Seeking Alpha: Endurance Specialty Pushing On Through Soft Markets

Endurance Specialty Holdings (NYSE:ENH) hasn't emerged as a leader of the insurance pack, but it has done okay since my last write-up on the company in June of 2015. With the shares up around 5% (excluding dividends), Endurance has outdone the likes of Aspen (NYSE:AHL) and XL Group (NYSE:XL), but hasn't quite kept up with top-notch players like Arch Capital (NASDAQ:ACGL), RenRe (NYSE:RNR), W. R. Berkley (NYSE:WRB), or Hartford (NYSE:HIG).

In my opinion, Endurance has gotten itself off to a good start with the integration of Montpelier Re (NYSE:MRH), and I like how the company has been repositioning its business and risk exposures in the reinsurance segment. On the insurance side, the company is writing a lot of business and looking to grow in markets like aviation and international casualty. While a drive for scale is understandable, expanding the business in a period of soft rates carries with it some risks to future profits.

The market has established an undesirable trade-off for me within the insurance sector - the stocks I like best aren't very cheap (if cheap at all), and the ones that are undervalued have some risks and "yeah, but..." attached to them. Such is the case with Endurance. I don't think my expectations are all that ambitious (long-term earnings growth around 5%, with a 10% ROE) and the fair value of $67 to $70 holds some appeal, but I can't muster together a rousing Buy case for the stock right now.

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Endurance Specialty Pushing On Through Soft Markets

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

Seeking Alpha: It's Hard To See How W.R. Berkley Gets A Higher Multiple From Here

When investors look at high-quality insurance names like Arch Capital (ACGL), RenRe (RNR), and W.R. Berkley (WRB), they shouldn't expect to find big bargains very often. These companies have all shown themselves to be quite adapt at pricing risk, allocating capital, and maneuvering themselves into lines of business that can maximize their returns, and the Street is typically happy to pay for that quality and consistency.

While I don't expect to pick up W.R. Berkley on the cheap, I'm worried that the valuation on this specialty insurer has overshot the mark. Berkley's management may be right that weak underwriting profitability across the sector will serve as a tailwind for rate increases, but I'm concerned that the influx of competition and capital into specialty insurance could create some limits. At the same time, I'm a little nervous about company's reserves and the large amount of leverage put to work here. W.R. Berkley has been a top-notch performer for years and management deserves the benefit of the doubt. Even so, I'm not going to pay up to this extent to own the shares.

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It's Hard To See How W.R. Berkley Gets A Higher Multiple From Here

Investopedia: Aspen Doesn't Really Stand Out

With so many stories out there in the insurance sector--from turnarounds or restructurings like Hartford (NYSE:HIG) and XL Group (NYSE:XL) to well-run operations like Allied World (NYSE:AWH) and RenRe (NYSE:RNR)--investors have plenty of choices and a lot of undervalued stocks to consider. Unfortunately, Aspen (NYSE:AHL) really doesn't stand out in any particular regard. While this company has a reasonable record of returning cash to shareholders, and the move towards writing more insurance business makes sense, neither the strategy nor the valuation are exceptional today.

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http://stocks.investopedia.com/stock-analysis/2012/Aspen-Doesnt-Really-Stand-Out-AHL-AWH-ACCE-XL0619.aspx

Investopedia: How Good Will The Good Times Be For Allied World Assurance?

Even though investment returns are low, and likely to remain so for the near future, many insurance company stocks have come to life over the last six months. One of the strongest has been Allied World Assurance (NYSE:AWH), a relatively small global insurance company that splits its activities among American and international insurance and reinsurance. While there are a lot of fine attributes that make Allied World a solid hold, the momentum in the stock has taken the cheapness out of the name.

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http://stocks.investopedia.com/stock-analysis/2012/How-Good-Will-The-Good-Times-Be-For-Allied-World-Assurance-AWH-ACGL-WRB-XL0606.aspx

Investopedia: Berkshire Hathaway Makes An Unusual Bid For Transatlantic

These are strange days in the economy and the financial markets, so perhaps it is fitting that the Transatlantic Holdings (NYSE:TRH) merger saga just got a little stranger. After all, it was odd enough that Transatlantic was the subject of competing bids that both undervalued this rare U.S.-domiciled reinsurance company. Now, Berkshire Hathaway (NYSE:BRK.A) is stepping in with a proposal when the company normally has preferred to act much more subtly in its acquisitions.


The Latest Bid
Berkshire Hathaway, famously led by Warren Buffett, does not traditionally do hostile deals nor engage in public auctions. Typically Buffett's deal terms are "here's our deal, we expect a quick response and discretion". In this case, however, Berkshire's bid for Transatlantic does not seem to be the normal sort of arrangement where the deal is signed, sealed and delivered before the public even gets wind of it.


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http://stocks.investopedia.com/stock-analysis/2011/Berkshire-Hathaway-Makes-An-Unusual-Bid-For-Transatlantic-TRH-BRK.A-AWH-VR-AIG-AON-MMC0809.aspx