For Immediate Release
Chicago, IL – June 5, 2012 – Today, Zacks Equity Research discusses the U.S. Insurance, including Everest Re Group Ltd. (RE), ProAssurance Corporation (PRA), Allied World Assurance Company Holdings (AWH), CNA Financial Corporation (CNA) and Greenlight Capital Re, Ltd. (GLRE)
A synopsis of today’s Industry Outlook is presented below. The full article can be read at http://www.zacks.com/stock/news/76331/insurance-industry-stock-update-june-2012
The U.S. insurance industry will probably breathe a sigh of relief as the 2012 Atlantic hurricane season is expected to be much calmer compared to 2011. This year’s hurricane season, which officially started on June 1 and will run through November 30, is expected to be less conducive for tropical storms. In addition, insurers are better prepared to withstand significant losses this time.
However, insurers have yet to recover fully from the impact of last year's series of natural disasters, and the industry continues to reel under economic unrest that thwarts every attempt it makes to grow. The dearth of positive catalysts is naturally making it hard for insurers to recover.
These impediments aside, there are fundamental challenges that are expected to come in the way of insurers’ efforts to meet growing investor expectations in the upcoming quarters. Among the possible ways out, rising rates and pricing flexibility are primary.
It can be said that the overall health of the U.S. insurance industry has improved to some extent in the recent quarters, after enduring pricing pressures and reduced insured exposure for quite some time. The market turmoil resulting from the Great Recession of 2008-2009 forced many companies to take immense write-downs, but those are gradually becoming a thing of the past.
That said, continued soft market conditions, shrinking businesses, a still-high unemployment rate, uncertain fiscal policy and legislative challenges are threatening insurers’ ability to rebound to the historical growth rate. The industry continues to be challenged by subdued premium volume growth in a perked-up economy as well as a massive healthcare restructuring.
Though there are signs of economic recovery, its sluggish pace and sudden drop offs are expected to continue at least through the end of 2012. Also, structural economies of scale have pushed the industry toward consolidation. As a result, inter-segment competition within the industry has alleviated. Moving forward, maintaining profitability after complying with regulatory requirements could be a painful task.
We expect static growth from persistent soft market conditions to result in further consolidation in the industry. Though there are near-term opportunities for insurers, thanks to rapidly growing sectors such as health care and technology, overall industry conditions are expected to improve beyond 2012, provided the economy turns to growth after recovery. The industry would likely take a couple more years to overcome most industry challenges with the help of an improved market mechanism.
Insurers are suffering from the ongoing economic uncertainty and challenges related to natural disasters. However, this tough period brings opportunities for many large industry participants to grow by attracting new customers and taking market share away from weak rivals. The industry has been undertaking several structural changes that will make underwriting and pricing schemes even more attractive to consumers.
We remain positive on Everest Re Group Ltd. (RE), ProAssurance Corporation (PRA), Allied World Assurance Company Holdings (AWH), CNA Financial Corporation (CNA), Greenlight Capital Re, Ltd. (GLRE) – to name only a few – with a Zacks #1 Rank (short-term Strong Buy).
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