Property/casualty insurance stocks have now risen beyond the sub-book-value multiples that existed for many companies over the preceding four years to reach a modest premium to book value. This valuation level appears to be at equilibrium, according to a new study by Conning.
“Current property-casualty industry valuations seem more rational than the sub-book value levels that existed over much of the prior four years,” said Steve Webersen, director of research at Conning. “However, our analysis suggests that a return to the higher historical valuation levels is unlikely in the near term.”
The Conning study, “Property-Casualty Valuations: Have Valuations Reached a New Equilibrium?” provides a review of long-term returns and valuations in the property/casualty industry as well as approaches to valuation, total returns and value creation. The study analyzes valuations by subsector and provides rankings based on value creation.
“Yes, underwriting fundamentals have improved, supporting higher valuations, however the build-up of capital and depressed interest rates act as dampers on further improvement,” said Steve Webersen. “Currently, the pendulum has swung to the ‘more capital is better’ side at the expense of returns and ultimately valuations. Until this situation is resolved, the excess capital position will likely act as a ceiling on valuations.”
The report is available for purchase from Conning by calling (888) 707-1177 or by visiting the company’s web site at www.conningresearch.com.
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