Market Overview

Insurance Sector Overview - 2010 (AGII, SBX, ALL, MMC)


Analysts Bijan Moazami and Daniel Lee of FBR Capital Markets are apprehensive about the growth of the property/casualty (P/C) insurance industry because of the decreased demand of products in this segment after the economic slowdown, thereby reducing the underwriting income.

Reinvestment rates have dropped sharply, reducing the investment income of the insurers. As a result, the analysts are downgrading the P/C insurers Argo Group International Holdings (NAS: AGII) and SeaBright Insurance Holdings, Inc. (NYSE: SBX). Analysts have also lowered expected prices of Argo and SeaBright to $36 and $11, respectively.

However, the outlook for the personal lines insurance seems positive in the current environment due to increasing rates. As a result, the analysts have upgraded The Allstate Corp. (NYSE: ALL). The Allstate Corp. is in the personal lines business.

The analysts seem even more positive for the performance of the insurance brokerage industry due to improving economic environment. Hence, they have upgraded shares of Marsh and McLennan Cos. (NYSE: MMC). Marsh has a promising new management team due to which the analysts have increased their predicted share price by $5 to $27 in 2010.

Analysts have downgraded shares of Chubb Corporation (NYSE: CB) and The Travelers Companies Inc., (NYSE: TRV) because of their ambitious share buyback programs. According to the analysts, Chubb’s and Travelers’ ROE will contract 12% and 11% in 2010 despite massive buybacks because the benefit of lower equity base (causing an increase in ROE) will be overridden by the expansion in price to book value multiple.

Analysts maintain the Outperform rating for XL Capital (NYSE: XL), Ace Limited (NYSE: ACE), Am Trust Financial Services (NAS: AFSI) and Tower Group (NAS: TWGP).

Posted-In: Bijan Moazami Daniel Lee FBR Capital MarketsAnalyst Color Upgrades Downgrades Analyst Ratings


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