A number of insurers (MET, HIG, TRV, CB) come under the downgrade gun today. Details are sparse at the moment, but surely valuations are playing a part after decent to big runs for all 4. MetLife and Hartford were already doing fine, but the idea of higher interest rates (leading to higher investment returns) have given those 2 stocks an additional boost the past several weeks.
Sandler O'Neill is 2-handed on P-C insurers, maintaining buys on ACE, AFG, AIG, ALL, PRA, TRV, UFCS, and XL even as it says caution is warranted. Among the reasons are consensus not accounting for high catastrophe losses in Q2, weak reinsurance pricing, and poor investment returns (despite the recent rise in rates).
Travelers (TRV) agrees to acquire Dominion of Canada General Insurance from E-L Financial for ~$1.1B. TRV expects the transaction will have no significant impact on 2013 EPS and will be slightly accretive to 2014 EPS.
Tornados striking the U.S. this week are expected to cause anywhere from $2B-$5B in insured losses, according to Eqecat, obviously with most of the damaged coming from the Moore, OK disaster. At the top end of the range, this week would rank as the 2nd worst ever, behind only the April 2011 tornados in Alabama. TRV, CB, ALL all dropped amid the tornado news early in the week and have held steady since.
Keep an eye on property casualty insurers (TRV, ALL, CB, AIG) after all posted notable declines amid the Oklahoma City tornado disaster yesterday. The dip following Sandy proved a great buying opportunity (though from much lower levels).
More on Goldman's AIG downgrade (earlier): Better bets are Travelers (TRV) and Allstate (ALL) - like AIG, set to benefit from improving insurance margins, but also able to return capital without the regulatory risk. Prudential (PRU) and MetLife (MET) might also be better ideas - like AIG, they do face regulatory risk over capital returns, but both have more muted expectations and trade at lower valuations.
Travelers (TRV) notches a couple of upgrades after earnings yesterday, with Bernstein expecting the stock to hit new highs this year, and Goldman reiterating its Buy and raising the price target to $96. Bernstein's Josh Stirling was clearly impressed with the quarter (CC transcript) and CEO Jay Fishman - responding to a question of his - says momentum in premium increases will continue thanks to unpredictable weather and low interest rates cutting returns on Travelers' investment income.
More on Travelers (TRV) Q1 earnings: Combined ratio falls (a good thing) to 88.5 from 92.2 thanks to better rates (up 3.8%) and lower catastrophe losses (off 1.3%). Book value/share of $68, up 7% Y/Y. Repurchased $300M worth of stock during quarter. Quarterly dividend hiked 9% to $0.50. Shares +4.2% premarket. (PR)
Up nicely since Hurricane Sandy, the insurers have further to run, says Credit Suisse's Michael Zaremski, as the industry - realizing it can't make money off the float with interest rates so low - is successfully pushing through premium increases. ACE, TRV, and ALL should all continue to benefit.
More on Travelers (TRV) Q4 earnings: GAAP Combined ratio jumps to 105.4 from 95.9 a year ago thanks to Sandy. Underlying combined ratio improves to 92.8 from 97, thanks to better underwriting margins. Net written premiums up 2% Y/Y. Book value/share of $67.31, up 8% Y/Y. "We are very encouraged by pricing trends across all 3 business segments." Shares +2.8% premarket. (PR)
Travelers Companies, Inc. is a holding company. It provides commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals in the United States.