Following a hurricane season in which hurricanes were largely absent, property catastrophe reinsurance renewal prices are set to fall about 10% on Jan. 1, says SNL's Adam Cancryn, with prices for more U.S.-centric mid-year renewals likely to decline as much as 20%.
This will mark year #2 of deep cuts to reinsurance pricing - with a flood of new competition adding to the lack a natural disasters. "Unless you see some sort of massive change, it's not obvious what would change this environment that we've entered," says Sanford's Josh Stirling, and some analysts predict it will take $100B in industry losses to halt Y/Y rate-reductions.
For now, expect buybacks to continue, says Janney's Ryan Byrnes. "If you're a pure reinsurer, there's not much you can do with your capital right now, operationally."
"Our current assumption is that Montpelier Re (MRH) habitually over-reserves for losses at a trend of about 25.0% per annum, leading us to assume that reserves at the company are overstated by about $450 million," says analyst Joshua Shanker, starting the stock at a Buy with $37.50 price target. One year from now, he expects reported book value per share of $30 and $400M in overstated reserves, leaving reported book value underestimated by about $7.50 per share.
"We have some concern that XL's habitual tendency to over-reserve for losses with a trend equating to 7.5% of reserves may have been compromised if loss-picking has indeed become aggressive," he says, cutting XL Group to Sell with $26 price target (from $33).
Montpelier Re Holdings Ltd. (MRH) declares $0.115/share quarterly dividend, 9.5% increase from prior dividend of $0.105. Forward yield 2.23%. For shareholders of record Dec. 31. Payable Jan 15. Ex-div Dec. 27. (PR)
Tucked into its earnings release this afternoon, RenaissanceRE Holdings (RNR) becomes the first of the reinsurers to warn on Sandy: "The Company's current preliminary assessment is that the impact of Hurricane Sandy on its financial results will likely be significant." (h/t Corey Davis)