財險展望：把握專業(yè)商業(yè)定價的潮流謹慎看待虧損趨勢

1、Global Research23 January 2020Equities2020 Outlook: P&C InsuranceInsurance, Property & CasualtyNorth AmericaRide the wave of specialty commercial pricing with cautious eye on loss trendWith defensives out of favor, we like specialty writers; turnaround storiesOur top picks entering 20 are AIG, AXS,

2、ACGL, and KMPR. P&C relative valuations have declined as the improving macro backdrop has put defensive stocks out of favor. Further, personal auto pricing remains competitive and loss cost inflation concerns have pressured commercial underwriters, despite improving market conditions. We prefer the

3、fundamentals for commercial writers, particularly those in specialty lines (AXS, ACGL). We also like AIG, which should benefit from continued underwriting actions, as well as the introduction of new expense initiatives.Better commercial pricing can outpace worsening loss trend, particularly in E&S W

4、e expect firm market conditions in E&S lines and Lloyds to continue in 2020, and overall, commercial rate may continue to accelerate in response to social inflation concerns. We currently prefer underwriters with leverage to specialty markets given double-digit rate increases and tightening T&Cs in

5、many lines, which gives us more confidence that margins can expand. Standard pricing in the mid-single digits supports modest margin improvement for CB, TRV, and HIG. The outlook could improve if rate accelerates, but we see near term risk from tort inflation and WC pressure. Reinsurance pricing sho

6、uld improve at mid-year, but excess capital could cap the upside.Personal auto fundamentals should start to improve in back half of the year Auto CPI and rate filings suggest that auto may finally have bottomed, but it remains below loss trend. While we believe that favorable frequency will persist

7、and help to mitigate margin compression, there have been pockets of elevated severity. We believe pricing will trend higher in 2H20, as mutual insurers are near minimum returns. Margins will remain pressured in 20, but pricing could approach loss trend by year end.Headwinds in U.S. standard auto mak

8、e IFC/KMPR our top personal lines picks We are cautious on U.S. standard auto near-term, given pricing headwinds. That said, we view the non-standard auto as a differentiated niche where pricing is more stable. We believe KMPR is positioned to generate double-digit NSA growth in 20, without sacrific

9、ing margin. We also like IFC, as the Canadian auto market remains hard and IFC is poised to grow market share from a profitable position. Lastly, as u/w margins inflect in the back half of 20, PGR should see improved growth and multiple expansion.Figure 1: Personal lines operating ROEs expected to d

10、ecline on auto pricing competition, Commercial lines ROEs reflect modest improvement on underlying margin expansion20%Brian MeredithAnalyst HYPERLINK mailto:brian.meredith brian.meredith+1-212-713 2492Seth Rosenberg Associate Analyst HYPERLINK mailto:seth.rosenberg seth.rosenberg+1-212-713 2527Sheil

11、a Seetharaman, CFAAssociate Analyst HYPERLINK mailto:sheila.seetharaman sheila.seetharaman+1-212-713 4413Michael Ward Associate Analyst HYPERLINK mailto:michael.a.ward michael.a.ward+1-212-713 3518Operating ROE15%10%5%0%201620172018Personal Lines2019eCommercial Lines2020e2021eSource: Company reports

12、, Visible Alpha Consensus. Personal: ALL, KMPR, MCY, PGR. Commercial: ACGL, AXS, AIG, CINF, CB, WRB, TRV, HIG, SIGI, THG, RNR, IFC, RE, RNR HYPERLINK /investmentresearch /investmentresearchThis report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PA

13、GE 31. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be 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 thei

14、r investment decision.P&C begins 20 somewhat out of favorP&C insurance stocks are defensive and generally have an inverse correlation with interest rates.Higher Treasury yields and tighter credit spreads supported by improved macro outlook shifted market sentiment away from defensive areas, leading

15、to P&Cs underperformance to end the year Defensive characteristics reflected in P&Cs relative underperformance relative valuations now modestly below long-term averages1.0%1401301.5%1202.0%1102.5%1003.0%90803.5%130%P&C Relative Performance10YR Treasury Yield (inverted)120%Relative to Financials110%1

16、00%90%80%70%60%50%130%120%110%Relative to S&P 500100%90%80%70%60%50%Rel. Perf to S&P 500Rel. Perf to S&P Fins10Y Treasury Yield P/E Relative to FinancialsP/E Relative to S&P 500and some evidence to suggest that the sector is becoming more defensive with the growing presence of min-vol ETFs130%120%11

17、0%100%90%80%70%60%The relationship between min vol ETF and P&C valuation strengthened in 2019, possibly reflecting the increased nterdependence as min vol ETFsisaw inflows and increased ownership positions in P&C namesRead: Sector becoming more defensive2020 Outlook: P&C Insurance23 January 2020 2P/

18、C Insurance P/E relative to SPXInsurance Broker P/E relative to SPXUSMV to SPX 0Source: Factset, UBSe.Global Property and Casualty Insurance ValuationsUBSPrice2019E2020E4Q19Target PriceUBS% toDividendTotalUpsideAddl % toDownside% toTickerRating1/10/2020EPSEPSBVPS xAOCIMethodologyTargetTargetYieldRet

19、urnPotentialUpsideRiskDownsideAIGBuy$52.03$4.56$5.25$68.310.95x 2020 BVPS x/ AOCI plus PV DTA$6423.0%2.5%25.5%$7215.3%$49(6.7%)AIZBuy$132.44$8.48$9.80$82.71SOTP plus Deployable Capital$15214.8%1.8%16.6%$16811.9%$116(12.6%)ALLNeutral$113.45$10.44$10.68$76.071.39x 2020 BVPS x/AOCI$1162.2%1.6%3.9%$1301

20、2.0%$98(13.6%)ACGLBuy$43.53$2.79$2.98$25.730.30 x 2020 EPS$478.0%0.0%8.0%$5518.4%$32(25.5%)AXSBuy$60.10$2.79$5.53$53.921.15x 2020 BVPS x/AOCI$6914.8%2.7%17.5%$7815.8%$49(18.3%)CBNeutral$150.99$10.33$11.28$120.311.25x 2020 BVPS x/AOCI$1627.3%2.0%9.3%$1769.4%$123(18.6%)HIGBuy$59.76$5.51$5.40$44.861.49

21、x 2019 BVPS x/AOCI$6915.5%2.0%17.5%$8323.2%$52(13.1%)IFCBuy$144.20$5.81$8.31$51.412.51x BVPS x/AOCI$1493.3%2.1%5.4%$17820.0%$111(22.9%)KMPRBuy$77.56$6.22$6.20$59.591.51x 2020 BVPS x/AOCI$9016.0%1.3%17.3%$10620.8%$68(12.9%)PGRBuy$73.70$5.15$5.40$21.343.26x 1Q20 BVPS x/AOCI$9022.1%3.6%25.7%$10317.1%$6

22、4(13.5%)RENeutral$274.83$23.66$24.10$222.841.14x 2020 BVPS x/AOCI$273(0.7%)2.1%1.4%$2823.2%$205(25.5%)RNRNeutral$189.11$9.39$15.45$120.531.48x 2020 BVPS x/AOCI$2005.8%0.7%6.5%$23317.4%$144(23.7%)TRVNeutral$135.51$9.89$11.00$97.561.46x 2020 BVPS x/AOCI$1424.8%2.4%7.2%$15711.1%$115(15.1%)WRBSell$67.86

23、$3.08$3.09$33.551.89x 2020 BVPS x/AOCI$703.2%1.0%4.2%$7913.6%$58(14.0%)AONNeutral$208.06$9.11$10.3516.0 x NTM EBITDA less debt$196(5.8%)0.8%(5.0%)$22715.0%$163(21.5%)MMCNeutral$111.70$4.67$5.0214.0 x NTM EBITDA less debt$104(6.9%)1.6%(5.3%)$11610.8%$86(23.0%)WLTWBuy$205.00$11.05$12.2014.0 x NTM EBIT

24、DA less debt$2249.3%1.2%10.5%$25816.8%$172(16.2%)Average8.2%1.7%9.9%7.5%(23.0%)Median7.3%1.8%8.0%15.0%(18.3%)DownsideUpsideTarget Return43%41%41%38%33%28%27%26%25%24%19%18%18%16%10%6%5%(7%)(14%)(13%)(13%)(18%)(13%)(16%)(19%)(15%)(14%)(14%)(25%)(23%)(24%)(21%)(23%)(26%)70%50%30%10%-10%-30%-50%PGRAIGH

25、IGKMPRAXSAIZWLTWACGLIFCRNRCBTRVWRBALLAONMMCRE.1Source: FactSet, UBS estimates2020 Outlook: P&C Insurance23 January 2020 32020 Outlook: P&C Insurance23 January 2020 4UBSs Key P&C Insurance Themes for 2020ThemeOur ViewTop Ideas(1) Specialty commercial lines rate firming to continue in 2020; margin exp

26、ansion should start to emergeConditions in the specialty commercial market support underlying margin expansion in 2020 and we like names such as AXS, ACGL, AIG and JRVR given their leverage to this market.While specialty lines writers are not immune to industry wide loss cost inflation pressures, do

27、uble-digit pricing for most specialty lines is likely in excess of loss trend, and the ability to tighten terms and conditions (deductibles, limits, exclusions) provides some protection from increasing tort activity and should be an additional tailwind for margins and rebuild reserve cushions. Relev

28、ant research: Takeaways from UBS Specialty Conference, JRVR U/G, AXS U/G, Takeaways from UBS E&S/Lloyds Conference, Interactive E&S ModelAXS, ACGL, AIG, JRVR(2) Better pricing in standard commercial lines, but workers comp to remain a headwind. Rate likely modestly ahead of loss trend.We expect core

29、 margins for standard commercial underwriters to be mostly stable in 2020. Pricing has improved to a level that should be keeping up with (increased) loss trend expectation, but we believe the industry could experience further deterioration general liability loss trends and commercial auto could rem

30、ain elevated, or at the very least will be conservative with loss picks, before improvement in results can materialize (more likely a 21 story). In our view, workers compensation could prove out to be an unexpected storyline in 20 Relevant research: Workers comp insurance,HIG(3) Ahead of the game or

31、 behind the curve? Soft market growth and reserve adequacy comes into focusPYD has been a meaningful contributor to earnings, particularly for companies with large workers compensation books such as TRV and HIG. With loss trends deteriorating in a number of casualty lines, and pricing pressure in wo

32、rkers comp likely to begin to pressure margins, we expect PYD releases to slow in 20 and 21. We are also cautious on names that generated outsized premium growth during periods of soft market pricing (2014-2018)(4) The U curve should flatten mid-year as reinsurance pricing catches up to retroPricing

33、 in the prop-cat market supports margin expansion in 2020, and we believe RE, BRK RNR are well-positioned to grow in the retrocessional market as capacity continues to pull back. While pricing conditions are improving in casualty, we remain cautious given underlying loss cost inflation trends and th

34、e potential for losses to continue to climb into excess layers. Relevant research: Takeaways from UBS Specialty and Reinsurance ConferenceAXS, ACGL(5) Personal auto pricing will begin to improve, better outlook for margins in 21We expect personal auto margins to continue to compress in 2020 as earne

35、d rate is below loss trend. That said, we believe that margin compression will lead to a pullback in competitiveness and ultimately drive some price improvement. The timeline is unclear and could be impacted by environmental changes in claims frequency and/or severity, however we see several large c

36、arriers approaching minimum return thresholds, which suggests a bottom could be reached in 1H20. Relevant research: Personal auto favorable frequency, KMPR initiation, Agent survey, Non-standard auto agent surveyPGR, KMPR22020 Outlook: P&C Insurance23 January 2020 5 Theme #1Specialty commercial line

37、s rate firming set to accelerate further in 2020Summary:Specialty commercial insurance price firming is poised to continue in 2020, and potentially beyond, as Lloyds of London maintains a tight grip on underwriting capacity and several carriers continue to re-write (or exit) lines of business. The d

38、islocation these actions are causing, as well as increased demand due to business flow from the standard/admitted market, has resulted in significant price firming and tighter terms and conditions in impacted lines since early 2019.UBS View:Conditions in the specialty commercial market support under

39、lying margin expansion in 2020 and we like names such as AXS, ACGL, AIG and JRVR given their leverage to this market. While specialty lines writers are not immune to industry wide loss cost inflation pressures, double-digit pricing for most specialty lines is likely in excess of loss trend, and the

40、ability to tighten terms and conditions (deductibles, limits, exclusions) provides some protection from increasing tort activity and should be an additional tailwind for margins and rebuild reserve cushions.Evidence: AmWINS most recent market outlook reflects double-digit price increases in excess a

41、nd surplus (E&S) casualty and property lines, and accelerating professional lines pricing that is approaching +7%. Price increases in Decile 10-impacted Lloyds of London lines are reported to be double-digits.Whats Priced In:Consensus commercial lines underlying loss ratios for AXS, ACGL, and AIG re

42、flect 2pts of improvement in 2020.3Theme #1E&S Pricing likely to remain firm in 2020Commercial market hardening in E&S poised to continue through 2020, maybe longerWe expect the rate firming, particularly in the commercial excess and surplus (E&S) market, to persist through 2020 and increasingly we

43、see evidence that favorable conditions and momentum could extend into 2021.Casualty lines E&S pricing TTMProperty lines E&S pricing TTMProfessional lines E&S pricing TTM12.0%10.0%8.0%6.0%4.0%2.0%0.0%Sep-2017Sep-2018Sep-2019Source: AmWINS14.0%12.0%10.0%8.0%6.0%4.0%2.0%0.0%-2.0%-4.0%Sep-2017Sep-2018Se

44、p-20198.0%7.0%6.0%5.0%4.0%3.0%2.0%1.0%0.0%Sep-2017Sep-2018Sep-2019E&S Avg. Premium per Policy Growth in Florida25.0%Surplus lines data in Florida shows that strongpricing momentum continued into YE1920.0%15.0%$12,000AIGs share of the E&S $10,000market has fallen from15% in 2016 to 9%today as reunder

45、writing $8,000actions continue to takecapacity out of theThe E&S Market Continues to Growat the same time, increased discipline at standard/admitted carriers has pushed more business into the E&S market, contributing to +15% GWP growth in 9M1914.0%13.0%and E&S12.0% continues togrow as a %of total10.

46、0%market$6,00011.0% commercialDWP5.0%$4,00010.0%0.0%$2,0009.0%-5.0%4Q172Q184Q182Q194Q19Source: Florida Surplus Lines Association$-1Q163Q161Q173Q171Q183Q181Q193Q198.0%2020 Outlook: P&C Insurance23 January 2020 6AIG E&S DWPsRest of E&S Market DWPsE&S as % of Total Cmcl. DWPSource: SNL 4Theme #1E&S Pri

47、cing likely to remain firm in 2020 (cont)AIG (and others) will continue to re-underwrite in 2020, sustaining the pricing momentumAIG is positioned to be one of the biggest beneficiaries of its own actions, having taken billions of dollars of capacity out of the E&S market, which contributed to subse

48、quent price firming. Others (particularly large multinational writers and mutual insurers) have undertaken similar reunderwriting initiatives that have helped to accelerate and sustain the momentum. Importantly, AIG has said that they expect underwriting actions to continue into 2020, and the existe

49、nce of multiyear policies could cause the market disruption to continue into 2021.Florida Surplus Lines Association data is reflective of the actions taken at AIG, showing y/y declines in E&S written premiums for mostmajor lines (while the overall Florida E&S market is +32% y/y through 9M19).$ Writt

50、en PremiumsSource: Florida Surplus Lines AssociationExcess lines an example where AIG is benefiting from its own actions: by reducing gross and net limits, AIGs actions contributed to price firming in excess layersWritten premiums per policyYTD16YTD17YTD18YTD192020 Outlook: P&C Insurance23 January 2

51、020 75Theme #1Lloyds Expected to Maintain Profitability FocusLloyds of London expected to maintain focus on profitabilityGrowth in U.S. E&S premiums were in part driven by dislocation at Lloyds due to the Decile 10 initiative (requiring Syndicates to cut or provide a remediation plan for the bottom

52、10% of business) to improve underwriting profitability. In 2019, stamp capacity shrank 1.4bn, or 4%, the largest y/y decline since 2005. The result was price improvement in many Lloyds classes, as well as increased demand for U.S. E&S capacity as business was pushed out of the Lloyds market.35.030.0

53、25.020.015.010.05.0-Lloyds of London Capacity2020 stamp approvals expected to reflect2019 capacity reduction was largest since 20056% growth, but with pricing expected to remain firm, increased capacity unlikely to support significant new business.Llo yds Property expect similar pricing to 19, low d

54、ouble digits Energy+25% downstream, low single digits upstream M arine specific to pockets of the market: strong pricing in cargo/hull, others softer Aviation double digit increases Terrorism flat to +5%2019 pricing was strongest in lines that were designated as Decile 102020 Outlook: P&C Insurance2

55、3 January 2020 8 Source: Aon BenfieldWhile total capacity is expected to increase in 2020, the focus on underwriting profitability appears likely to extend into 2020. At the UBS Specialty & Reinsurance Conference in December, a participating company with a Lloyds syndicate noted that the process to

56、get additional stamp capacity remained rigorous; requiring extensive negotiation with the Corporation of Lloyds to get approval. Lines impacted by Decile 10 initiative saw among the largest price increases in 2019.6Theme #1How to play itAXS, ACGL, AIG, and JRVR stand out as leveraged to the improvin

57、g conditions in specialty linesBy mid-year 2020, we expect that much of the E&S market will be undergoing a second round of firm rate renewals, which should start to benefit margins as carriers benefit from rate on rate pricing. In our view, the debate has shifted from whether firm rate conditions w

58、ill last into 2020 to whether they can be sustained beyond 2021. For 2020, we like names with substantial exposure to specialty lines as we see upside to both growth and profitability estimates given the market tailwinds.Percentage of U.S. direct written premiums in E&S lines (2018)Percentage of 201

59、8 DWP written through Lloyds90%Direct Incurred Loss Ratio80%70%60%50%40%30%Source: SNLAcquisition of Barbican will grow ACGLs Lloyds presence in 2020Industry E&S direct incurred loss ratio shows room for improvement19982000200220042006200820102012201420162018Industry E&S Loss Ratio20YR AvgWill HIG g

60、row market share through Navigators?The 2018 direct incurred loss ratio of 64.8% is 6 pts above the 20-year historical average, suggesting the E&S market has meaningful room for margin expansion72020 Outlook: P&C Insurance23 January 2020 9Theme #1Estimates for Key NamesAXS20202021ACGL2020 2021 UB Se