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

by: David Merkel, CFA

With a few exceptions (for example, relating to a young company) late reporters tend not to do as well versus expectations as earlier reporters do. Well, in issue 10 of this series (see part I, part II, part III, part IV, part V, part VI, part VII, part VIII and part IX), it feels like the cat dragged in many of these reports.


Alas, but a company that has given me a hard time many times over, Scottish Re (NYSE:SCT), missed earnings badly. Oh, they’re solvent now, just ask Cerberus or Mass Mutual, or the banks that are extending finance to them. Will they be able to write significant new business at present? Not likely, for a while anyway. Will they make money in 2007? That is anyone’s guess.

Primary Casualty

ProAssurance (NYSE:PRA) beat (the only one yesterday) and AmComp (AMCP) missed. In general, medmal did well this quarter, so good for PRA, which had flat premiums. AmComp, if anything, wrote less business, which might be conservative but hurt current earnings. That hasn’t been a recipe for stock price outperformance.


American Capital Access (NASDAQ:ACAS) and Primus Guaranty (PRS) both missed. In general, I feel there is little franchise value to these companies that deal in credit default swaps and suchlike. Much of the reason for the miss is rising credit spreads through the quarter. That very well may revert over the next quarter.

Personal Lines

Bristol West (BRW) misses badly, with the loss ratio up. Since Zurich sees enough value to buy this company out, I only wish them well. They will need all the good wishes that they can get. National Atlantic (NAHC), a company that my employer has a large investment in, met estimates yesterday, but had better revenues than expected. More of the business mix moves to homeowners and small business commercial, and away from auto. How many insurance companies do you know that have growing revenues, trade at a single digit forward earnings multiple, and trade below book (and book is conservative)? Don’t think too hard here, there aren’t many.

Earnings season is drawing to a close. There are a few more companies to go, and I will bring them to you over the next few days.

Full Disclosure: very long NAHC