Will Allied World Continue Gaining Strength? - Analyst Blog
November 18 2013 - 6:00PM
Zacks
Allied World Assurance Company Holdings, AG
(AWH), or Allied World has been on an uptrend since the beginning
of this quarter, reflecting investors’ enthusiasm about its
developments so far. The company’s shares have gained almost 11.3%
since Oct 1.
Among others, A.M. Best Co. has upgraded issuer credit ratings
(ICR) of Allied World Assurance Company Ltd. and its operating
subsidiaries to “a+” from “a”. Concurrently, the rating agency
affirmed the financial strength rating (FSR) of Allied World
Assurance Company Ltd. and its subsidiaries at A (Excellent).
Allied World Assurance Company Ltd. is a subsidiary of Allied
World. While the ICR outlook was revised to stable from positive,
the outlook for the FSR remains stable.
Subsequently, the rating agency upgraded the ICRs to “bbb+” from
“bbb” for Allied World and its downstream holding company, Allied
World Assurance Company Holdings Ltd. (Allied World Holdings
Bermuda). The debt rating of the latter was also upgraded to “bbb+”
from “bbb”. Outlook has been revised to stable from positive.
In addition, an FSR of A (Excellent) and an ICR of “a+” was
assigned to Vantapro Specialty Insurance Company, a reinsured
subsidiary of Allied World. Ratings carry a stable outlook.
The ratings reflect diversified mix of business, sturdy
risk-adjusted capitalization, efficient management team and strong
framework of enterprise risk management.
The outlook accounted for sustained solid operating results,
excellent risk management culture and widening product breadth.
However, casualty orientation of Allied World weighed on the
positives. Casualty business is cyclical in nature and faces stiff
competitions. This longer-tailed business is also subject to rate
fluctuations and susceptible to current low interest-rate
environment.
The rating agency might consider a rating upgrade if Allied World
continues to post strong operating profits and excellent risk
adjusted capital levels. Deteriorating operating trends, expanded
investment or insurance losses and any occurrence of shortfall in
reserves in future will likely lead to ratings or outlook being
downgraded.
With respect to earnings performance, Allied World has delivered
positive earnings surprises in the last four quarters with an
average beat of 32.8%. Operating net income of $2.93 per share in
the last reported quarter surpassed the Zacks Consensus Estimate by
37.5% and the year-ago results by 35.6%.
The Zacks Consensus Estimate for 2013 of this Zacks Rank #1 (Strong
Buy) property and casualty insurer has been raised over the last 30
days by 10.3% to $10.37 as all 6 estimates were raised. The same
for 2014 moved up by 2% to $7.61 as more than half of the estimates
moved north over the same time frame.
The latest price appreciation is certainly encouraging. However,
make sure to keep a close watch on this firm in the near future
before investing in it.
Among other property and casualty insurers, A.M. Best Co. affirmed
FSR of A (Excellent) and ICR of “a” for Aspen American Insurance
Company and Aspen Specialty Insurance Company on Sep 19, 2013. Both
these companies are wholly owned subsidiaries of Aspen
Insurance Holdings Limited (AHL). A stable outlook is
assigned to all the ratings.
Apart from Allied World, other property and casualty insurers like
Cincinnati Financial Corp. (CINF) and
Alleghany Corp. (Y), both of which carry a Zacks
Rank #1, are also worth considering.
ASPEN INS HLDGS (AHL): Free Stock Analysis Report
ALLIED WORLD AS (AWH): Free Stock Analysis Report
CINCINNATI FINL (CINF): Free Stock Analysis Report
ALLEGHANY CORP (Y): Free Stock Analysis Report
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