Seeking Alpha: Allied World A Confounding Mix Of Risk And Opportunity

Even with the concerns over softening premiums, rising claim inflation, and weaker-for-longer interest rates, the insurance sector hasn't had too bad a time of it. Quality names like Arch Capital (NASDAQ:ACGL), Chubb (NYSE:CB), and W. R. Berkley (NYSE:WRB) have managed to outperform the S&P 500 by 10% to 15% since the time of my last article on Allied World (NYSE:AWH). It hasn't been such a good time for AWH, though, as concerns about weaker underwriting, weaker market returns, and increased reserves have pushed the shares down about 17% since that last article and well below the level of returns of many of its peers.

I have to admit some frustration as to what to do with these shares. I wasn't all that enthusiastic on them back in May, and I do think weak core underwriting results and softening markets are a concern. On the other hand, Allied World has an enviable track record of tangible book value growth and meaningful opportunities to grow both its U.S. specialty and global primary insurance businesses in the coming years. I think $36 to $40 is a reasonable fair value range right now, but these shares could merit a fair value in the mid-$40s if the reserving issues are truly behind them and if management can really maximize the opportunities of its expanded global and domestic primary insurance businesses.

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Allied World A Confounding Mix Of Risk And Opportunity