Barclays on U.S. Insurance/Non-Life: Upgrading P&C Sector on Improving Rates; Upgrading Insurance Brokers

Barclays on U.S. Insurance/Non-Life: Upgrading P&C Sector on Improving Rates; Raising Insurance Brokers and XL to 1-OW

Barclays analyst, Jay Gelb, said, "We are increasingly constructive on the potential for sustained improvement in commercial P&C insurance pricing based on recent data from Travelers (NYSE: TRV), Chubb (NYSE: CB), and the Council of Insurance Agents and Brokers, which show a positive inflection point in rate trends for the first time since 2003. Commercial P&C pricing improvement is being led by workers' compensation and property insurance, which together account for about half of U.S. commercial P&C insurance industry premium volume. Positive momentum in pricing should result in improved sentiment and increased valuations for the P&C stocks."

"Which P&C stocks should benefit most? The insurance brokers are the best
early-cycle P&C stocks because most of the benefits of improved prices should
improve earnings and margins. We are upgrading WSH (largest pure-play insurance broker), Marsh & McLennan (NYSE: MMC) (strong organic growth and margin improvement potential), and Arthur Gallagher (NYSE: AJG) and Brown & Brown (NYSE: BRO) (highest leverage to rising P&C prices because nearly all their brokerage revenues are commission-based) to Overweight from Equal Weight. Among the P&C insurers, we view ACE Ltd (NYSE: ACE) and Arch Capital (Nasdaq: ACGL) as having the best potential to generate profitable growth in an improving environment. CB, TRV, and XL Capital (NYSE: XL) (also upgrading to Overweight) should also benefit."

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