The Zacks Analyst Blog Highlights:American International Group, Tower Group
International, Hanover Insurance Group, Monteplier Re Holdings and Global
CHICAGO, May 24, 2013
CHICAGO, May 24, 2013 /PRNewswire/ --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.
(NYSE:AIG), Tower Group International Ltd. (Nasdaq:TWGP), Hanover Insurance
Group Ltd. (NYSE:THG), Monteplier Re Holdings Ltd. (NYSE:MRH) and Global
Indemnity plc (Nasdaq: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. (NYSE: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
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
Tower Group Down to Underperform
We have downgraded our recommendation on the shares of Tower Group
International Ltd. (Nasdaq:TWGP) to Underperform from Neutral on account of
significant execution risk associated with the recently closed merger with
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.
(NYSE:THG), Monteplier Re Holdings Ltd. (NYSE:MRH) and Global Indemnity plc
(Nasdaq:GBLI), all carrying a Zacks Rank #1 (Strong Buy) -- are worth
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