Friedman Billings cut Delphi Financial Group (DFG ) to underperform from outperform.
Analyst Stewart Johnson said the downgrade is based on his outlook for more volatile, less predictable earnings than before. He says the stock's recent selloff is no surprise, as small-yet-growing reinsurance business can have a negative impact on earnings due to Katrina. Given the company's lower quality of earnings, he believes his analysis no longer supports premium valuation to the peer group. He cited recent growth of reinsurance business combined with Katrina impact for cutting his third quarter estimate by 27 cents to 68 cents. He will revisit the rating if a decision should be reached to sell the reinsurance business.