Jay Cohen slips one place to No. 3, but the Bank of America Merrill Lynch researcher remains “the dean of property/casualty analysts,” in the words of one investor, “with a long history of great calls on the group and knowledge that only comes from long experience.” Nonlife insurers have been raising prices and repurchasing shares in an attempt to revitalize return on equity, but in general, “they haven’t achieved the kind of returns they like to from a historical standpoint,” Cohen asserts. He expects the companies’ ROE to remain at about 10 percent, adding that “with low interest rates, their cost of capital is somewhat lower as well, so we should be valuing a 10 percent ROE somewhat more generously than we might have historically.” With this in mind, he is highlighting names “either where the ROE can improve faster than the market seems to be giving them credit for or where there’s a franchise value that’s not being fully recognized.” An example of the former is American International Group, a New York–based property/casualty name that is boosting underwriting margins and repurchasing shares at an accretive value. Ace Group is an instance of the latter, since the Swiss insurer boasts a “consistent track record of beating earnings estimates and producing good underwriting results without the volatility you might expect from a global company like this,” Cohen advises. — Carolyn Koo |
The 2013 All-America Research Team: Insurance/Nonlife, No. 3: Jay Cohen