Q4 Results Bode Ill For P-C Sector, Says Analyst
NU Online News Service, March 10, 3:12 p.m. EST?Fourth-quarter property-casualty insurance results do not bode well for that industry this year, said Prudential Financial analyst Jay Gelb in an investors note.[@@]
"Looking ahead, we have reduced our 2005 and 2006 EPS [earnings per share] estimates for most of the companies in our universe," he wrote.
Mr. Gelb said that deteriorating market conditions, asbestos charges, hurricane losses, and state and federal investigations all contributed to poor results in the last quarter of 2004.
"Of the 14 stocks we cover, eight beat our expectations, and six fell short of our estimates," he wrote.
Average net written premium growth for the commercial insurers fell to 13 percent in the quarter from 17 percent a year ago due to softening market conditions. "Adjusting for the St. Paul-Travelers merger, average net premium growth was a tepid 2 percent," Mr. Gelb wrote.
Prudential favors personal lines insurers over the commercial insurers and the insurance brokers. "Personal lines price increases should moderate, but we expect the earning power of these insurers to remain robust due to benign loss cost inflation," he wrote.
Those declining loss costs were reflected in a combined ratio that fell to 88 percent from 89 percent in the comparable year ago period, Mr. Gelb said.
The analyst also noted that at the American Institute of Financial Analysts conference, commercial carrier representatives said that prices were declining, particularly in the short-tail lines.
"ACE is willing to shrink its business and walk away from policies that do not meet its standards," Mr. Gelb wrote. "St. Paul Travelers said that it would reduce pricing for its best customers in what we view as a potentially troubling trend because it's a slippery slope."
In the increasingly competitive reinsurance market, demand is flat while supply is increasing, Mr. Gelb noted.
Mr. Gelb covers ACE, Arthur J. Gallagher, Allstate, Aon, Chubb, Marsh, Progressive, RenaissanceRe, Safeco, St. Paul Travelers, Willis and XL Capital.
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