For Immediate Release
Chicago, IL – May 24, 2013 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include American International Group Inc. (AIG), Tower Group International Ltd. (TWGP), Hanover Insurance Group Ltd. (THG), Monteplier Re Holdings Ltd. (MRH) and Global Indemnity plc (GBLI).
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Here are highlights from Thursday’s Analyst Blog:
AIG to Inject $92.5M in China
Earlier this week, American International Group Inc. (AIG) announced its intentions to invest HK$718.1 million or about $92.5 million in PICC Group’s PICC Property and Casualty Co. Ltd. (PICC P&C). The investment will be made through a rights offering. Following the investment, the company will hold a 9.9% stake in PICC P&C.
The investment will be a step ahead in the joint venture (:JV) that was announced between AIG and PICC Life Insurance Co. Ltd. (PICC Life) in collaboration with The People’s Insurance Co. of China Ltd. (PICC Group) in Nov 2012. The JV was based upon the condition that AIG will contribute $500 million by buying the H shares of PICC Group. Moreover, AIG will retain at least 75% of the $500 million shares for 5 years post the initial public offering (:IPO) of PICC Group, which was initiated last year.
PICC Group is the fourth-largest insurance company in China and a strong market position brightens AIG’sgrowth outlook through this JV. This should also boost the company’s distribution of life and P&C insurance products, thereby escalating growth opportunities in its core businesses. Further, PICC Group has about 69% stake in PICC P&C, which also fortifies AIG position in the China’s P&C insurance market.
Moreover, China’s P&C insurance market is escalating by a healthy 10–15% on an annual basis. This also explains the rationale behind AIG’s investment in PICC P&C, which enjoys about 35% ownership in the P&C insurance market of China.
The complete repayment of the government bailout loan and asset disposals has helped AIG to focus on its core insurance operations and attain a flexible capital position. The progress is also reflected by the modest growth in the company’s financials.
While any robust growth compared with the peer group appears overly ambitious at present, we believe a positive turnaround in the global economy and an improved macro scenario is likely to pave the way for significant growth of AIG.
Tower Group Down to Underperform
We have downgraded our recommendation on the shares of Tower Group International Ltd. (TWGP) to Underperform from Neutral on account of significant execution risk associated with the recently closed merger with Canopius.
Other Factors Affecting the Downgrade
Tower generates a substantial portion of its revenues from Northeast United States, an area which is significantly vulnerable to catastrophes. Though Tower has reduced the number of polices in Massachusetts and Rhode Island, we believe the company runs a high catastrophe exposure in the region. Moreover, due to severe catastrophic events in the first half of the year, reinsurance rates might experience upward pressure, and thus the company’s operating margin could be suppressed in the upcoming months.
Weaker investment yield continues to be a concern for Tower. In response to this environment, management had implemented a strategy to purchase dividend paying common stocks during the fourth quarter of 2012 to enhance investment income. The company is also evaluating alternative investment classes to further enhance the investment income. Though management is trying out ways to offset pressure from low interest rates, we are not sure as to how successful this strategy will be.
Like other insurers, Tower has been affected by the soft property and casualty insurance market. Management believes that reduced capitalization, decreased new business ventures, increased business declines as well as negligible new home ownership will reduce the demand for small commercial and personal lines policies. Moreover, low pricing in homeowners and commercial property lines of business will restrict overall premium growth.
Other Insurers That Warrant a Look
Other stocks in the insurance sector -- Hanover Insurance Group Ltd. (THG), Monteplier Re Holdings Ltd. (MRH) and Global Indemnity plc (GBLI), all carrying a Zacks Rank #1 (Strong Buy) -- are worth considering.
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