Broker snap: Jefferies turns cautious on insurers

2nd Jul 2012 10:59

Jefferies has downgraded its rating for insurance group Catlin as part of its review of the Lloyds of London insurance market."Although forecasts are for a relatively quiet hurricane season this year, the recent strong performance of the London Market insurers warrants some caution. With capital plentiful and deductibles intact, losses are likely to hurt book values without benefiting rates," the broker said.It said that this caution over the sector performance through hurricane season is not enough to change its views on Lancashire Holdings or Hiscox, which are both rated as 'buys'."Lancs moved early in 2012 hitting peak rate increases and has moved US windstorm exposure up through the layers. Hiscox has capital surplus, in our view, and much reduced US exposure. If the season is benign as forecast we believe capital return is probable at Lancs and possible at Hiscox."As for Catlin, the shares are now close to Jefferies's price target of 470p so the broker cuts its rating from 'buy' to 'hold', "also noting higher end US windstorm exposure and a broadly untouched reinsurance deductible".BC