The Zacks Analyst Blog Highlights: AXA Group, Allianz, AEGON, Prudential and Rexam

CHICAGO, July 8, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog includeAXA Group (OTC:AXAHY-Free Report), Allianz SE (OTC:AZSEY-Free Report), AEGON N.V. (NYSE:AEG-Free Report), Prudential plc (NYSE:PUK-Free Report) and Rexam plc (OTC:REXMY-Free Report).

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Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Friday's Analyst Blog:

Is European Insurance Still a Good Bet?

Strong Resurgence

According to new data released by Insurance Europe, gross premiums for the European insurance sector increased by 1.6% in 2012. This is a significant improvement, considering that premiums fell by more than 2% in 2011.

Non-life insurance figures grew the most, increasing by 3% to 459 billion euros. However, life insurance, which accounts for nearly 60% of premium increased by a shade below 1% to 656 billion euros.

The resurgence in European markets in 2012 has also led to a substantial increase in the investment portfolio of European insurers. The total investment portfolio of European insurers has increased from 7,700 billion euros in 2011 to 8,500 billion euros in 2012. Compared to an increase of 1.4% in 2011, 2012 witnessed an increase of 9% of the total investment portfolio.

Possible Roadblocks

But there are some specific concerns which the sector will have to deal with. Europe's leading insurers include AXA Group (OTC:AXAHY-Free Report),Allianz SE (OTC:AZSEY-Free Report), AEGON N.V. (NYSE:AEG-Free Report) and Prudential plc (NYSE:PUK-Free Report). Last month, the European Insurance and Occupational Pensions Authority (EIOPA) released the results of a study carried out on insurers this year. The European Commission will utilize the results of this report to frame new regulations for the insurance sector.

Known as Solvency II, these regulations are expected to come into effect by 2016. Many insurance companies are uncomfortable with these proposals which primarily deal with long term savings guarantees. Schemes with such a flavor find particular favor in Germany and the Netherlands.

The major concern for insurers is how future obligations will be calculated under such a regime. Additionally, these rules will also determine how much capital insurance companies must allocate to fulfill obligations when long term guarantees are involved.

Insurers feel this could lead to their balance sheets suffering from artificial volatility due to short term changes in the values of assets held. This would mean they would have to reduce investments in assets which would provide higher growth.

EIOPA has come up with various proposals to deal with such concerns. These include a "classical matching adjustment" mechanism in the method utilized to determine the value of future liabilities. This move in particular has been welcomed by the industry.

Additionally, after their thorough examination of banks, regulators are beginning to carefully examine the ability of insurers to respond to crisis situations. The International Association of Insurance Supervisors (IAIS) which is monitored by the Financial Stability Board (FSB) and ultimately the G20 is examining 48 insurers for systemic risk.

Risk will be assessed after taking into account five key factors. These include size, global activity, connectedness with financial markets, substitutability of cover and activity in domains which are not traditional or related to the insurance business.

New Opportunities

At the same time, new avenues of growth are opening up for insurers. Demand for "Cyber-crime" policies, which are still to find favor with most companies, may soon pick up.

The European Commission is slated to change data protection rules in a major way from 2014. This would result in higher fines for companies without cover in such an event. These penalties could be as high as 2% of a company's annual global turnover.

The U.S. market for cyber cover is exceeds $1 billion in terms of annual premiums. However, growth in this area occurred only after strong legislation. And now European authorities are preparing to levy large fines on companies which suffer data losses due to hacking.

Another major avenue for growth is usage based policies for the auto insurance segment. New technology installed in cars will be utilized to collect data on driving behavior or mileage efficiency. Telematics could soon become the new watchword for auto insurance, leading to a decrease in traditional policies.

The idea is to offer discounts on insurance cover based on such data. This would lead to increased synergies between auto companies and insurers. Many reports estimate that by 2020, the number of usage based policy holders could hit the 24 million mark.

The Way Ahead

The future of insurance companies will depend on their ability to adapt to a rapidly changing environment. On the one hand, they will have to cope with increasingly stringent regulatory changes. In addition, they will have to constantly keep pace with rapid technological changes.  Ultimately, whether they view such events as threats or embrace them as opportunities may determine their success of failure.

Rexam Downgraded to Strong Sell

On July 4, Zacks Investment Research downgraded Rexam plc (OTC:REXMY-Free Report) to a Zacks Rank #5 (Strong Sell).

Why Downgraded?

Rexam plc's earnings estimates and share price witnessed a downward trend following its announcements on Jun 25 that its interim as well as full year 2013 results would be lower than previously expected as well as the intention to sell its Healthcare business.

The global consumer packaging company noted that beverage can volume growth has been slower than expected this year mainly due to the weather. Even though North America has held up, volumes have been weak in South America and Western Europe in April and May. For the five months till the end of May, global volumes edged up 1% compared with the prior-year period. The company expects operating profit to decline year-over-year in the first half of fiscal 2013.

Rexam expects full-year performance to be lower than previously anticipated. As a reminder, the company during its announcement of interim results ended Jan 2013 on Apr 18 had mentioned a target of achieving 15% return on capital employed for fiscal 2013.

However, volumes have shown some improvement in Brazil in June and the second half should benefit from increased cost reductions and certain contractual price/volume arrangements in Europe.

Over the last 30 days, the Zacks Consensus Estimate for fiscal 2013 decreased 6% to $2.99 per share and for fiscal 2014 it went down 4% to $3.26 per share.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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