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

by: David Merkel, CFA

When I started writing about this quarter's insurance earnings, I did not think that I was starting to write a series, but it seems that I have done so (see part I, part II, part III and part IV). Since this is percolating out to a number of media outlets, let me simply ask that if you find this valuable; email me or post a comment. I will continue this series through the end of first quarter earnings, but with demand, I would do this next quarter, assuming that I am not swamped. On to the earnings:


At last the big dogs of this sub-industry begin to report. I mentioned about the disappointments from Genworth (NYSE:GNW) and Principal (NYSE:PFG); well, they got whacked in Tuesday’s trading, as did Sun Life (NYSE:SLF), which met estimates, but they decided to eliminate their Clarica brand, which presumably will reduce some future revenues. On the other hand, the buy side may simply have gotten ahead of the sell side.

After the close yesterday, both MetLife (NYSE:MET) and Lincoln National (NYSE:LNC) beat estimates. I reviewed them in detail, and I couldn’t find much to quibble with. MetLife’s International division did especially well.

Primary Commercial

Markel (NYSE:MKL) beat handily after the close, with a rising top line as well. Two of the companies beating the estimates Tuesday soared — Hanover Group (NYSE:THG) and Ohio Casualty (OCAS). National Interstate (NASDAQ:NATL) missed estimates after the close due to a higher than expected expense ratio.

Personal Lines

Safeco (SAF-OLD) beat estimates by a tiny bit, but it looks like the buyside was looking for more. Given the incredible performance of the stock over the past twelve months, it was just a matter of time before a pullback would happen. I still think Safeco is overvalued versus peers, even after the fall in price.

The Bermudans

Ren Re beats the estimate by a wide margin, but on a lower earned premium year-over-year. I suspect the stock moves up, but the questioning on the conference call should be interesting as they flesh out the strategy of management.

Here’s my quick summary of the sectors then: in general, primary commercial, and P&C reinsurance (the Bermudans) have done well. (Amazing what you can do when there are few catastrophes, or negative legal trends.) Personal lines, title, and life are mixed bags, but generally positive. Mortgage has had problems, and I expect that the problems will persist for at least a few quarters.

Full disclosure: long MET and LNC