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With P&C pricing pressures easing, Goldman upgrades brokers Willis, Aon

"Dissipating" pricing pressures for the property and casualty insurance industry will bode well for the insurance brokerage companies, Goldman Sachs analyst Yaron Kinar said.

The analyst upgraded his coverage view on the sector to "attractive," saying even flat property and casualty rates can help brokers generate greater cash flows as they remove pricing headwinds that reduce commissions.

"As the brokers do not take liability risk, they do not require pricing to remain above loss cost trends," the analyst said. "This is a key [difference] between our more constructive views on brokers compared to our more cautious views on commercial insurers, even though both participate in the same market."

Kinar upgraded Aon Plc to "buy" from "neutral," saying it will benefit from its lower effective tax rate as compared to peers and "leaner" operations. Kinar raised Aon's target price to $162 from $143. The analyst kept the 2018 EPS estimate unchanged at $8.00 and lowered the 2019 and 2020 estimates to $8.95 from $9.05 and to $9.75 from $10.10, respectively.

Additionally, the analyst upgraded Willis Towers Watson PLC to "neutral" from "sell" over lower management revenue synergy targets, lowered 2018 guidance range and "less challenging" prior-year comparables relative to its peers. Kinar raised Willis Towers's target price to $170 from $154. The analyst kept the 2018 and 2019 EPS estimates unchanged at $9.85 and $10.75, respectively, and set the 2020 estimate at $11.90.