- Morgan Stanley is lowering their 2Q07e to 30c from $1.24 noting the UK floods, in particular, are a significant global event. Industry loss estimates stand around $3 billion, but flood claims being notoriously slow developing and difficult to adjust - the bias is higher. Consensus estimates have been drifting higher for the reinsurers, suggesting to us some may have been lulled into a false sense of security due to lower than average 2Q catastrophe claims in the US.
Having risen some 10-12% (on average) during the past quarter, earnings misses certainly weren't factored into shares of IPCR, nor are they in other reinsurance stocks, in firm's view. MSCO is content being some 5-10% below 2Q07 CE on most of the reinsurers they follow (PRE is the one exception). Would recommend waiting for weakness before getting long(er) in the space. Maintains Overweight on IPCR.
- Goldman Sachs notes that on the basis of their prior estimates, it appears that the company's catastrophe related losses will approach $90 million as compared with their earlier estimate of $9 million and $50 million for 1Q Kyril losses. It also appears that about 60% of the loss may have come from the UK with the balance from Australia. On the basis of IPC's release, they are lowering their 2Q and full year 2007 EPS estimate by $1.15 each to $0.28 and $3.65, respectively. Maintains Neutral and $37 tgt.
IPC Holdings announcement raises the obvious question of what other companies may be exposed to the UK and Australian floods. If other companies have flood exposure it will more likely be to the UK as they believe that IPC had a disproportionately larger share to the Australian market than its competitors. Companies that could be at risk of EPS disappointments due to the UK storms would include AHL, ENH, PRE, PTP, and RNR.
Notablecalls: Well, it looks like Goldman gave the traders a nice short sell list for this morning. The only stock I would not touch on the short side is PRE, as the chart is just way too strong. Also, I would not chase any of these.
With regard to IPCR, I think the stock may be a bounce candidate. Insurance stocks usually are after big claims hit. It's because they can raise prices afterwards (I know IPCR is a reinsurer but it should work the same there).
Last prints in after hours were around $27, which looks like a level I'd be willing to bid this one. Would even be prepared to pay up. Small size as I'm not very familiar with the name.