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

 |  Includes: AFFMQ, EIG, NPTE
by: David Merkel, CFA

Finally, the last post in our series about Q1 Insurance earnings (see part I, part II, part III, part IV, part V, part VI, part VII, part VIII, part IX, part X and part XI). Only three more companies to mention since my last post, so here goes:

Primary Commercial

Employers Holdings (NYSE:EIG) beats estimates, but on falling premium volume. North Pointe (NPTE) misses earnings on falling premium volume, a higher loss ratio, and expansion expenses that can’t be deferred. Their acquisition looks interesting though; should be accretive to earnings.

Personal Lines

Affirmative Holdings (AFFM) misses estimates badly. More premiums, but higher loss and expense ratios.

Quarter End Summary

Here are the themes of the quarter. I would expect them to persist into the next quarter, which is what normally happens, but when themes don’t persist, the adjustment to prices can be severe.

1. Though the sell side has gotten into greater agreement with the idea that the top line doesn’t matter much (an idea that I support), the buy side did not agree this quarter. In general, companies that grew their premiums were rewarded, and vice-versa for those who shrank or stood still.
2. What worked: Primary Commercial, The Bermudans, Financial Guarantors and Life Companies. With Life companies, in general, the larger companies, and the ones with greater exposure to asset management did better. With Primary Commercial insurers and the Bermudans, in general the less conservative did better.
3. What sort of worked: Personal lines and Conglomerates.
4. Indeterminate: Title Insurers.
5. What didn’t work: Brokers, Mortgage Insurers and Specialty Credit players. Credit trends were poor in the first quarter, and brokers faced shrinking revenue from shrinking premium rates.

That was the quarter as I saw it. Did you find this series valuable? If so, please comment. I have a few ideas on how to make it better, but perhaps this is too superficial to be of use. If so, tell me, and I’ll focus on other things.

Full Disclosure: long NPTE