MARKETS SPECTATOR: Insurance bears

Macquarie has lowered its ratings for IAG and Suncorp's insurance businesses, calling an end to their excessive outperformance of the benchmark index.

Macquarie Group has downgraded a number of big names stocks this morning, especially in the insurance space.

The broker lowered its rating on Insurance Australia Group to neutral from outperform, despite lifting its target price slightly to $4.88 per share.

After valuing both IAG and Suncorp’s Australia & NZ property and casualty insurance businesses, Macquarie believes they are overvalued when compared against their forecasts, which differ due to their lower premium growth assumptions.

Consequently, IAG's stock has been downgraded from outperform to neutral.

"Despite what could prove to be a benign catastrophe period to December 2012, likely favourable capital trends and consensus expecting a higher underlying insurance margin, we cannot justify retaining our previous outperform rating,” Macquarie said.

The broker has also downgraded Suncorp to neutral from outperform based on the relative valuations of the two Australian P&C businesses mentioned above and Macquarie’s cautious view versus the market relating to Suncorp’s Non-Core Bank and Life units.

Macquarie also notes that versus the 12.4 per cent gain for the S&P/ASX 200 index for the calendar year to date, IAG has risen 57 per cent and Suncorp 21.7 per cent, which both represent huge outperformance differences.


Source: Iress

Outside of the insurance sector, Macquarie also downgraded WorleyParsons to neutral from outperform and lowered its price target to $25.39 to from $30.42.

"We continue to like the WorleyParsons story in the medium to long term based on an advantaged oil & gas position and strong balance sheet with acquisition potential," Macquarie said in a report.

"However, we see downside risk to good growth guidance, and a flatter oil & gas capex outlook and global uncertainty is likely to dampen extent of growth expectations in 2014.”

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