1Q07 Insurance Earnings: What's Working, What's Not (Part VI)

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 |  Includes: AEL, AHL, AIZ, ALFA, CINF, CRMH, EMCI, ENH, ERIE, FMR, FPIC, HMN, IPCC, KFS, OB, PROS, PRU, UNM, WLTW, WTM
by: David Merkel, CFA

Onto the tidal wave of insurance earnings (see part I, part II, part III, part IV and part V):

Life

Assurant (NYSE:AIZ) beat handily, on higher revenues. Only the health division lagged. Prudential Insurance (NYSE:PRU) beat as well, with its international division leading the way. UnumProvident (NYSE:UNM) beat, showing that its turnaround has legs. American Equity (NYSE:AEL) missed stating that their interest spread margins had shrunk. That’s a difficult condition to turn around in the short run, particularly given the long duration of the liabilities. I would stay away.

Personal lines

21st Century (TW), Erie Indemnity (NASDAQ:ERIE), Infinity Property Casualty (NASDAQ:IPCC), Horace Mann (NYSE:HMN), and Cincinnati Financial (NASDAQ:CINF) all beat, while Kingsway (NYSE:KFS) and Alfa Corporation (NYSEARCA:ALFA) both miss. Infinity reported before Wednesday’s open, and raised guidance; it was up 11% on the day. Kingsway had to raise reserves, and ALFA had damage from tornadoes down South.

Primary Casualty

Procentury (PROS), FPIC (NASDAQ:FPIC), First Mercury (FMR), White Mountains (NYSE:WTM), and EMC Insurance (NASDAQ:EMCI) beat. CRM Holdings (CRMH) met estimates. OneBeacon (NYSE:OB) missed estimates. In general, it has been a great quarter for long tail insurance writers. Investment income up, claims low, what more can you ask for? Premium trends are mixed. Only FPIC and EMC Insurance wrote less business.

The Bermudans

Both Endurance Specialty (NYSE:ENH) and Aspen Holdings (NYSE:AHL) beat, and both wrote less business than this time last year. Endurance had significant claims from European windstorm Kyrill. Ren Re beat earnings handily Tuesday evening, but the stock went nowhere on Wednesday, given the shrinkage of written premium. The same may prove true of Endurance and Aspen.

We’re past the halfway point of the earnings season for insurance. In general, Bermuda and primary casualty are strong. Life and personal lines are pretty good. Only mortgage is having any significant difficulties.

Full disclosure: long AIZ ENH