Seeking Alpha: Is Everest Re Watering The Weeds?

"Pulling the flowers and watering the weeds," was an expression that Peter Lynch coined to refer to the habit of many companies of neglecting or outright harming their best business so as to give more time, attention and capital to inferior businesses - often in the hopes that those inferior businesses would emerge as new sources of growth. That's probably an unduly harsh assessment of Everest Re's (NYSE:RE) ongoing commitment to grow its Insurance operations, but there's nevertheless a stark contrast between the highly profitable Reinsurance operations and the seemingly always-lagging Insurance business.

I remain unconvinced that Everest Re's insurance operations are going to stage an impressive turnaround, but I'll at least acknowledge a meaningful improvement in the loss ratio would offer some welcome upside to the fair value. As is, I think the shares of this high-quality reinsurance company are modestly undervalued as the company works its way through what could prove to be an extended period of challenging conditions in its core markets.

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Is Everest Re Watering The Weeds?

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: Endurance Specialty Is Getting Scale, But More Challenges As Well

Endurance Specialty (NYSE:ENH) chairman and CEO John Charman has made no secret of the fact that he believes Endurance needs more scale to be a truly competitive player in the evolving insurance and reinsurance markets. While Aspen (NYSE:AHL) rebuffed the company's takeover attempt, Montpelier Re (NYSE:MRH) put itself up for sale not long thereafter and the companies announced a merger on March 31 of this year.

While an acquisition of Aspen would have made more sense (at least superficially), the Montpelier deal should be accretive for Endurance on both earnings and ROE pretty much from day one. I'm a little concerned about the greater shift toward property catastrophe reinsurance, but it's not a transformative shift and it is one I believe Endurance can manage. What's more, Montpelier's Lloyds and Blue Capital assets may be a lot more valuable than the market currently projects. Valuing Endurance on the premise that the deal goes through suggests to me that the company could be more than 10% undervalued today, but there is going to be a "show me" process where management has to deliver on the proposed synergies to unlock the value.

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Endurance Specialty Is Getting Scale, But More Challenges As Well

Seeking Alpha: Aspen Insurance Making Its Case To Stand Alone

If nothing else, Aspen Insurance (NYSE:AHL) doesn't lack for confidence. While Endurance Specialty Holdings (NYSE:ENH) has made an offer for the company that values it more highly than any of its peer group companies except Arch Capital and RenRe, management has remained steadfast in its rejection of Endurance's overtures. Likewise, management continues to project an ROE evolution that is meaningfully more bullish than the sell-side's projections.

While I'm still not willing to go 100% with Aspen's projections, the recent improvement in operating results is pushing me more in that direction. Although I do think management may be too bullish with its expectations for interest rates, cat losses, and reserve developments, the underwriting has been looking better and the company may be on the cusp of some significant margin leverage after years of investments to build out the insurance business. My new base-case of 11% ROE in 2018 suggests the shares should trade around $46, but even a half-point improvement offers some noteworthy upside.

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Aspen Insurance Making Its Case To Stand Alone

Seeking Alpha: Endurance Specialty Still Undergoing Substantial Shifts

Endurance Specialty Holdings (ENH) hasn't quite settled into its new normal yet, which makes quarter-to-quarter forecasting quite a bit more challenging. Expenses are still running high, but premium growth in the insurance business should lead to better leverage down the road. Still, there is a lot of uncertainty about the long-term profitability of business being written today in the insurance sector, and Endurance's pursuit of Aspen (AHL) adds yet another layer of uncertainty. I seem to be a little more bullish than most sell-side analysts on Endurance's long-term profitability, as an assumption of a five-year ROE of 10% leads to a fair value estimate above $58.

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Endurance Specialty Still Undergoing Substantial Shifts

Seeking Alpha: Aspen Insurance Building Tomorrow's Growth At The Cost Of Today's Margins

Few bargains remain in the insurance sector, what with these companies having recovered significantly from the post-credit crisis lows. Valuations have moved up in conjunction with higher pricing across multiple sectors, but it is now starting to look like pricing is topping out in many (if not most) markets. Couple that with a still-weak investment environment and growing loss severity and I'm not surprised that many sell-side analysts are pulling back a bit from their bullish calls on the sector.

Aspen Insurance (AHL) finds itself in an interesting position amidst these changes. The company has followed a clear and stepwise transition towards becoming more of a primary insurance underwriter (versus a balanced insurance/reinsurance company), and the management believes that the insurance platform has matured to a point where it can retain more risk. Margins and returns have taken a hit in the course of building out the primary insurance business, and the Street is quite skeptical about Aspen's near-term ROE prospects, but the shares do seem modestly undervalued and could offer growth-driven upside.

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Aspen Insurance Building Tomorrow's Growth At The Cost Of Today's Margins

Seeking Alpha: Endurance Delivers A Solid Result, But There's Plenty Still To Do

Endurance Specialty Holdings (ENH) has long been a pretty solid mid-tier insurance company, with operations split across both insurance and reinsurance operations. The company has had to deal with the same premium, catastrophe, and portfolio investment challenges as everybody else (to the detriment of returns), but has largely avoided the big mistakes.

Even so, the board was not content to just leave well enough alone and the addition of a new CEO earlier this year seems as though it will lead to some extensive changes for Endurance. On the basis of what I believe to be relatively conservative expectations Endurance still looks undervalued, and I think that makes it at least a name worth watching.

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Endurance Delivers A Solid Result, But There's Plenty Still To Do