FBR Capital Downgrades XL Group plc (XL) to Market Perform

FBR Capital downgraded XL Group plc (NYSE: XL) from Outperform to Market Perform and maintains a price target of $37.00.

Analyst Randy Binner comments, "Our downgrade of XL shares to Market Perform from Outperform is primarily based on our view that despite overwhelming evidence that P/C pricing will likely continue to deteriorate, seeing pricing go flat and then negative may still be an investment negative for many P/C stocks. The Market Scout commercial lines index now stands at +1%, and we think it is inextricably heading to negative territory. While reinsurers and commercial lines insurers have underperformed the S&P 500 and S&P 500 Financials indexes by 8% and 11% over the last 12 months, respectively,
valuations have held above the last 10-year average (~8x P/E for reinsurers and ~10x P/E for commercial lines). The risk of a prolonged soft market, especially tied with low interest rates, will likely challenge ROEs, and we think could potentially cap valuations. If there is a pronounced pricing deceleration (from increasingly excess capital aggressively going after business) and rates go negative faster than investors expect, we think valuations could possibly see downside as portfolios likely reallocate away from the most exposed names. XL's mix is 30% reinsurance, but the primary side of XL tends to be a large case broker distributed product set that could see significant competition as capital continues to enter the space. We believe XL's outperformance year to date has left valuation full and that the life runoff sale. catalyst we identified earlier in the year has somewhat played out. Our price target remains $37; however, we view 10% upside potential versus current levels as low relative to many Outperform-rated names within our coverage universe."

For an analyst ratings summary and ratings history on XL Group plc click here. For more ratings news on XL Group plc click here.

Shares of XL Group plc closed at $33.60 yesterday.

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