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(Re)insurers on course for Q3 book growth, despite market turmoil

Despite the financial market turmoil of recent weeks, US and Bermudian (re)insurers have seen the estimated fair value of their investment portfolios increase in the third quarter, contributing to solid growth in book value per share (BVPS), according to research from UBS.

In a research note focusing on 14 P&C (re)insurers, UBS analyst Brian Meredith calculated that the fair value of investment portfolios was up 0.7 percent on average for the quarter-to-date, with sequential growth in BVPS projected at 3.2 percent.

The 3.2 percent increase was split between a 2.1 percent boost from investment marks in the quarter and a 1.2 percent benefit from operations of the (re)insurers.

The biggest riser was Allstate, with projected BVPS growth of 4.9 percent, including 3.7 percent from favourable investment marks, according to the research.

At the other end of the scale, Progressive is only expected to have experienced BVPS growth of 0.4 percent.

A higher exposure to equities than the other companies in the group led to a projected 1.3 percent hit in negative marks-to-market on the US insurer's portfolio that was only partially offset by estimated operating performance.

Meanwhile, Bermudian reinsurer Everest Re is estimated to have suffered from negative movement on its investment portfolio of -0.4 percent due to its equity investments and high-yield bond holdings, which accounted for 9 percent and 7 percent of its portfolio respectively, as at the end of the second quarter.

XL tops the group in terms of the estimated performance of its investment book, with Meredith projecting 4.7 percent positive investment marks, partly offset by a negative 0.6 percent impact from its operations.

Aspen is also expected to have benefited from strong investment performance, with positive marks of 3.3 percent against the backdrop of negligible contribution from its operations to BVPS growth.

UBS also highlighted how far below 52-week multiples of BVPS the majority of the companies are currently trading following the downward movement in stocks in recent weeks.

Meredith observed that, with the exception of Arch and RenaissanceRe, Q3 valuation multiples for the (re)insurers are all at least 6 percent below their 52-week averages.

Allstate, for example, is trading at 0.68x pro forma third quarter estimated BVPS, versus a 52-week average of 0.86x.

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