Zacks Industry Outlook Highlights: Eastern Insurance Holdings, RLI, ProAssurance, SeaBright Holdings and Amerisafe

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Oct 05, 2011, 09:30 ET

CHICAGO, Oct. 5, 2011 /PRNewswire/ -- Today, Zacks Equity Research discusses the Insurance, including Eastern Insurance Holdings, Inc. (Nasdaq: EIHI), RLI Corp. (NYSE: RLI), ProAssurance Corporation (NYSE: PRA), SeaBright Holdings, Inc. (NYSE: SBX) and Amerisafe Inc. (Nasdaq: AMSF).

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A synopsis of today's Industry Outlook is presented below. The full article can be read at

http://www.zacks.com/stock/news/62146/Insurance+Industry+Stock+Update+%96+Sept.+2011

Despite a series of natural disasters and consequent above-average losses, the U.S. insurance industry could rebound only with help from rising rates and reduced pricing pressure. Though financials of U.S. insurance companies are still not strong enough to soak up losses from catastrophic events such as the recent Hurricane Irene, which affected a wide area of the U.S. East Coast, tight market conditions and a favorable rate environment on steady demand growth could significantly offset the damages.

Moreover, the financial dent caused by Hurricane Irene has been milder than what the market had presumed. It wasn't as bad as it could have been due to perfect weather forecasts and rapid emergency actions. So the damage is expected to be mended in the near-to-mid term.

After enduring stress with respect to pricing pressure and reduced insured exposure through mid-2009, the overall health of the U.S. insurance industry has improved to some extent in recent quarters. Though the market turmoil forced many companies to take immense write-downs, the worst of the crisis appears to be now behind us.

However, long-lasting soft market conditions, shrinking businesses, a still-high unemployment rate and legislative challenges are threatening insurers' ability to rebound to the historical growth rate. The industry continues to be challenged by subdued premium volume growth in a perked up economy as well as a massive healthcare restructuring.

Though there are signs of economic recovery, its sluggish pace is expected to continue at least through 2011. Also, structural economies of scale have pushed the industry toward consolidation. As a result, inter-segment competition within the industry has reduced. Moving forward, maintaining profitability after complying with regulatory requirements could be a painful task.

We expect static growth with persistent soft market conditions to result in further consolidation in the industry. Though there are near-term opportunities for insurers, braced by some rapidly growing sectors such as health care and technology, overall industry conditions are expected to improve beyond 2011, should the economy turn to growth post-recovery. Probably the industry will take a couple of years to overcome most industry challenges with the help of an improved market mechanism.

OPPORTUNITIES

We remain positive on Eastern Insurance Holdings, Inc. (Nasdaq: EIHI), RLI Corp. (NYSE: RLI) and ProAssurance Corporation (NYSE: PRA) with a Zacks #1 Rank (short-term Strong Buy).

WEAKNESSES

We expect continued pressure on investment portfolios and lower income from the variable annuity business to restrict the earnings growth rate of life insurers. Also, reduced financial flexibility and weak underwriting will hurt the earnings of Property & Casualty Insurers.

Among the Zacks covered U.S. insurers, we prefer to stay away from the Zacks #5 Rank (short-term Strong Sell) companies –– SeaBright Holdings, Inc. (NYSE: SBX) and Amerisafe Inc. (Nasdaq: AMSF).

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