巴克莱-美股-保险行业-美国保险业AIFA预览：财险前景好于寿险-2019.3.1-33页.pdf

Equity Research 1 March 2019 CORE Barclays Capital Inc.and/or one of its affiliates does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.PLEASE SEE ANALYST CERTIFICATION(S)AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 27.Restricted-Internal US Insurance AIFA Preview:Prospects Better for P&C than Life;More M&A?We anticipate a more constructive tone from P&C insurers than Life insurers at the upcoming AIFA Insurance industry conference on March 4-5,2019 based on improving P&C top-line and margin trends.Also,potential P&C industry consolidation is usually a major topic at this annual conference.Meanwhile,life insurers face challenges including a sub-3%yield on 10-year US Treasuries,a flat yield curve,and lingering concerns regarding legacy long-term care exposure.P&C market conditions are currently stable although on the cusp of tightening the by the most in five years,in our view,following record-level global insured catastrophe losses in 2017-18.Although property catastrophe reinsurance rates were flat in January 19,this situation may tighten as the year progresses and will likely be a key focus area for investors.Separately,personal lines results remain strong with PGR gaining the most market share although auto insurance rate gains are moderating.We expect ACGL and ALL to be the most upbeat P&C companies at AIFA.Meanwhile,we expect investors to remain skeptical that AIG can substantially improve its P&C underwriting results in 1H 2019;perhaps its investor meetings could help shift this view.Our OW-rated P&C stocks include Berkshire Hathaway(favorable positioning to higher short-term rates,and potential for accretive acquisitions as well as share buybacks),Allstate and Progressive(strong earnings trends in auto and home insurance),Chubb(core global P&C holding with superior franchise value),and Arch Capital(tailwinds from mortgage insurance as well as top-tier P&C franchise).Life Insurance earnings(as well as valuations)are unlikely to rise much further in a challenged macro environment,although bellwether life insurer valuations remain compressed with a median P/E of 7x.Among the life insurers participating in the AIFA conference,we expect PRU and ATH to be among the most upbeat;we anticipate a focus on BHF based on this weeks unexpected departure of its CFO.We See Value in PRU,UNM,LNC.PRU has delivered consistent results in its annuity,asset management,and international businesses,and its current P/E of 7x looks attractive.UNM should benefit from improving employment trends;legacy long-term care exposure is a concern,but we believe this is already discounted in UNMs valuation.UNM continues to deliver ongoing share buybacks and dividend increases,and is currently valued at 7x earnings.LNC has delivered solid results in its US-focused annuity and life insurance businesses along with accretive acquisitions.The company has a robust share buyback program and group insurance results are recovering.LNCs current valuation of 7x earnings has upside potential,in our view.INDUSTRY UPDATE U.S.Insurance/Life NEUTRAL Unchanged U.S.Insurance/Non-Life NEUTRAL Unchanged U.S.Insurance/Life Jay Gelb,CFA+1 212 526 1561 BCI,US Sue Lee+1 212 526 8190 BCI,US Andrew Karp+1 212 526 9015 BCI,US Barclays|US Insurance 1 March 2019 2 Companies we plan to meet with during the AIFA Conference P&C:AIG,TRV,ALL,ACGL,HIG,RE,RNR,BRO Life:PRU,MET,UNM,LNC,PFG,AFL,VOYA,EQH,ATH,BHF P&C Re/Insurance Focus Areas P&C Outlook Improving,At Least for Top-Tier Insurers.P&C re/insurers 4Q results were marred,as expected,by Hurricane Michael and record-level California wildfire catastrophe losses.Even so,commercial P&C trends are likely modestly improving with favorable underlying underwriting margins at least for top-tier insurers including CB,TRV and ACGL.On the other hand,AIG showed few signs of stabilization in 4Q and continues to face downward earnings revisions.Separately,Personal lines results remain strong although rate gains are moderating.Property catastrophe reinsurance rates were flat in January 19 despite the worst two-year period for global catastrophe losses on record,although this situation may tighten as the year progresses.Improving Commercial P&C Pricing Trends.The pace of renewal rate change in bellwether TRVs business insurance unit was mostly unchanged q/q,although the broader pricing measure based on CIAB data continues to improve.Based on our proprietary early 19 Commercial Insurance Buyers Survey,large account P&C market conditions are on the cusp of tightening the by the most in five years,which we think bodes well for primary commercial insurers.FIGURE 1 Focus Areas for P&C Insurers and Brokers Participating in the AIFA Conference Company Focus Area Commentary Commercial Lines&Reinsurance TRV P&C Rates Commercial P&C renewal rate increases in 4Q were mostly stable at+1.6%compared to+1.7%in the prior quarter which likely means the pace of commercial P&C rate increases has peaked.Workers compensation rate declines remain a drag on the overall result.Personal Auto TRVs pace of personal auto insurance growth was unchanged compared to the prior quarter(PIF down 0.4%y/y in 4Q and 3Q 18).In 4Q,the personal auto underlying CR of 97%was weaker than the prior quarter but was the fourth consecutive quarter of underwriting profitability in this line following two years of losses.Share Buybacks TRV repurchased$170mn shares in 4Q(well below our projection of$550mn)although FY18 normalized capital return approached 100%of earnings.We now anticipate share buybacks of$1.8bn in 2019/20.ACGL Top-Line Growth ACGLs 4Q net written premium growth of 17%included solid gains in Reinsurance(+55%),Mortgage Insurance(+13%),and Insurance(+4%).Mortgage Insurance Archs mortgage insurance business generated another strong quarter of earnings.Archs MI segment underlying CR of 33.0%was better than our estimate of 42.4%.In 4Q,mortgage insurance accounted for 26%(unchanged q/q)of the companys core net earned premiums.The MI business generated an underwriting gain of$249mn in 4Q,above$231mn in 3Q 18 and$172mn a year ago.Source:Company data,Barclays Research Barclays|US Insurance 1 March 2019 3 Company Focus Area Commentary Commercial Lines&Reinsurance(contd)RE CEO Succession Everest Res CEO Dom Addesso intends to retire at the end of his current contract term effective YE19.This transition was largely expected,in our view,as he turns 65.The company has said it would consider both internal and external successors.We expect this to be a smooth transition for Everests business and investors.Top-Line Growth Everests net written premiums increased 21%y/y in 4Q,above our outlook of+8%.Underlying Results The 4Q underlying CR(ex-cats and reserve development)of 90.4%was worse than our estimate(86.3%)and the year ago result(83.7%).Share Buybacks Everest did not repurchase shares in 4Q(consistent with our outlook).Although we view Everest as having sufficient capital,we expect it to curtail share buyback activity in 2019 following large catastrophe losses.Industry Consolidation Everest appears more likely to focus on organic revenue growth rather than acquisitions in view of ongoing industry M&A including AIGs acquisition of Validus and Axas acquisition of XL.Management views these transactions as creating potential opportunities for Everest,including the availability of underwriting teams.RNR Top-Line Growth In 4Q,total net written premiums increased 43%y/y including the benefit of reinstatement premiums.Combined Ratio RNRs 4Q CR was 114.3%(105.1%underlying)versus our estimate of 122.3%(84.0%underlying)and 102.5%(75.2%underlying)a year ago.M&A RenRe appears likely to maintain its current independent strategic course despite recent activist investor pressure,and any implied boost in its valuation from a potential takeover is largely unwarranted,in our view.Separately,RenRe views its announced bolt-on acquisition of Tokio Millennium Res business as fitting well with its existing book of business based on the lines it expects to retain.Our sense is RNRs initial accretion expectation could end up being conservative,and the deal could close as early as 1Q 19.We believe RNR could be open to considering additional bolt-on transactions.Multiline Insurance AIG ROE AIG expects it could take up to three years(until perhaps 2021,in our view)to achieve at least a 10%ROE(ex-AOCI/DTA).We now anticipate AIGs normalized ROE could be around 8%in 2019/20.Bottom Line AIGs operating loss of 63c/shr in 4Q 18 was substantially below our estimate($0.50 profit)and consensus($0.42 profit)including a greater-than-expected drag on investment income as well as reserve strengthening.Net EPS was a$0.70/shr loss.Based on our math,run-rate normalized EPS adjusting for unfavorable items was only around 75c in the most recent quarter,which concerns us.P&C Results AIGs 4Q total combined ratio(CR)of 115.0%(98.8%underlying)was worse than our estimate of 109.3%(97.0%underlying).The underlying CR has now been at 99%or above for the past six quarters.Management has anticipated achieving a P&C underwriting profit in 2019,which we think could be a stretch goal although expense savings are expected to drop to the bottom line.Share Buybacks AIG repurchased$750mn of its shares and warrants in 4Q,above our$500mn estimate.It also increased its share buyback authorization to$2bn.HIG Acquisition of Navigators On August 22,2018,HIG announced its acquisition of specialty underwriter Navigators for$2.1bn in cash.The pending acquisition is expected to strengthen HIGs position in the US commercial middle market and specialty lines business as well as add complementary specialty and surplus lines insurance capabilities.The acquisition is expected to be immediately accretive to HIGs 2019 net income and result in modest book value dilution.Over time,HIG expects the deal to produce a low double-digit return,driven by revenue growth and modest expense savings.It is unclear in our view if the acquisition of NAVG could change the potential for HIG to become a consolidation candidate.Capital Management HIG did not repurchase shares in 4Q,consistent with our outlook.The company announced a new$1bn share buyback authorization and expects to use a portion of this in 2019,which is sooner than our prior expectation that repurchases would restart in 2020.P&C Underlying Combined Ratio HIGs 4Q P&C underlying CR of 92.2%was better than our estimate of 94.9%as well as 93.2%in the prior year.The personal lines underlying CR of 92.8%was better than our estimate of 94.1%and mostly consistent with 93.1%a year ago.2019 Guidance In terms of 2019 component expectations,the commercial lines combined ratio outlook is 94.5%-96.5%(91.0%-93.0%underlying).The personal lines combined ratio outlook is 97.5%-99.5%(91.0%-93.0%underlying).The group benefits core earnings margin outlook is 6.0%-7.0%.Source:Company data,Barclays Research Barclays|US Insurance 1 March 2019 4 Company Focus Area Commentary Insurance Brokers BRO Organic Growth&Margins Overall organic revenue declined 2.1%y/y in 4Q 18(+1.4%in 3Q)versus our+3.5%projection due to tough comps in National Programs and Services in the prior year.BRO targets long-term low-to-mid single digit organic growth,which we view as achievable in 2019/20.The 4Q adjusted EBITDAC margin was 28.1%,well below our estimate(31.5%).Excluding the impact of new revenue accounting,the adjusted EBITDAC margin contracted 160 bps y/y.BRO targets a 33%-35%margin over the long-term,although internal investments have been a headwind to its margin.M&A In 3Q 18,BRO announced a$705mn acquisition of Hays Companies(largest deal in BROs history).Hays is the 22nd largest US insurance broker,expected to add$215mn to BROs$2bn standalone top-line in 2019.The deal is expected to be only 2-3c accretive to 19 EPS,and we would expect Hays lower margin profile to be a slight near-term drag on BROs overall margin.Personal Lines ALL Underlying Combined Ratio ALLs 4Q underlying combined ratio of 86.8%was slightly worse than our estimate(85.9%)and the year-ago quarter(85.7%).ALLs 2019 underlying P&C combined ratio guidance of 86%-88%is consistent with our 87%projection,which would imply a slight y/y deterioration as the company focuses more on growth.Auto/Home PIF Growth Allstate-brand auto PIF growth was positive for the fourth consecutive quarter.The company has been focused on growth.Share Buybacks In 4Q,the company executed a$1bn accelerated share repurchase program as part of its$3bn authorization.Source:Company data,Barclays Research Life Insurance Focus Areas 4Q 18 life insurer results were noisy,as expected,including the impact of the sharp decline in equity markets during the quarter.Even though downward earnings revisions have persisted,the equity market recovery so far in 2019 has likely helped stabilize results.Bellwether life insurer valuations remain compressed with a median P/E of 7x.However,its difficult to find fundamental catalysts that would cause the life stocks to re-rate higher.For example,a sub-3%yield on 10-year US Treasuries,a flat yield curve,and high beta are viewed as factors in the substantial de-rating of life insurer valuations.Some investors might consider locking in profits on any strength in the life insurance stocks.(continued on next page)Barclays|US Insurance 1 March 2019 5 FIGURE 2 Focus Areas for Life Insurers Participating in the AIFA Conference Company Focus Area Commentary MET ROE Target MET now targets an ROE(ex-AOCI other than FCTA)of 12%-14%,which we view as achievable including the benefit of expense savings.CEO Transition MetLife recently announced Michel Khalaf(age 54),president of US and EMEA,would be METs next President and CEO effective May 1,2019,and also join its board of directors.We expect this to be a seamless transition upon current Chairman and CEO Steven Kandarians(age 66)scheduled retirement.Capital Management MET repurchased$1.2bn of shares in 4Q(above our$700mn projection).The company has expected free cash flow conversion to average 65%-75%of adjusted operating earnings in 2019/20,which it views as achievable even with a US 10-year Treasury yield as low as 2%.We model annual buybacks of$3bn in both 2019/20.PRU 2019 Outlook PRUs 2019 EPS guidance is$12.50-$13.00.Our 2019 EPS estimate of$13.00 implies a 13%ROE.The company targets a 19 ROE at the upper end of its near-to immediate-term ROE objective of 12%-13%versus its over-the-cycle ROE objective of 13%-14%.PRUs 2019 outlook includes EPS growth even assuming an unchanged S&P 500 on a daily average basis(+4%point-to-point).Notably,PRUs upside scenario EPS guidance of$12.75-$13.25 assumes 4%S&P 500 daily average appreciation(+6%return point-to-point).In the intermediate term,PRU anticipates high-sin