A.M. Best Special Report: U.S. Property/Casualty Stock Performance Hindered By Global Financial Concerns

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FOR IMMEDIATE RELEASE

OLDWICK - OCTOBER 06, 2015 10:09 AM (EDT)
According to a special report by A.M. Best, mid-cap stocks of U.S. property/casualty (P/C) companies outperformed small and large-cap stocks during second-quarter 2015.

The Best Special Report, titled, “U.S. Property/Casualty Stock Performance Hindered By Global Financial Concerns,” says that as second-quarter 2015 came to a close, optimism about an upturn in the U.S. economy and resilient corporate earnings growth was largely tempered by deep concerns over the Greek debt crisis. Small cap stocks had the largest volatility of returns during the quarter. While clearly offering opportunities for larger returns, volatility associated with small-cap stocks is typical, largely due to their smaller institutional investor base, lighter trading volume and smaller float of common shares. Of the 44 P/C stocks covered throughout this report, 26 had a negative return for second-quarter 2015, while the other 17 all generated larger returns, thus, reversing the performance exhibited during the first quarter of the year.

Some of the highlights from this report include:

• The cumulative performance of the commercial and personal lines segment companies mirrored each other with both generating an average return of 1.3%, and of the 29 commercial lines stocks, 14 or 48% underperformed the broad market, generating negative returns for the quarter;


• The strong balance sheets of P/C companies fueled expectation of continued returns in the minds of investors. For the group, earnings per share growth remained relatively favorable during the quarter, although not as favorable as during the first quarter of the year. During the second quarter, 57% of the group generated year-over-year earnings per share growth, with the median being 18%; and


• The operating net income for the group of P/C companies declined by 0.6% from second quarter 2014, despite revenue for the group increasing by 2.0%, quarter over quarter. The revenue trend continues to be consistent with the recent growth in total, non-life premium, which increased by 3.3%, year-over-year, to $61.0 billion from $59.1 billion.

The challenges presented by the reinsurance market remain significant, specifically the increase in capital coming into that market and the competitiveness that results from the increased capacity. The favorable effect of low catastrophe losses through the year on company balance sheets is also likely to increase competition and have an overall, negative impact on the ability of P/C insurers to generate returns to meet business plan expectations. These challenges will be prevalent even if the P/C industry’s combined ratio continues improving throughout the full year, mirroring what has occurred during the first half of 2015.

While the U.S. P/C industry posting improved underwriting results and net income through the first six months of 2015, companies are still facing opposing forces of opportunity contrasted with considerable challenges, not the least of which is the volatility in the market itself.

For the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=242207 .

For the full copy of the P/C six month special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=242122 .

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