commented in a note on Monday that he is "cautiously optimistic" about P&C (property and casualty) insurance stocks.
  • ACE Limited (NYSE: ACE), Chubb Corp (NYSE: CB), XL Group plc (NYSE: XL), Allstate Corp (NYSE: ALL), and Willis Group Holdings PLC (NYSE: WSH) were all initiated with a Buy rating and price targets corresponding to a potential 15-20 percent upside.
  • Misquith noted that P&C insurers tend to outperform when the overall market declines and are now "more attractive."

Vinay Misquith of Sterne Agee CRT initiated coverage of P&C (property and casualty) insurance stocks with a "cautiously optimistic" tone despite softening pricing.

According to Misquith, the recent selloff on global growth concerns made P&C names "more attractive" since earnings for underwriters are "not economically sensitive." Moreover, P&C stocks are "defensive" and outperform when markets are weak.

Misquith continued that from a historical perspective, there exists an 85 percent negative correlation between interest rates and P&C stock performance versus the S&P 500. However, the analyst added that the negative correlation fell to 25 percent in the past four years when interest rates were low. Moreover, the analyst is expecting the 10-year yield to rise to 3.25 percent by 2017, implying the rising rate environment "will not meaningfully impact" P&C stocks.

Misquith initiated Buy ratings on shares of Ace Limited ($120 price target), Chubb ($135 price target) and XL Group ($44 price target) given potential upside stemming from recent merger and acquisition activity. Specifically, the analyst pointed out that while pricing may be "weak," it is in the process of bottoming. In addition, potential M&A and valuations are near book value which implies a limited downside support for the three stocks even with weak fundamentals moving forward.

Misquite also initiated Allstate Corp with a Buy rating and $70 price target as the company is an under-earning franchise while rate increases and underwriting activity should improve its future profitability.

Finally, Willis Group was initiated with a Buy rating and $48 price target as the company is expected to show double-digit earnings growth from its operational improvement program.

Posted-In: insurance stocks P&C Property And Casualty Sterne Agee CRTAnalyst Color Long Ideas Analyst Ratings Trading Ideas


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