Insurer Reserve Releases, Buybacks Foreseen

A flood of insurer reserve releases may be in store for the second half of this year, according to an investment bank analysis.

Morgan Stanley analyst William Wilt said one thing he gleaned from this week's earnings reports was that "different reserving philosophies are beginning to emerge."

For Chubb and St. Paul Travelers, reserve releases helped margins by 2.5 percent and 1.9 percent, respectively.

Business mix and legacy issues may frustrate comparisons, but Mr. Wilt feels that ACE is holding back in this area.

"Regardless, the floodgates have not yet opened, suggesting to us the dam may burst in the second half of this year or next," he wrote.

Share buybacks, he thought, may also predominate this year as evidenced by St. Paul Travelers' announced $3.9 billion plan, "which was double our previous estimate."

Mr. Wilt found that of the seven companies reporting this week, five reported higher buybacks than previously planned. "We take this as a sign of slowing growth prospects, but the alternative of hoarding capital is none too appealing."

The Florida legislative deliberations will also play a strong role in insurers' financial prospects. "We view the Florida legislation as some of the most acrimonious pieces of legislation of the past 20 years. And interpretation and implementation of the bill lies ahead!" he wrote.

Everest Re estimated that up to 20 percent of the property-catastrophe reinsurance market was disintermediated, Mr. Wilt noted.

"This is bad for reinsurers to be sure, but we are equally concerned about myriad other provisions that restrict the free trade of insurance," Mr. Wilt wrote.

With that in mind, he said, a sell-off in Allstate shares was not irrational.