Fourth-quarter 2005 results portend challenging times for personal lines insurers, according to a new analysis by Bank of America securities analyst Brian Meredith.

“We expect continued top-line growth pressures and gradual margin compression,” he wrote, noting, “The personal auto insurers have historically underperformed other property-casualty insurers during periods of margin compression.”

Among the companies most at risk for margin compression and ultimately earnings “misses,” he warned, are Allstate, Safeco and Progressive.

But Bear Stearns analyst David Small has a different view of Allstate, predicting it will post solid results from its auto book this year. “Its leading franchise allows it to maintain rates and therefore [returns on equity] ROEs, but many investors are skeptical,” he wrote.

Mr. Small said his organization has developed a sensitivity analysis that shows that even if the auto environment weakens “more than we expected” and catastrophe losses are greater than expected, the company should earn more than $6 per share for the year.

Mr. Meredith sees Allstate earning $5.95 per share.

In addition, Mr. Meredith noted that his index of personal lines companies have shown the greatest share price decline since the beginning of the fourth-quarter 2005 earnings season of 8.6 percent, compared to commercial lines companies at 3.4 percent and the overall P-C index of 3.6 percent.

Mr. Meredith also said that for Allstate and Safeco there was a pattern of buying back stock during competitive pricing environments.

Progressive, however, at this time had declined to go that route. At a board meeting this afternoon, directors announced there would be no share repurchase program or special dividend, reported Mr. Small in a note to investors.

“We continue to believe the company has significant excess capital on the balance sheet. However, at the current share price we suspect the board viewed a share buyback as less than ideal given the long payback, and for other reasons shied away from a special dividend,” wrote Mr. Small.

Special Reports /

Analysts Differ On Personal Lines

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