Barclays on U.S. Insurance/Non-Life: Reducing 3Q11 EPS for XL Capital (XL) & The Hartford (THG)
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Barclays on U.S. Insurance/Non-Life: Reducing 3Q11 EPS for XL Capital (NYSE: XL) & The Hartford (NYSE: THG)
Barclays analyst, Jay Gelb, said, "XL announced it expects 3Q11 catastrophe losses of $90-120mn, above our $60-million outlook. About three-quarters of XL's losses are in its insurance business with the remainder in its reinsurance unit. As a result, we are reducing our FY2011 EPS estimate for XL to $1.30 from $1.40. No change to our 2012 estimate of $2.25. Higher-than-anticipated catastrophe losses at XL is a negative lateral for ACE Ltd (NYSE: ACE), Arch Capital (Nasdaq: ACGL), Allied World (NYSE: AWH), Aspen Insurance (NYSE: AHL), and Everest Re Group (NYSE: RE). Reiterate EW rating on XL. XL's P&C business has stabilized and capital position has strengthened, although we remain concerned about XL's ability to expand its ROE through profitable growth in soft P&C market. XL trades at 0.64x BV, which is attractive, although the valuation appears elevated on price-to-earnings at 8.8x our 2012E EPS."
"Separately, THG expects 3Q11 EPS of a loss of $0.37-0.47, which is worse than our outlook for a profit of $0.25. The result includes $110-115mn of catastrophe losses (slightly above our $101-million estimate) as well as reserve strengthening in its surety business (not quantified) driven by weak economic conditions. We are reducing our FY2011 EPS estimate to $0.20 from $0.90 to reflect lower-than-projected 3Q11 EPS. No change to our 2012 EPS estimate of $4.00, although our estimate could be at risk especially if surety losses persist. Reiterate EW rating on THG."
Barclays analyst, Jay Gelb, said, "XL announced it expects 3Q11 catastrophe losses of $90-120mn, above our $60-million outlook. About three-quarters of XL's losses are in its insurance business with the remainder in its reinsurance unit. As a result, we are reducing our FY2011 EPS estimate for XL to $1.30 from $1.40. No change to our 2012 estimate of $2.25. Higher-than-anticipated catastrophe losses at XL is a negative lateral for ACE Ltd (NYSE: ACE), Arch Capital (Nasdaq: ACGL), Allied World (NYSE: AWH), Aspen Insurance (NYSE: AHL), and Everest Re Group (NYSE: RE). Reiterate EW rating on XL. XL's P&C business has stabilized and capital position has strengthened, although we remain concerned about XL's ability to expand its ROE through profitable growth in soft P&C market. XL trades at 0.64x BV, which is attractive, although the valuation appears elevated on price-to-earnings at 8.8x our 2012E EPS."
"Separately, THG expects 3Q11 EPS of a loss of $0.37-0.47, which is worse than our outlook for a profit of $0.25. The result includes $110-115mn of catastrophe losses (slightly above our $101-million estimate) as well as reserve strengthening in its surety business (not quantified) driven by weak economic conditions. We are reducing our FY2011 EPS estimate to $0.20 from $0.90 to reflect lower-than-projected 3Q11 EPS. No change to our 2012 EPS estimate of $4.00, although our estimate could be at risk especially if surety losses persist. Reiterate EW rating on THG."
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