In a "dramatic" shift for the property-casualty insurance industry, some major insurers over the next few years will see their large share of the marketplace chipped away, a securities brokerage is predicting.
That forecast came in the Keefe, Bruyette & Woods fourth-quarter preview of earnings for the p-c sector.
The firm said "the most important theme over the next several years will be dramatic share shift in the industry." And, KBW believes, American International Group "in particular appears likely to lose share, but other industry leaders, such as XL Capital, also appear to be under attack."
The firm said that p-c companies will be reporting ugly fourth-quarter results that highlight "investment portfolio hits and increased loss estimates for Hurricane Ike."
But despite the year's losses, KBW said the industry appears to be standing on its feet with few companies needing additional capital, and investors and the industry should be able to focus on the opportunities of 2009.
The global price environment, said KBW, appears stable, showing a dramatic improvement since midyear 2008 and in short-tail, capital intensive lines such as U.S. property, rates appear to be increasing as much as 20-30 percent.
KBW's analysis carried the caveat that, of course, there is more to growth than higher prices and the firm would expect to hear some concern regarding the risk of a contracting global economy impacting volumes.
The brokerage said it does not favor any specific subsector but is positive on certain types of companies and within regional agency/specialty insurers, and it believes companies with better distribution, pricing and niche product platforms are the best long-term investment choices.
Among Bermuda insurers and reinsurers, it said it is positive on those with strong franchises that are well positioned to capitalize on market dislocation in the wake of the AIG fallout.
KBW also favors the larger brokers, "whose strong global platforms with large reinsurance businesses should benefit from current market dislocation and improved pricing."
Going into earnings, the broker's favorite stocks include The Hanover Insurance Group, Navigators Group Inc., Willis Group Holdings Ltd. and SeaBright Insurance Holdings Inc.
The company said it sees demand for reinsurance up, but with rate increases varying widely depending upon geography and loss experience.
It found rates are strongest in capital-intensive lines of business such as U.S. property catastrophe, up 20-30 percent, while for most of the market, it saw little capital crunch.
Pricing for personal auto and homeowners lines, KBW noted, is seeing low single-digit increases.
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