BMO Capital Downgrades Allied World Assurance (AWH) to Underperform

BMO Capital downgraded Allied World Assurance (NYSE: AWH) from Market Perform to Underperform with a price target of $32.00 (from $34.00), citing a lack of drivers to improve ROE.

Analyst Charles Sebaski commented, "We are lowering our rating on Allied World to Underperform as we see limited near-term levers for the company to improve its ROE profile from its current mid-single-digit level. We see three structural challenges to Allied’s business that will impede improving its ROE in the near-term: 1) Reinsurance division earnings are likely to contract due to a lower capital contribution to Aelous, continued pricing pressure, and a sliding amount of favorable prior-period development; 2) Global Markets division underwriting improvement is likely to take longer than initially expected, with hypercompetitive London market dynamics and slower attainment of scale in the RSA business; 3) Lower “Non-core” investment is likely to lead to reduced contributions of net realized gains as future sources of capital generation and hence capital management."

He added, "These factors coupled with the continued decline of favorable prior-period development result in our expected 6.1% operating return on tangible equity. We believe a return profile in the mid-single digits should have a valuation cap at tangible book value excluding AOCI, which is what we are using to generate our target price for AWH."

For an analyst ratings summary and ratings history on Allied World Assurance click here. For more ratings news on Allied World Assurance click here.

Shares of Allied World Assurance closed at $35.40 yesterday.

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