Auto insurance was highlighted as a tough area of property casualty by Josh Shenker of Citigroup in this week’s Property Casualty Insurance Roundtable.
Mr. Shanker: We’re fairly leery of the personal lines market, particularly the
auto market. Names that we have sell recommendations on are Progressive and
Safeco (SAF). Principally speaking, we see competition as being quite strong,
and yet the pricing war has only begun to have its initial effects. We should
see higher competition going forward.
At the same time, expenses are much higher for the industry and you need to
advertise and pay brokers a lot. There isn’t really room to cut the margins of
these businesses, which have gotten leaner over the years as well. We’ve seen
companies like Progressive and Safeco fire heavy capital return packages over to
their shareholders. That possible catalyst has already happened and is likely
near its end in terms of its ability to help these stocks out. The stocks are
too expensive. We continue to look for soft top lines, higher expenses as the
result of increased advertising as well as increased broker compensation,
overall margin deterioration and a lack of ability to increase what has already
been offered to shareholders in the form of a capital return.
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