Global Indemnity: A Strong Sell - Analyst Blog

On May 30, Zacks Investment Research downgraded Global Indemnity Plc ( GBLI ) by a notch to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Global Indemnity has been witnessing sluggish earnings estimate revisions on the back of pricing pressure in the company's larger property accounts and in the property catastrophe market. Additionally, this property-casualty insurer underperformed the one-year Nasdaq index, which generated a return of 22.8%, against 16.9% clocked by the company.

On May 5, Global Indemnity reported first-quarter 2014 operating earnings per share (EPS) of 39 cents, which exceeded both the Zacks Consensus Estimate and the year-ago number by 14.7%.

Growth in premiums was substantially offset by lower net investment income as well as net realized loss against gains in the prior-year period. Higher expenses also dragged the reported net income on a year-over-year basis. Investment portfolio as well as total cash and invested assets further deteriorated at the end of Mar 2014 from 2013-end.

While a low interest rate environment undermines the investment portfolio, higher operating and underwriting expenses amid nominal premiums' growth raise concerns as well. Moreover, lack of any growth catalyst makes investors skeptical going forward.

We believe that Global Indemnity requires a proactive management strategy to escalate new business and agent relationships to enhance operating leverage and counter competitive pressures. Overall, weak fundamental growth prospects amid sluggish market conditions fail to boost investors' sentiment at the moment.

Even the Zacks Consensus Estimate for 2014 remained stagnant at $1.25 per share in the last 30 days, whereas the same in 2015 dipped 7.1% to $1.30 a share. EPS in 2014 is also expected to decline about 22.4% from 2013. Meanwhile, no upward revision in estimates was witnessed for both the years.

Some Worthy Stocks

While we prefer to avoid Global Indemnity for the time being, some better-ranked insurers such as Hallmark Financial Services Inc. ( HALL ), AmTrust Financial Services Inc. ( AFSI ) and Endurance Specialty Holdings Ltd. ( ENH ) are worth considering. All these stocks sporta Zacks Rank #1 (Strong Buy).

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

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

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