James Dean reviews some insurance stocks

Credit Suisse analysts believe sub-prime losses have been overstated in the Lloyd’s market, while Brit’s undemanding valuation leaves it the most exposed to takeover.

The analysts’ main concern with Brit was with the financial and professional book of business written through global markets, which includes mortgage indemnity guarantee and D&O. They warned: “We remain cautious on the prospects for Brit’s mortgage indemnity guarantee book, which we believe could be heavily exposed in the event of a downturn in the UK housing market in particular…we believe this is a book of business which could see substantial losses.”

Nevertheless, they upgraded Brit from ‘underperform’ to ‘neutral’ based on the stock’s current depressed valuation relative to asset value, while lowering its target price to 275p from 302p. Brit shares were trading at 241.5p as Insurance Times went to press.

Amlin received an upgrade based on its commitment to cycle management in past years. The analysts pointed to combined ratios of under 90% in Amlin’s UK commercial and aviation lines, despite severe pressure and consequent cut-backs since 2003. They concluded: “We believe that Amlin remains the quality player in the Lloyd’s sector, with a good track record of cycle management that we would expect to continue going forward.”

Credit Suisse upgraded Amlin to ‘outperform’ from ‘neutral’ but lowered its target price to 363p from 367p based on expectations of lower premiums. Amlin shares were trading at 287p as Insurance Times went to press.

Beazley’s recent run of strong performance has given it an expensive valuation compared to the rest of the sector, the analysts said. They went on to suggest that this, in tandem with a weak dollar, would be likely to preclude the company from a US or Bermuda takeover. However, they added that its exposure to sub-prime losses has been overstated and that, while there will be claims, they will be limited in value. Despite this, they concluded: “We believe there are currently more compelling investments elsewhere in the sector.”

Credit Suisse downgraded Beazley to ‘neutral’ from ‘outperform’ and reiterated its target price of 220p. Beazley shares were trading at 174p as Insurance Times went to press.