The Zacks Analyst Blog Highlights: AXA Group, Allianz, AEGON, Prudential and
CHICAGO, July 8, 2013
CHICAGO, July 8, 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 AXA Group (OTC:AXAHY-Free
Report), Allianz SE (OTC:AZSEY-Free Report), AEGON N.V. (NYSE:AEG-Free
Report), Prudential plc (NYSE:PUK-Free Report) and Rexam plc (OTC:REXMY-Free
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of
the Day pick for free.
Here are highlights from Friday's Analyst Blog:
Is European Insurance Still a Good Bet?
According to new data released by Insurance Europe, gross premiums for the
European insurance sector increased by 1.6% in 2012. This is a significant
improvement, considering that premiums fell by more than 2% in 2011.
Non-life insurance figures grew the most, increasing by 3% to 459 billion
euros. However, life insurance, which accounts for nearly 60% of premium
increased by a shade below 1% to 656 billion euros.
The resurgence in European markets in 2012 has also led to a substantial
increase in the investment portfolio of European insurers. The total
investment portfolio of European insurers has increased from 7,700 billion
euros in 2011 to 8,500 billion euros in 2012. Compared to an increase of 1.4%
in 2011, 2012 witnessed an increase of 9% of the total investment portfolio.
But there are some specific concerns which the sector will have to deal with.
Europe's leading insurers include AXA Group (OTC:AXAHY-Free Report),Allianz SE
(OTC:AZSEY-Free Report), AEGON N.V. (NYSE:AEG-Free Report) and Prudential plc
(NYSE:PUK-Free Report). Last month, the European Insurance and Occupational
Pensions Authority (EIOPA) released the results of a study carried out on
insurers this year. The European Commission will utilize the results of this
report to frame new regulations for the insurance sector.
Known as Solvency II, these regulations are expected to come into effect by
2016. Many insurance companies are uncomfortable with these proposals which
primarily deal with long term savings guarantees. Schemes with such a flavor
find particular favor in Germany and the Netherlands.
The major concern for insurers is how future obligations will be calculated
under such a regime. Additionally, these rules will also determine how much
capital insurance companies must allocate to fulfill obligations when long
term guarantees are involved.
Insurers feel this could lead to their balance sheets suffering from
artificial volatility due to short term changes in the values of assets held.
This would mean they would have to reduce investments in assets which would
provide higher growth.
EIOPA has come up with various proposals to deal with such concerns. These
include a "classical matching adjustment" mechanism in the method utilized to
determine the value of future liabilities. This move in particular has been
welcomed by the industry.
Additionally, after their thorough examination of banks, regulators are
beginning to carefully examine the ability of insurers to respond to crisis
situations. The International Association of Insurance Supervisors (IAIS)
which is monitored by the Financial Stability Board (FSB) and ultimately the
G20 is examining 48 insurers for systemic risk.
Risk will be assessed after taking into account five key factors. These
include size, global activity, connectedness with financial markets,
substitutability of cover and activity in domains which are not traditional or
related to the insurance business.
At the same time, new avenues of growth are opening up for insurers. Demand
for "Cyber-crime" policies, which are still to find favor with most companies,
may soon pick up.
The European Commission is slated to change data protection rules in a major
way from 2014. This would result in higher fines for companies without cover
in such an event. These penalties could be as high as 2% of a company's annual
The U.S. market for cyber cover is exceeds $1 billion in terms of annual
premiums. However, growth in this area occurred only after strong legislation.
And now European authorities are preparing to levy large fines on companies
which suffer data losses due to hacking.
Another major avenue for growth is usage based policies for the auto insurance
segment. New technology installed in cars will be utilized to collect data on
driving behavior or mileage efficiency. Telematics could soon become the new
watchword for auto insurance, leading to a decrease in traditional policies.
The idea is to offer discounts on insurance cover based on such data. This
would lead to increased synergies between auto companies and insurers. Many
reports estimate that by 2020, the number of usage based policy holders could
hit the 24 million mark.
The Way Ahead
The future of insurance companies will depend on their ability to adapt to a
rapidly changing environment. On the one hand, they will have to cope with
increasingly stringent regulatory changes. In addition, they will have to
constantly keep pace with rapid technological changes. Ultimately, whether
they view such events as threats or embrace them as opportunities may
determine their success of failure.
Rexam Downgraded to Strong Sell
On July 4, Zacks Investment Research downgraded Rexam plc (OTC:REXMY-Free
Report) to a Zacks Rank #5 (Strong Sell).
Rexam plc's earnings estimates and share price witnessed a downward trend
following its announcements on Jun 25 that its interim as well as full year
2013 results would be lower than previously expected as well as the intention
to sell its Healthcare business.
The global consumer packaging company noted that beverage can volume growth
has been slower than expected this year mainly due to the weather. Even though
North America has held up, volumes have been weak in South America and Western
Europe in April and May. For the five months till the end of May, global
volumes edged up 1% compared with the prior-year period. The company expects
operating profit to decline year-over-year in the first half of fiscal 2013.
Rexam expects full-year performance to be lower than previously anticipated.
As a reminder, the company during its announcement of interim results ended
Jan 2013 on Apr 18 had mentioned a target of achieving 15% return on capital
employed for fiscal 2013.
However, volumes have shown some improvement in Brazil in June and the second
half should benefit from increased cost reductions and certain contractual
price/volume arrangements in Europe.
Over the last 30 days, the Zacks Consensus Estimate for fiscal 2013 decreased
6% to $2.99 per share and for fiscal 2014 it went down 4% to $3.26 per share.
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of
the Day pick for free.
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