Weakening dollar to boost global P&C earnings
A weakening US dollar is likely to boost earnings of global property/casualty (P&C) firms, according to a Jan. 30 Morgan Stanley note.
The US dollar has declined between 5-10 percent year on year against major foreign currencies in the fourth quarter of 2017. Companies with higher portion of premiums/revenues from overseas are likely to benefit. Among brokers that are likely to get a boost from the weakening US dollar are Marsh & McLennan, Aon, Willis Towers Watson and Arthur J Gallagher, according to analysts.
Global re/insurers likely to benefit from the weaker US dollar include XL Group, AXIS, Everest Re, Renaissance Re, AIG, Chubb, and Arch Capital as more than 30 percent of company revenues or premiums are from overseas, according to Morgan Stanley analysts.
The exact impact depends on currency exposures in both revenues and expenses, as companies could have a mismatch in currencies. In addition, companies may also have F/X hedging programmes, the analysts explained.
Arthur J Gallagher, for example, guided that F/X could increase 2018 revenues by around $80 million and earnings per share (EPS) by around 5 cents.
In 2015, when the US dollar strengthened between 10-20 percent, the negative EPS impact for global brokers was between 6-12 percent.
A weakening US dollar could also have a positive mark-to-market impact on P&C book value as only assets are marked up while liabilities remain in GAAP accounting. Chubb estimates that a hypothetical 10 percent fall in the US dollar could aid book value by around 2 percent.
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