巴克莱-美股-保险行业-二季度美国保险业预览：财险预期表现复杂-2019.7.1-96页 (2).pdf

Equity Research 1 July 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 90.Restricted-Internal U.S.Insurance 2Q Preview:Expect Mixed P&C Results,Volatile Life Earnings Improving Commercial Re/Insurance P&C Pricing,but 2Q Results Hurt by Tornado Activity.Although P&C market conditions remain favorable,2Q P&C results are expected to be negatively impacted by significantly above-average tornado losses;we accordingly lower our 2Q EPS estimates.Commercial P&C trends are tightening in every line except workers compensation and we expect this favorable trend to persist.Property catastrophe reinsurance rates for the mid-year Florida renewals have substantially increased following large hurricane losses and adverse claim development,in our view.However,this good news already appears mostly priced-in for the reinsurance stocks including RNR.Meanwhile,personal lines insurers are generating favorable underlying underwriting results and the focus appears on growth.Our OW-rated P&C stocks include Berkshire Hathaway(potential for accretive acquisitions as well as share buybacks),Allstate and Progressive(strong earnings trends in auto and home insurance),AIG(turnaround opportunity with top-tier management team),and Chubb(superior global P&C franchise value).Life Insurers Benefit from Equity Market Gains,but Low Rates a Persistent Headwind.Life Insurers are likely to benefit from the year-to-date recovery in equity markets.However,the 10-year Treasury yield has declined to only 2%and the yield curve remains flat.This means 20 EPS expectations could face downward pressure,in our view.Bellwether life insurer valuations remain compressed with a median P/E of 7-8x;we envision this situation as being unlikely to change the rate environments downward pressure on earnings power.We expect 2Q 19 life insurer median operating EPS to increase 11%y/y(+6%on a core basis),although the range widely varies.We expect ATH,VOYA,LNC and EQH to generate among the strongest 2Q core earnings growth.Meanwhile,MET,PFG and PRU could show y/y declines in 2Q core operating EPS.Our OW-rated Life Insurance stocks include:PRU has EPS power of$13 based on our estimates,and its current P/E of 7x looks attractive.Although 2Q results could be noisy,PRU has delivered consistent results in its annuity,asset management,and international businesses.UNM should benefit from improving employment trends.Legacy long-term care exposure is a concern,but we believe this is already discounted in its valuation.UNM continues to deliver ongoing share buybacks and dividend increases,and is currently valued at 6x 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 6x earnings has upside potential,in our view.EARNINGS PREVIEW U.S.Insurance/Life NEUTRAL Unchanged U.S.Insurance/Non-Life NEUTRAL Unchanged For a full list of our ratings,price target and earnings changes in this report,please see table on page 2.U.S.Insurance/Non-Life Jay Gelb,CFA+1 212 526 1561 BCI,US John Dunigan+1 212 526 2607 BCI,US U.S.Consumer Finance Mark C.DeVries+1 212 526 9484 BCI,US Barclays|U.S.Insurance 1 July 2019 2 Summary of our Ratings,Price Targets and Earnings Changes in this Report(all changes are shown in bold)Company Rating Price Price Target EPS FY1(E)EPS FY2(E)Old New 28-Jun-19 Old New%Chg Old New%Chg Old New%Chg U.S.Insurance/Life Neu Neu MetLife Inc.(MET)OW OW 49.67 55.00 55.00-5.83 5.73-2 6.25 6.25-Prudential Financial Inc.(PRU)OW OW 101.00 114.00 114.00-12.80 12.65-1 14.00 14.01 0 U.S.Insurance/Non-Life Neu Neu Allstate Corp.(ALL)OW OW 101.69 110.00 115.00 5 8.65 8.65-10.00 10.00-American International Group(AIG)OW OW 53.28 60.00 60.00-5.38 5.28-2 5.25 5.25-Arch Capital Group Ltd.(ACGL)OW OW 37.08 39.00 42.00 8 2.62 2.57-2 2.80 2.80-Arthur J.Gallagher&Co.(AJG)OW OW 87.59 97.00 100.00 3 3.88 3.83-1 4.25 4.25-Berkshire Hathaway Inc.(BRK/A/BRK.A)OW OW 318350.00 375000.00 375000.00-15000.22 14924.20-1 15981.88 15981.88-Berkshire Hathaway Inc.(BRK/B/BRK.B)OW OW 213.17 250.00 250.00-10.00 9.95-1 10.65 10.65-Chubb Limited(CB)OW OW 147.29 167.00 167.00-10.65 10.45-2 11.25 11.25-Everest Re Group(RE)OW OW 247.18 285.00 285.00-25.15 24.40-3 25.00 25.00-Hartford Financial Services Group(HIG)OW OW 55.72 62.00 62.00-5.25 5.05-4 5.50 5.50-Progressive Corp.(PGR)OW OW 79.93 90.00 95.00 6 5.68 5.68-6.25 6.25-RenaissanceRe Holdings(RNR)UW UW 178.01 145.00 165.00 14 13.10 12.60-4 13.50 13.50-The Travelers Companies,Inc.(TRV)OW OW 149.52 170.00 170.00-11.15 10.75-4 11.75 11.75-Willis Towers Watson Plc(WLTW)OW OW 191.54 205.00 220.00 7 10.85 10.85-12.25 12.25-Source:Barclays Research.Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.FY1(E):Current fiscal year estimates by Barclays Research.FY2(E):Next fiscal year estimates by Barclays Research.Stock Rating:OW:Overweight;EW:Equal Weight;UW:Underweight;RS:Rating Suspended Industry View:Pos:Positive;Neu:Neutral;Neg:Negative Barclays|U.S.Insurance 1 July 2019 3 P&C Insurance Estimate and Price Target Changes Lower 2Q 2019 EPS Estimates on Elevated Catastrophe Losses We recently lowered our 2Q 19 and 2019 EPS for ALL,which pre-announced elevated catastrophe losses largely due to tornadoes/wind/hail events mostly in the Midwest.Today,we lower our 2Q 19 EPS expectations across our remaining covered P&C re/insurers to reflect our updated estimates for catastrophe losses.We also lowered our 2Q estimate for AJG due to reflect our updated margin expectation.FIGURE 1 P&C Insurance 2Q 2019 EPS Estimate Reductions Source:Barclays Research estimates,Refinitiv We raise our price targets for several insurers in P&C insurance as summarized in Figure 2 below taking into account sustained overall improvement P&C pricing.FIGURE 2 Price Target Increase Summary Source:Barclays Research 2Q-Catastrophe Loss EstimateOperating EPSOldNew2Q19EFY 2019Ein$mnCR ptsin$mnCR ptsOldNewConsensusBarclays Est(%Change)Barclays Est(vs.Consensus)OldNewConsensusCommercial Lines and ReinsurersCB$227 3%$337 5%$2.65$2.45$2.60-8%-6%$10.65$10.45$10.53 BRK.B$50 0%$205 2%$2.50$2.45$2.65-2%-7%$10.00$9.95$10.43 RE$171 9%$207 11%$6.25$5.50$6.38-12%-14%$25.15$24.40$24.65 TRV$440 6%$575 8%$2.40$2.00$2.36-17%-15%$11.15$10.75$11.11 ACGL$22 2%$44 3%$0.65$0.60$0.66-8%-10%$2.62$2.57$2.66 RNR$15 2%$38 5%$3.50$3.00$3.58-14%-16%$13.10$12.60$13.24 MultilineAIG$195 3%$305 5%$1.25$1.15$1.13-8%2%$5.38$5.28$4.90 HIG$135 5%$225 9%$1.20$1.00$1.18-17%-16%$5.25$5.05$5.12 Brokers AJGNANANANA$0.70$0.65$0.62-6%6%$3.88$3.83$3.71 Price TargetBV ex AOCI2019E Implied P/B ex AOCI MultipleTickerRatingOldNew2019EOldNewCommercial Lines&ReinsuranceACGLOW$39$42$25 1.6x 1.7x RNRUW$145$165$119 1.2x 1.4x Personal LinesALLOW$110$115$64 1.7x 1.8x PGROW$90$95$21 4.4x 4.6x Price TargetAdj.Cash EPSTickerRatingOldNew2019EOldNewInsurance BrokersWLTWOW$205$220$10.85 18.9x 20.3x AJGOW$97$100$5.22 18.6x 19.2x 2019E Implied Adj.Cash P/E MultipleBarclays|U.S.Insurance 1 July 2019 4 FIGURE 3 P&C Focus Areas for 2Q 2019 Company Focus Area Commentary Commercial Lines&Reinsurance CB Growth and Underlying CR Our 2Q outlook is for 2%growth in total P&C net written premiums.We project an underlying P&C combined ratio(ex cats and prior year development)of 87.9%versus 88.5%a year ago and 88.1%in the prior quarter.Share Buybacks We expect CB to repurchase$375mn of shares in 2Q.Our share buyback expectations are$1.5bn in both FY18 and FY19.BRK Bottom Line We anticipate 2Q 2019 operating EPS(excludes market-to-market investment gains/losses)of$3,681 per A share($2.45 per B share),down from$4,190($2.79 per B share)a year ago.We project lower y/y earnings for Insurance,although earnings gains in the BNSF,Berkshire Hathaway Energy,and the Manufacturing,Service,and Retail segments.We anticipate$2.0bn of earnings in Insurance in 2Q including a$500mn underwriting gain.Book Value Growth Book value could increase 3.4%q/q in 2Q,driven in part by positive equity market performance.Mark-to-market investment gains could be approximately$8-9bn pre-tax based on our model.Excess Cash/Buybacks We estimate Berkshire now has at least$80+bn of immediately deployable cash for accretive acquisitions to supplement organic growth as well as for investments and share buybacks.We anticipate$1.5bn of share buybacks in 2Q 19,and$6bn annualized in both FY18 and FY19 with upside potential if the company is unable to deploy excess cash in large acquisitions.We still view a shareholder dividend as unlikely for now.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 could increase 6%y/y to$1.8bn in 2Q.We estimate RE could achieve gross written premium growth of x%,including increases in both Insurance(+7%)and Reinsurance(+5%).Underlying Results We expect Everest to report a 2Q underlying CR(ex-cats and reserve development)of 83.6%compared to 83.5%a year ago and 87.4%in the prior quarter.We anticipate modest favorable prior reserve development of$11mn(0.6 CR points).Share Buybacks Although we view Everest as having sufficient capital,we would expect the company to curtail share buyback activity in 2019 following large catastrophe losses.We expect$100mn of repurchases in 2020.TRV P&C Rates Commercial P&C renewal rate increases in 1Q 19 improved to+2.2%up from+1.6%in the prior quarter.Workers compensation rate declines remain a drag on the overall result.Personal Auto TRVs agency personal auto insurance PIF has been unchanged since at least 1Q 18.In 1Q 19,the personal auto underlying CR of 92%meaningfully improved.The companys personal auto business is now generating targeted returns,which we believe means it could focus on returning to growth as long as margins can be maintained.TRV plans to moderate its rate increases in 2019 although rate change is still expected to be positive.Our outlook is for a 97%combined ratio(96%underlying)in Domestic Agency Auto in 2Q 19.Share Buybacks We project$400mn of buybacks in 2Q 19.We project$1.8bn of annual buybacks in both 2019/20.ACGL Mortgage Insurance In 2Q 19,we expect the combined ratio in Mortgage Insurance could be 31.5%(40.7%underlying)compared to 25.6%(36.9%underlying)in the prior quarter.Top-Line Growth ACGLs net written premiums could increase 9%y/y in 2Q 19 to$1.4bn including strong growth in Mortgage Insurance(+17%),Reinsurance(+10%),and Insurance(+10).RNR Top-Line Growth In 2Q,total gross written premiums(which can be lumpy)could increase 26%y/y to$1.2bn including the acquisition of Tokio Marine Re Combined Ratio We expect a 2Q combined ratio of 77.0%(81.9%excluding catastrophe losses and prior year development),compared to 70.6%(77.7%underlying)a year ago.M&A 2Q 19 would be the first to include RNRs completed acquisition of Tokio Marines European reinsurance business for$1.5bn(1x tangible book value)in the form of cash and RNR shares as well as State Farms new$250mn equity investment stake in RNR.Our sense is RNRs initial accretion expectation could end up being conservative.The company has initially guided to a run-rate after tax earnings contribution of$100mn from the acquisition.Source:Company data,Barclays Research Barclays|U.S.Insurance 1 July 2019 5 Company Focus Area Commentary Multiline Insurance HIG Acquisition of Navigators On August 22,2018,HIG announced its acquisition of specialty underwriter Navigators for$2.1bn in cash.The 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 has announced a new$1bn share buyback authorization with 4Q18 earnings and expects to use beginning in 2Q 19.We anticipate$500mn of repurchases in 2019 and$800mn in 2020.2019 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%P&C Underlying Combined Ratio In 2Q,we expect a P&C underlying combined ratio of 91.2%,including a commercial lines underlying combined ratio of 91.6%and a personal lines underlying combined ratio of 89.9%.AIG P&C Combined Ratio In 2Q 19,we model an underlying P&C combined ratio of 95.6%,compared to 101%a year ago.The company has appeared highly confident that AIG should deliver a P&C underwriting profit in 19.This result is expected to be achieved by reducing large coverage limits,reducing net exposures after reinsurance protection,limiting multi-year insurance deals,and reducing expenses.ROE Management has sounded confident in its plan to achieve a 10%ROE(ex-DTA/AOCI)by 2021 driven by a changing business mix,exiting underperforming business lines,and improving performance in P&C lines already generating an underwriting profit.Capital Management We anticipate$500mn of share buybacks in 2Q 19.We project$1.5bn of annual share buybacks in 2019,and$2bn in 20.Insurance Brokers WLTW Organic Growth&Margins Management anticipates FY19 organic growth of 4%(which we think could be conservative)as well as an adjusted operating margin of around 20%.We expect 4%organic growth in 2Q 19,below 5%growth in the prior quarter and above 3%a year ago.Adjusted Cash EPS Guidance The companys 19 guidance includes adjusted cash EPS of$10.60-$10.85,organic revenue growth of 4%(5%in FY18),and adjusted operating margin of 20%.WLTW targets long-term low double-digit EPS growth,which appears achievable in 2019/20.Over the next three years,the company targets annual free cash flow growth of more than 15%including in 2019,with momentum building throughout the year.M&A WLTW remains upbeat on the prospects for its announced acquisition of Tranzact for$1.2bn in ca