Q2北美財險業(yè)績預(yù)覽：商業(yè)定價勢頭是否可持續(xù)

1、P&C Insurance Earnings Preview 2Q19: Is commercial pricing momentum sustainable?P&C stocks rallied in 2Q19 on improved pricing and declining interest ratesThe FactSet P&C Aggregate Index was +10.0% in 2Q19, outperforming other financials (S&P Financials +6.1%) and the S&P 500 (3.4%). Commercial line

2、s pricing (particularly excess and surplus or E&S lines) continues to improve and mid-year reinsurance renewals were favorable. Coupled with the defensive nature of the group, P&C insurance outperformed. We expect a generally positive 2Q19 earnings season for P&C insurers.2Q19 adjustments are minima

3、l, mostly company-specificWe are generally more positive on commercial lines into results given a more favorable pricing environment and margin outlook than personal lines. We are currently above consensus on 9 companies and below on 5 companies. We raised 2Q19 EPS estimates for 6 companies and lowe

4、red them for 5 companies. Our downward revisions for 2Q19 primarily reflect modestly higher catastrophe losses for primary insurers and weak hedge fund returns, while upward revisions reflect a light catastrophe loss quarter for reinsurers.Positive on AXS, and cautious on MMC into the quarterGoing i

5、nto 2Q19, we are positive on AXS given our view that momentum in the E&S and Lloyds specialty markets has continued to build throughout the quarter and we expect a bullish tone on the earnings call, which should drive positive 2020 earnings revisions. Our 2Q19 estimate is essentially in line with co

6、nsensus, which we view as conservative with the possibility for better-than-expected margin expansion. Conversely, we are cautious on MMC into earnings given the potential for weak organic revenue growth from JLT and difficult organic growth comps.Figure 1: Summary of current estimates and ratingsSo

7、urce: UBSe, FactSet HYPERLINK /investmentresearch /investmentresearchThis report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 31. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should b

8、e 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.P&C Insurance: Earnings PreviewUBS Research THESIS MAP a guide to our thinking and whats where in

9、this reportPIVOTAL QUESTIONSQ: How should investors position into the quarter?Going into 2Q19, we generally favor commercial lines insurers where pricing is improving and likely in line to modestly higher than loss cost inflation. For those with leverage to the E&S, large property, and Lloyds specia

10、lty commercial markets, we could see evidence of margin expansion, although we consider this to be more of a 2H19/1H20 dynamic as rate increases earn in. Personal auto pricing continues to decelerate, but we expect margin compression to be modest as favorable frequency trends persist.Q: What are the

11、 key topics for the quarter? HYPERLINK l _bookmark1 more The sustainability and breadth of pricing momentum in both commercial lines and reinsurance. Last quarter saw a shift in tone as most commercial insurers pointed to an improving pricing environment. Price firming is largely driven by the niche

12、 excess and surplus (E&S) lines market, where reunderwriting at AIG and other carriers has constrained capacity at the same that demand has increased. Similarly, Decile 10 at Lloyds created a capacity imbalance and has caused price firming in that market (see our E&S/Lloyds Conference note for more

13、details).Q: What is driving estimate changes? HYPERLINK l _bookmark2 more Revisions into the quarter are relatively minor and company specific (see page 19 for individual company discussions). Losses from severe tornado/hail activity in April and May, paired with below average activity in June, shou

14、ld result in a normal to modestly-elevated 2Q catastrophe season for primary carriers.Q: What is the expected impact from investment marks? HYPERLINK l _bookmark3 more An improved stock market and rally in the bond market are the primary drivers of the average mark to market impact of 4.3% of book v

15、alue for insurers. The current geopolitical climate and trade tensions are the likely cause for the flight to quality in the bond market, which saw investors piling into Treasuries and up-in-quality corporate bonds. HYPERLINK l _bookmark6 more UBS VIEWFundamentally, we favor commercial insurers wher

16、e pricing appears to be improving and is in line or ahead of loss trend, which should result in relatively stable/improving underlying underwriting margins in 2019 and into 2020. Personal auto insurance pricing is increasingly more competitive which will drive underlying margin pressure, although we

17、 expect the favorable frequency loss environment to persist, which may offset some margin pressure. Reinsurance pricing is generally improving in property cat and some casualty lines in the U.S. However, we believe the improvement in property cat will be short lived as alternative capital capacity i

18、ncreases. Insurance broker fundamentals are solid however, FX and slowing nominal GDP could be headwinds to revenue and earnings growth.EVIDENCEFor the quarter, we are above consensus on 9 names in our coverage and below consensus for 5 names, generally reflecting our view that normal to somewhat ab

19、ove-average U.S. catastrophe losses will be retained by primary insurers, leading to below-average 2Q catastrophe losses for reinsurers. ALL and PGR have reported April/May catastrophe losses that are double the prior year period, however based on NOAA data, June catastrophe losses appear to be belo

20、w average.WHATS PRICED IN?P&C insurers and insurance brokers have outperformed other Financials and the market for the quarter and YTD reflecting the improved fundamentals and defensive nature of the group. Absolute valuations are near historical highs and relative valuations are well above average.

21、P&C Insurance: Earnings PreviewUBS ResearchPIVOTAL QUESTIONS HYPERLINK l _bookmark0 return Q: How should investors position into the quarter?UBS VIEWGoing into 2Q19, we generally favor commercial lines insurers where pricing is improving and likely in line to modestly higher than loss cost inflation

22、. For those with leverage to the E&S, large property, and Lloyds specialty commercial markets, we could see evidence of margin expansion, although we consider this to be more of a 2H19/1H20 dynamic as rate increases earn in. Personal auto pricing continues to decelerate, but we expect margin compres

23、sion to be modest as favorable frequency trends persist.EVIDENCEWe are above consensus on 9 names in our coverage and below consensus for 5 names.WHATS PRICED IN?P&C insurers and brokers have outperformed and are trading near historical high multiples reflecting improved fundamentals and the defensi

24、ve nature of the groups.UBSe below consensus for the groupDetail on company revisions begins on page 14 of this report.Figure 2: UBSe versus consensus estimatesSource: UBSe, FactSetP&C Insurance: Earnings PreviewUBS ResearchPIVOTAL QUESTIONS HYPERLINK l _bookmark0 return Q: What are the key topics f

25、or the quarter?UBS VIEWThe sustainability and breadth of pricing momentum in both commercial lines and reinsurance. Last quarter saw a shift in tone as most commercial insurers pointed to an improving pricing environment. Price firming is largely driven by the niche excess and surplus (E&S) lines ma

26、rket, where reunderwriting at AIG and other carriers has constrained capacity at the same time that demand has increased. Similarly, Decile 10 at Lloyds created a capacity imbalance and has caused price firming in that market (see our E&S/Lloyds Conference note for more details). Pricing in standard

27、 commercial lines appears to be stable and about in line with loss trend. Mid-year reinsurance renewals, particularly June (Florida) renewals saw positive momentum, however, we believe this may be short lived. In personal auto, pricing continues to decelerate; however, we expect favorable frequency

28、to persist muting margin pressure. We expect organic growth in the 3-5% range from brokers in 2Q, albeit comps are getting more difficult for AON and MMC.EVIDENCECommercial pricing surveys (CLIPS, CIAB, MarketScout, IVANS), which focus on standard commercial lines, have indicated stable pricing at +

29、2%, while AmWINS E&S pricing index shows more substantial pricing acceleration. Personal auto insurance CPI continued to decelerate through May.WHATS PRICED IN?P&C insurers outperformed other financials in 2Q19 as interest rates continued to decline and pricing improved. The relative multiple of the

30、 group versus Financials is now well above historical averages.E&S pricing is firming; will standard commercial lines follow?We expect modest sequential acceleration, but we continue to favor specialty niches. Since the 1Q19 earnings season, evidence has clearly and consistently pointed to price fir

31、ming in the U.S. wholesale excess and surplus (E&S) niche of commercial lines insurance, large property risks, and Lloyds. Re-underwriting and a reduction of gross and net limits at AIG and some other carriers disrupted the supply of capacity in the market (AIGs Lexington unit is the largest E&S wri

32、ter by DWPs). At the same time, E&S demand has increased as a result of the Lloyds Decile 10 initiative, more disciplined underwriting in the standard commercial lines market, and the overall strong U.S. economy. Collectively, we believe these supply and demand factors should lead to sustained prici

33、ng momentum in the E&S market for a 12-24 month period and expect to see margin expansion with rates now ahead of loss trends. We are more cautious on pricing in the standard/admitted commercial insurance market. While we expect pricing to hold around 1Q levels, which were generally considered to be

34、 in line or slightly ahead of loss trend, the dislocation dynamics in E&S do not appear to apply to the standard commercial market and we see fewer positive catalysts. Furthermore, the drag from negative workers compensation rate filings appears to be accelerating andwill remain a headwind to consol

35、idated rate statistics at large workers comp writers.Survey results are consistent with our understanding of the commercial marketplace. CIAB, Marketscout, CLIPS and IVANS (all surveys that are generally considered to report standard/admitted commercial pricing) have been remarkably stable at around

36、 +2%. Note that the CIAB survey, which showed quarterly acceleration, likely captures exposure growth by asking agents/brokers to comment on change in premiums rather than rate or price.Conversely, E&S pricing according to AmWINS (largest wholesale E&S broker) reflects the rapid firming that many ma

37、rket participants have commented on and suggested acceleration through 1Q19.10%8%6%4%2%0%-2%-4%-6%-8%Figure 3: Traditional industry measures of commercial lines pricing suggest continued stability around +2%.CIABMarketscoutCLIPSIVANSFigure 4: contrasted to AmWINS pricing survey, which captures the p

38、rice firming in the wholesale E&S market10.0%8.0%6.0%4.0%2.0%0.0%-2.0%-4.0%-6.0%-8.0%March-17September-17March-18September-18March-19 Property Casualty ProfessionalSource: CIAB, MarketScout, CLIPS, IVANSSource: AmWINSUSI, among the larger U.S. P&C brokers with $2b in revenue, recently published a Ju

39、ne update to its 2019 market outlook. Consistent with market commentary, the outlook for property rate, auto, excess casualty, D&O, and aviation all improved. USI did not identify any lines where the overall view had deteriorated from the beginning of the year. In property, USI noted that market cap

40、acity is being impacted by several large standard carriers non-renewing accounts. In casualty, USI experienced 1H19 rate increases for primary general liability of 5% and 10% to 15% for lead umbrellas while the average limit of liability for a lead umbrella has been reduced to $10 million or $15 mil

41、lion (from $25m) and expects the pricing pressure to intensify for the remainder of the year. While USIs view is that the overall competitive market will be sustained through year-end, they see multiple scenarios for 2020 ranging from a leveling off of rate increases (driven by new capacity) to sust

42、ained momentum (particularly if casualty loss trends deteriorate, coupled with heavy cat losses). They note that underwriters appear to believe market hardening will continue and provide an example where a 1/1/2020 Umbrella renewal program has already been non-renewed.Figure 5: USI has increased the

43、 2019 rate outlook for a number of key P&C lines2019 RATE OUTLOOK Dec. 18 Jun 19USI CommentaryProperty non-catastrophic with good loss historyCAT property with minimal loss historyDown 3% to up 3% *Flat to up 5%-10%Up 10%Up 10% to 40%CAT or non-CAT property with poor loss historyUp 10% to 15% +Up 10

44、% to 40% +high end applying to CAT exposed prop, loss leaders and frame multi-familyPrimary general/products liabilityFlat to up 5%Flat to up 15%For primary GL, expect that programs will have to consider higher retentions;Primary limits may also have to increase to accommodate umbrella minimum attac

45、hment point requirements.Primary automobile liability with good loss historyUp 5% to 10%Up 5% to 10% +Primary market capacity shrinking; umbrella insurers are requiring higherprimary auto attachments of $2 million per accidentPrimary automobile liability with poor loss historyUp 15% +UnchangedUmbrel

46、la & Exces s LiabilityFlat to up 3%Up 5% to 20%over the last 6 months rate increases have been assessed against clients inalmost any industry regardless of loss experience, risk management protocols or tenure with their incumbent insurers.Workers Compensation Guaranteed CostDown 10% to up 5%Unchange

47、dexpect continue seeing a competitive environment with low single digit ratereductions in most statesWorkers Compensation Loss SensitiveDown 3% to up 3%UnchangedMedical MalpracticeFlat to up 15% +UnchangedPublic Company Directors & OfficersUp 10% to 20%Up 10% to 30% +the pace of hardening has picked

48、 up and we believe that the current difficult market environment may continue to worsen over the coming year.Private Company Management Liability AviationFlat to up 5%Up 5% to 10%Up 5% to 10%Up 10% to 25%major drivers of these changes are the increasingly diverse number of claim types hitting the D

49、& O policy and increased costs to defend these claims. Rates continue to climb as reinsurers exit the market; All lines of aviationincreasing, expected to continue thru remained of yearSource: USIWe continue to view AXS as the best play on the bifurcated commercial lines market, with among the large

50、st allocations of commercial P&C premiums to wholesale E&S and Lloyds. See our complete AXS buy thesis in our May upgrade note HYPERLINK /shared/d2QFvzmMKFce (link). We also point out that BRK/A is a major writer of E&S through its Berkshire Hathaway Primary unit, and based on statutory reporting, E

51、&S direct written premiums grew 30% y/y in 1Q19. In June we published an interactive model that allows investors to analyze various E&S/ Lloyds growth and profitable scenarios and the potential impact to earnings HYPERLINK /shared/d22849PqQSF (see note here, with link to download the model).Figure 6

52、: JRVR, AXS have largest % of 18 U.S. direct written premiums derived from E&S market100%90%80%70%60%50%40%30%20%10%0%Source: SNLAIGAXSACGLBRKCBHIGJRVRTRVWRBE&SStandardLoss trend stability has generally persistedOverall, there are few signs that overall commercial loss trend inflation is meaningfull

53、y accelerating (except for select markets) and we expect that most companies will continue to describe lost cost inflation trend in the 3% to 4% range. This should lead to stable underlying margins for most standard commercial underwriters (assuming some exposure growth acts like rate), and margin e

54、xpansion for E&S writers that are seeing high single-digit/low double digit rate increases in many lines. Insurers have suggested that general U.S. inflation measures are not particularly effective in tracking loss cost trends given the industrys leverage to very specific inflationary components; he

55、althcare, legal/social, and wage. In our 2019 Outlook, we identified several indices to help track inflationary trends by product line. In Figures 6, 7 and 8, below, we observe thatmost of these indices trended favorably or stable through 1H19. Medical trends appear to have trended favorably through

56、 the first half of the year, which is generally positive for workers compensation, auto (bodily injury) and general liability. Property-related measures appear stable at +3% after trending up in 2016 and 2017 (possibly reflecting catastrophe-related demand surge). So far, securities class actions fi

57、lings are on pace with 2018, an elevated level, which continues to drive price firming in the public company D&O market. A June white paper issued by CB highlights structural issues that have allowed the number of SCA filings to grow and notes that from 2012 to 2017, the average SCA settlement cost

58、was $3.8 million.Figure 7: Key measures of medical inflation important to WC, GL, Auto trending favorably for insurersFigure 8: Construction costs and finished goods, measures of property inflation, generally stable 3% y/yFigure 9: At 1H19, the count of Federal security class action filings is on pa

59、ce with 18 levels8.0%6.0%Percent Cng. y/y4.0%2.0%0.0%-2.0%May-09May-11May-13May-15May-17May-198.0%6.0%4.0%2.0%0.0%-2.0%2Q09 4Q10 2Q12 4Q13 2Q15 4Q16 2Q185004504003503002502001501005001996 1999 2002 2005 2008 2011 2014 201712%10%8%6%4%2%0%Construction Cost Index CPI Medical Care Commodities CPI Hospi

60、tal and Rel. ServicesCnt. Federal Securities Class Actions (left)CPI Physicians ServicesPPI Finished Goods xF&E % S&P500 Subject to New Core Filings (right)Source: BLSSource: BLS, Engineering News-RecordSource: Stanford Law, Towers Perrin, UBS analysisAssuming loss trend stability persists in the 3%