UBS on Property Casualty Insurance: More Thai Pre-announcements, Cutting Estimates

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XL Hot Sheet

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2 Buy, 4 Hold, 1 Sell

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UBS on Property Casualty Insurance: More Thai Pre-announcements, Cutting Estimates

UBS analyst, Brian Meredith, said, "XL Capital (NYSE: XL) to incur a $135 – $185 million pre-tax loss from Thailand floods. XL did not disclose the industry loss assumption used in deriving this estimate. So far, this is the largest preannounced Thailand loss among companies in our coverage. XL is also increasing losses for prior quarter catastrophes by $35 million, primarily for U.S. events in 2Q11 and 3Q11."

"We are reducing our 4Q11 EPS for XL to $0.18 (prior $0.51), expecting now $195 million of catastrophe losses in the quarter (up from prior $62 million), which includes $160 million for Thailand floods and $35 million development on prior quarter events. We are lowering our price target to $22, which assumes that XL shares trade at 0.7x of our 12-month forward BVPS estimate excluding AOCI of $31.20."

"Arch Capital Group (Nasdaq: ACGL) estimates its Thailand flood loss at $35 - $65 million, based on an industry loss assumption of $.10 to $20 billion, the highest range of an industry estimate so far, implying 0.3% market share...We are reducing our 4Q11 EPS for ACGL to $0.72 (prior $0.87), expecting now $57 million of catastrophe losses in the quarter (up from prior $21 million), which includes $50 million for Thailand floods. The increase in catastrophe losses is partially offset by our expected modestly higher favorable loss reserves development (current $45 million, up from prior $28 million). Our price target of $38 assumes ACGL shares trade at 1.2x of our 12-month forward BVPS estimate excluding AOCI of $31.43."

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