James Dean comments on the stock market movers and shakers
The bond insurer saga continued this week with reports that Eliot Spitzer, the governor of New York, was at the centre of operations to secure a $1.5m rescue package for Ambac, announced at the end of last week. It is understood that Spitzer was instrumental in rallying banks to provide the funds, and may be acting to protect other bond insurers. Meanwhile, Moody’s placed XL Capital Assurance on negative ratings watch.
Chaucer reported a record pre-tax profit of £89.4m (2006: £86m), gross written premiums of £581.4m (2006: £594m) and a combined ratio of 81.6% (2006: 84.7%) – although its results were propped up by reserve releases of £50m (2006: £24m). Chief executive Ewen Gilmour said future rate falls were expected in most lines, to hit their lowest point by 2010, but would be balanced out by resurgence in motor rates – currently estimated by Chaucer to be on the up by 8% over 2008.
Gilmour said: “We expect, like others, to cut marginal business,” he said, adding that that the aviation sector could see improvement, and government proposals for increased nuclear spending, although still a way off, could boost profits when the market becomes completely soft.
Commenting on Chaucer’s results, analyst Numis said: “We continue to believe that Chaucer’s above-average exposure to the gradual recovery in UK motor and development of its third party syndicate management capabilities should leave it well placed to manage the cyclical downturn in non-motor rates.”
Numis recommends to ‘add’ with a target price of 110p. Chaucer shares were trading at 93.75p as Insurance Times went to press.
JLT pointed to further small-scale acquisitions in the year ahead, at a similar rate to the seven made in 2003. Numis said: “The group has guided for revenue and margin expansion in most areas of the business in 2008. This is clear evidence of the benefits from recent cost initiatives and focused investment in growth markets, such as construction and energy.
“We detect renewed management confidence in JLT’s earnings prospects, based on the group’s ability to win market share in its target industries,” said Numis.
Analysts upgraded JLT’s target price by 15p to 445p and reiterated an ‘add’ recommendation. JLT shares were trading at 361p as Insurance Times went to press.
