From the Artemis blog:
Reinsurer valuations too high, even at lower cost of equity: Deutsche Bank
In a report discussing the leading European reinsurance firms, analysts from Deutsche Bank conclude that valuations are too high, having been driven up by a hunt for dependable yield from investors and a market that has tended to avoid the fundamentals.
Reinsurance companies are likely to remain a popular choice among traditional investors, as the market environment has helped them to look attractive even at a time when the industry itself acknowledges it is under the greatest pressure in years.
The European reinsurers that Deutsche Bank’s analysts are assessing have moved as a group as well, which the analysts say ignores the underlying factors that affect each company differently.
“The market has not differentiated between the companies and has tended to ignore fundamentals,” lead analyst Olivia Brindle wrote.
Overall this leads Deutsche Bank to be neutral on the sector but negative on some firms in particular, as their valuations have now risen to levels which “we cannot justify even with reduced costs of equity.”
This is a very interesting statement as it confirms a number of points that we’ve been covering at Artemis.
Primarily that the low-levels of catastrophe losses and rising capital levels have been masking the true performance of the reinsurance sector and that this is ultimately what has been making reinsurance stocks seem so attractive to investors....MORE
