Things are slowing down, but not much.? Here’s my summary of Thursday’s earnings:
Financial
RAM Holdings beats handily, and Assured Guaranty beats.? I used to own RAM Holdings, but I kicked it out because of the negative macro view of the firm that I work for.? Absent the negative macro view, I would have loaded the boat in the twelves and hung on.? I like the management team and the strategy.
Life
Nationawide and Phoenix both beat.? Big beat for Phoenix, and the stock price was up 5%.? Both are heavily levered to equity prices, so the beat should not be so surprising.
Manulife met estimates and the price fell a little.? Manulife is a company where I don’t get the valuation; it seems too high.? As pointed out yesterday, American Equity missed and fell hard today.? UnumProvident rose as it demonstrated its turnaround through beating earnings on Wednesday after the close.
Brokers
Aon reports and beats on higher revenues.? It seems like the big brokers are beating, while the smaller brokers are missing.? They are different business models.
Primary Commercial
PMA Capital and Tower Group beat, while Specialty Underwriters Alliance missed.? Revenues grew at all of them, and generally continued a 1Q07 theme: so long as earnings are decent enough, the market prefers companies that are growing the top line.
Title
First American misses. They foresee a slowdown in their business and will be looking to reduce expenses.? A writedown here, a writedown there.? FAF is well-managed in my opinion, so if the stock falls tomorrow, it won’t stay there for long.
Personal Lines
Kingsway and Twenty First Century Holdings both miss.? Kingsway is has a high loss ratio from a troublesome acquisition, and the stock goes down 11%.? TCHC cuts earnings giuidance in half because of the onerous nature of Florida personal lines regulation.? The stock falls 45% in the aftermarket on Thursday.? My guess is it finishes up from there, but running a personal lines company with a large Florida exposure is risky; that should not be news to anyone.
The Bermudans
Odyssey Re beats, continuing the pattern of strong earnings on low cats.? They wrote less business, so perhaps gains tomorrow will be muted.? The earnings of Endurance Specialty were pretty good, but their conservatism in new writings was not appreciated by investors, and the stock was down more than 2%.
In summary: Great quarter for primary commercial and the Bermudans.? Good quarter for Life insurance and Financial insurance.? So-so quarter for brokers, personal lines and title.? Poor quarter for mortgage insurers.? Conservatism is not appreciated at present.? Absent catastrophes, I would be inclined to see these trends continue into the next quarter.
Full disclosure: long ENH (take heart, Ken LeStrange!)
Glad to see PMACA has made the watch list. Very compelling turnaround there, and CHEAP! 5% allocation in most client accounts…
I’ve generally stayed away from Medmal insurers. I’d be much obliged if you would share your thesis with us. The company is optically cheap, but can we trust the reserves? How are pricing and loss trends?
Long tail loss exposure in the runoff operation(reinsurance) continues to be reduced via commutation. The company has been able to free up about $100 Mil in excess capital through approved special dividends to the holding company. Credit profile continues to improve, core insurance business is in growth mode again, and book value increased to 12.99 in the recent quarter. I expect a $10 Million share buyback to be commenced by the board (covenants in their convert limit the amount).
Pricing in workman’s comp markets is competitive, but they will not write unattractive biz. They are looking for additional opps outside of regulated insurance (services) to take advantage of NOL carryforwards.
Loss trends are steady and 8% medical cost inflation is anticipated (looks lower than HMO projections). They are controlling costs via preferred provider agreements, etc.
I’m not an insurance specialist, but turnaround story seems to have legs from my perspective.
Thanks. The Medmal insurers have had a nice run. Unfortunately for me, I don’t understand the loss profile of the business well, and whether there might not come some pushback in the ability to sue doctors. In areas that I know less well, I adopt a conservative posture.