On Sep 17, 2013, Zacks Investment Research downgraded OneBeacon Insurance Group Ltd. (OB) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Earnings estimates forOneBeacon have been trending down owing to dismal second-quarter 2013 results and a reduced investment portfolio. The company delivered negative earnings surprise in 3 of the last 4 quarters, with an average of negative 155.9%. Additionally, this specialty insurer and underwriter underperformed the year-to-date S&P 500 index, which posed a growth of 23.0% against OneBeacon’s negative return of 7.9%.
On Jul 30, OneBeacon reported second-quarter operating earnings per share of 15 cents, which lagged both the Zacks Consensus Estimate and year-ago earnings of 23 cents and 21 cents, respectively.
The downside was due to 5.4% year-over-year decline in the top line, primarily driven by lower-than-expected premiums and 18.6% reduction in net investment income. Alongside, higher loss adjusted, underwriting and operating expenses more than offset the benefit of lower policy acquisition and interest expenses. However, book value per share witnessed improvement.
OneBeacon has been facing operating challenges thus far in 2013. Lower interest rates and fluctuations in equity markets have adversely affected the investment portfolio, also depreciating the asset base. Moreover, higher underwriting and loss adjusted expenses amid weak premiums, particularly in specialty products, pose direct risk on the reserves and weaken the operating leverage.
The Zacks Consensus Estimate for 2013 decreased 6.9% to an earnings of 95 cents per share in the last 60 days. However, the estimate for 2014 is pegged at $1.08 a share, which was flat over the last 60 days. Meanwhile, no upward revision in estimates was witnessed for both the years.
Other Stocks to Consider
While we prefer to avoid OneBeacon at present, other stocks that are outperforming in the insurance sector include Everest Re (RE), Global Indemnity Plc (GBLI) and CNA Financial Corp. (CNA). All these stocks carry a Zacks Rank #1 (Strong Buy).