Expectations Seem Low For Swiss Re, But Not Without Cause

Swiss Re (OTCPK:SSREY), the second-largest reinsurance company in the world, has not had a very good run. Not only have the shares lagged the S&P 500 over the last one-, two-, five-, and ten-year periods, but also many of those performances compare poorly to sector peers/rivals like Munich Re (OTCPK:MURGY), Hannover Re (OTCPK:HVRRY), SCOR (OTCPK:SCRYY), and smaller players like Everest Re (NYSE:RE). Comparatively weaker ROEs do explain at least some of the underperformance, but the more important question is whether Swiss Re looks placed to do better in the coming years.

Swiss Re should be poised to benefit from rate improvements, but it remains to be seen whether management can achieve the necessary margin improvements in its casualty reinsurance and primary insurance operations. Modest expectations are an advantage in that respect, as only modest improvements in long-term ROEs can drive mid-single-digit income growth and double-digit annual shareholder returns.

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Expectations Seem Low For Swiss Re, But Not Without Cause

Seeking Alpha: Tower Group Using Reinsurance For Assurance

When I wrote about the "almost unbelievable" situation at Tower Group (TWGP) on September 18, little did I know the story was about to get even more volatile. Not only did the stock plunge significantly on that day (down almost 30%), but the following days saw the stock fall another 30% before rebounding a bit.

On Tuesday night, the company announced a series of reinsurance agreements that should bring some stability to the situation. While two of the agreements will help the company manage and contain additional losses from its workers comp and multi-peril liability businesses, the others will help ease the company's capital needs for the remainder of the year and also give the company a little more time to work through its loss estimate and reserving issues.

I don't want to jump to the immediate conclusion that these transactions "save the company". There are still serious issues and questions regarding the quality of Tower Group's management and their ability to correctly estimate and price risk. If they do not correct those deficits, all they have done is buy some time. What's more, it's still very difficult to value this company appropriately until the expected earnings report next week, when the company will hopefully provide updated information about the changes to its reserves, its book value position, and its near-term earnings guidance.

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Tower Group Using Reinsurance For Assurance

Investopedia: The Japanese Earthquake's Effects On Insurers

Although it is still far too early to fully assess the scale and impact of the severe earthquake that struck northeastern Japan, and all of us at Investopedia wish our friends and readers in Japan the best, the fact remains that markets have to digest this information and move forward. To that end, it seems quite likely that major reinsurance companies are going to face large claims in the wake of this disaster. 

The Scale of the Disaster 

As of this writing, which is only hours after the quake struck, it is all but impossible to get a firm sense of the damage in the Tohoku region of Japan. While the reported magnitude of this quake is considerably higher than that of Great Hanshin quake that struck Kobe in 1995, it does not automatically follow that this quake will surpass the fatality (over 6,000 dead) or economic damage (roughly $100 billion) of that prior disaster. Let us all hope it does not.

Nevertheless, there are many major manufacturing facilities in this region owned by companies like Sony (NYSE:SNE), Toyota (NYSE:TM),and Nissan (Nasdaq:NSANY) to name a few. What's more, given the reports of infrastructure damage that have already come in (roads, bridges, and the like), it seems probable that there has been significant economic damage.

Please read the full piece at Investopedia:
http://stocks.investopedia.com/stock-analysis/2011/The-Japanese-Earthquakes-Effects-On-Insurers-BRK.A-RNR-SWCEY-ACGL-ACE-XL-RE0311.aspx