Will Allied World Continue Gaining Strength? - Analyst Blog


Allied World Assurance Company Holdings, AG ( AWH ), or Allied World has been on an uptrend since the beginning of this quarter, reflecting investors' enthusiasm about its developments so far. The company's shares have gained almost 11.3% since Oct 1.

Among others, A.M. Best Co. has upgraded issuer credit ratings (ICR) of Allied World Assurance Company Ltd. and its operating subsidiaries to "a+" from "a". Concurrently, the rating agency affirmed the financial strength rating (FSR) of Allied World Assurance Company Ltd. and its subsidiaries at A (Excellent). Allied World Assurance Company Ltd. is a subsidiary of Allied World. While the ICR outlook was revised to stable from positive, the outlook for the FSR remains stable.

Subsequently, the rating agency upgraded the ICRs to "bbb+" from "bbb" for Allied World and its downstream holding company, Allied World Assurance Company Holdings Ltd. (Allied World Holdings Bermuda). The debt rating of the latter was also upgraded to "bbb+" from "bbb". Outlook has been revised to stable from positive.

In addition, an FSR of A (Excellent) and an ICR of "a+" was assigned to Vantapro Specialty Insurance Company, a reinsured subsidiary of Allied World. Ratings carry a stable outlook.

The ratings reflect diversified mix of business, sturdy risk-adjusted capitalization, efficient management team and strong framework of enterprise risk management.

The outlook accounted for sustained solid operating results, excellent risk management culture and widening product breadth.

However, casualty orientation of Allied World weighed on the positives. Casualty business is cyclical in nature and faces stiff competitions. This longer-tailed business is also subject to rate fluctuations and susceptible to current low interest-rate environment.

The rating agency might consider a rating upgrade if Allied World continues to post strong operating profits and excellent risk adjusted capital levels. Deteriorating operating trends, expanded investment or insurance losses and any occurrence of shortfall in reserves in future will likely lead to ratings or outlook being downgraded.

With respect to earnings performance, Allied World has delivered positive earnings surprises in the last four quarters with an average beat of 32.8%. Operating net income of $2.93 per share in the last reported quarter surpassed the Zacks Consensus Estimate by 37.5% and the year-ago results by 35.6%.

The Zacks Consensus Estimate for 2013 of this Zacks Rank #1 (Strong Buy) property and casualty insurer has been raised over the last 30 days by 10.3% to $10.37 as all 6 estimates were raised. The same for 2014 moved up by 2% to $7.61 as more than half of the estimates moved north over the same time frame.

The latest price appreciation is certainly encouraging. However, make sure to keep a close watch on this firm in the near future before investing in it.

Among other property and casualty insurers, A.M. Best Co. affirmed FSR of A (Excellent) and ICR of "a" for Aspen American Insurance Company and Aspen Specialty Insurance Company on Sep 19, 2013. Both these companies are wholly owned subsidiaries of Aspen Insurance Holdings Limited ( AHL ). A stable outlook is assigned to all the ratings.

Apart from Allied World, other property and casualty insurers like Cincinnati Financial Corp. ( CINF ) and Alleghany Corp. ( Y ), both of which carry a Zacks Rank #1, are also worth considering.

ASPEN INS HLDGS (AHL): Free Stock Analysis Report

ALLIED WORLD AS (AWH): Free Stock Analysis Report

CINCINNATI FINL (CINF): Free Stock Analysis Report

ALLEGHANY CORP (Y): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: AHL , AWH , CINF , Y



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