More M&A in the Insurance Sector, Particularly in Bermuda: Analyst Josh Stirling of Sanford C. Bernstein & Co. Shares His Outlook and Top Picks Within the Insurance Space

Wall Street Transcript

67 WALL STREET, New York - June 24, 2014 - The Wall Street Transcript has just published its Insurance Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Low Profitability and Low Interest Rates - Commercial Line Brokers and Underwriters - Consolidation Trends - Emerging Market Expansion - Analysis Of Personal, Commercial & Reinsurance Subsectors

Companies include: Lloyds Banking Group plc (LYG), American International Group, (AIG), ACE Limited (ACE), Progressive Corp. (PGR), Procter & Gamble Co. (PG), Allstate Corp. (ALL), The Travelers Companies, Inc. (TRV), The Chubb Corporation (CB) and many more.

In the following excerpt from the Insurance Report, an expert analyst discusses the outlook for the sector for investors:

TWST: What is your outlook for M&A in the sector over the next year or so?

Mr. Stirling: It's not historically that much of an M&A-driven sector; however, there are a couple of things that are coming together that lead to more M&A than we have seen in the recent past. Where you will see the most M&A is going to be in Bermuda. Bermuda is where most of the U.S. market's reinsurers are...And what we have already discussed is that there is just too much capacity in the reinsurance business.

So a very rational set of things to happen is that a number of these companies agree to sell themselves. Social issues always mean these stories take longer than they should, and there were not that many people who necessarily want to buy them at these prices.

However, if you look forward over a year or two or three, it's very easy to drive the conclusion that there are simply too many reinsurance companies, and the market really would be better off if a number of them ended up consolidating, which would help everybody achieve more rational pricing and ultimately allow for obvious consolidation benefits like cost cutting, reducing duplicative reinsurance spending and things like that.

Secondarily, I think that some of the larger companies, not in the reinsurance business per se but sort of the personal and commercial lines, some of the larger global oriented companies, I think you could start to see some more M&A coming from those folks just simply because a lot of them are very mature businesses, where they buy back a lot of stock.

Long term many of them would like to do M&A if it can be prudent and provide prudent opportunities for growth for the companies, which otherwise are very mature. And the industry is basically in a position of pretty robust health, with ROEs are in the low double digits, right around targets for most people. Pricing has been a positive tailwind for a while, and I think most...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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