Wells Fargo changed its ratings on some insurance companies as it positions its coverage with those that it expects to outperform in 2020, analyst Elyse Greenspan wrote in a Jan. 6 research note.
In the P&C sector, Greenspan expects Arch Capital Group Ltd. to be among the "winners" in 2020, along with companies that operate in the lines getting the most price and that have adjusted their reserves for higher inflation over the past few years. She upgraded Arch Capital's rating to "overweight" from "equal weight," noting that the company's P&C results "have always been best in class." She expects the company to benefit from a continued hard market for mortgage and an improving P&C market.
Within the life insurance sector, companies that are "more immune" to lower interest rates as a result of their diversified business mixes are well-positioned in 2020, Greenspan wrote. One of these companies is Axa Equitable Holdings Inc., with Greenspan noting that it is a "more stable" life insurer that trades at an "inexpensive" valuation, especially after withdrawing the value of its ownership in AllianceBernstein LP. She also raised Axa Equitable's rating to "overweight" from "equal weight."
On the other hand, Greenspan downgraded Axis Capital Holdings Ltd., Brighthouse Financial Inc., Travelers Cos. Inc. and United Insurance Holdings Corp. to "underweight" from "equal weight."
She noted the lack of "meaningful" improvement with Axis Capital's margin initiatives, writing that she does not expect a significant inflection in 2020. On Brighthouse Financial, she wrote that it is one of the most interest-rate-sensitive life insurers and is more exposed to the new Financial Accounting Standards Board accounting standards.
Greenspan does not expect Travelers to hit its margin targets for 2020 with the potential for rising social inflation. On United Insurance, she wrote that the company could be exposed to substantial rate increases in Florida at the June 1 renewals.