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Valuations grow modestly against share prices in 2016

Price-to-book (PTB) multiples at P&C (re)insurance companies were marginally higher in 2016 than in the previous year, as share price growth slowed and M&A activity lessened.

The average PTB multiple for The Insurance Insider's Insider 50 group was 1.56x at the end of last year, slightly up from the 1.53x recorded in 2015.

The increase shows that while investor confidence in the sector remains strong, P&C companies are experiencing slow growth as they continue to face a tough pricing environment and a battle for high returns.

In 2015, investors largely overlooked the crippling market conditions and instead gambled on M&A activity, with acquirers paying healthy PTB multiples in one of the busiest years ever for transactions.

Conversely, 2016 was relatively quiet with only a few companies willing to engage in takeovers, as the industry continued to digest the deals of the previous year.

However, the competitive environment yielded some contrasting outcomes at the close of last year, as three of the eight individual composites in our coverage experienced a yearly decrease in PTB multiples.

Lloyd's carriers fell from trading at an average of 2.05x at the end of 2015 to 1.70x a year later, as only Lancashire succeeded in growing its PTB multiple.

The valuations of Beazley, Hiscox and Novae all dropped by double-digits year-on-year, in contrast with 2015 when the trio were at the top of the growth chart.

Global insurers also recorded a reduction in their average PTB multiple to 1.08x from 1.18x 12 months earlier.

Of the group, Swiss Re stood out as the biggest faller as it ended 2016 trading at 0.92x, compared to 1.12x at the close of 2015.

The year's best performers were the Bermudians, whose valuations rose from 1.05x to 1.22x on average after some major M&A transactions towards the end of 2016.

In October last year Sompo Holdings acquired Endurance in a $6.3bn deal that valued the business at 1.36x trailing book value per diluted share.

And last month Fairfax bought Allied World for $4.9bn, representing a valuation of 1.34x and fuelling the belief that market consolidation will continue for publicly traded small-to-mid-sized Bermudian (re)insurers.

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