I have previously written about an overview of the reinsurance sector and quarterly updates on select company performance. I focus on price-to-book value and combined ratio as my primarily analytics to follow. I have found that while there is some short-term noise, over the long term these metrics do a nice job of comparing underwriting skill and valuation across different companies.
The summary results are listed below:
|company||current price||Q2 BV||Q2 P/B||Q2 Combined Ratio||Q1 Combined Ratio||Q4 Combined Ratio||market cap (B)||% of 52wk hi|
|Aspen Insurance Holdings (AHL)||$36.73||38.87||94%||97%||90%||108%||2.46||94%|
|Axis Capital Holdings (AXS)||$42.50||42.67||100%||88%||83%||112%||4.86||88%|
|Endurance Specialty (ENH)||$52.40||51.95||101%||90%||85%||119%||2.26||97%|
|Montpelier Re Holdings (MRH)||$26.11||27.03||97%||69%||62%||116%||1.32||95%|
|Partner Re (PRE)||$88.22||89.09||99%||98%||82%||95%||4.79||92%|
|Platinum Underwriter (PTP)||$58.20||59.67||98%||74%||45%||25%||1.70||97%|
|Everest Re (RE)||$134.43||136.7||98%||88%||81%||108%||6.53||98%|
|Validus Holdings (VR)||$34.99||34.19||102%||79%||61%||123%||3.49||87%|
|XL Group plc (XL)||$31.37||32.45||97%||94%||88%||104%||9.09||95%|
Table 1. 2013 second quarter results on combined ratio and price to book value for selected reinsurance companies.
Several trends have clearly emerged in the earnings reports and conference calls this quarter. Book value has decreased in essentially all of the companies I follow, quarter-over-quarter. Investment income has stalled out. Finally, the markets for reinsurance are being described as "more competitive" by most CEOs. To make matters worse, price to book has increased and remains at or above 100% for most companies I follow - which is a bit concerning to me given the way their business markets are being described and the fact that book value has decreased even in the absence of major catastrophes. One refreshing exception is that Everest Re demonstrated a 4% increase in book value.
I do not see much value in this space currently, at least related to valuations compared to the past several years. Price-to-book values are trading 10-20% higher than back then, yet investment portfolio returns have declined. As we head into summer hurricane season, I don't feel that this sector offers the margin of safety that I used to find. If forced to allocate capital, then Platinum underwriters looks like the best current balance between excellent underwriting and current stock valuation. However, the range of valuations in the sector is overall very tight and doesn't seem to be differentiating relative company performance very much.