The nation's largest general insurers are headed for an improved operating environment and profit cycles, according to analysts at UBS.
In a note to clients, the broker dissects Australian Prudential Regulation Authority data and comes to the view that the insurance sector's margins hit an inflection point.
"Our deep-dive into APRA's class of business (COB) stats highlights why we view FY17 as a pivotal turning point for GI's (general insurance) profit momentum," the research said.
"We argue that industry fundamentals are now more supportive of a margin recovery (admittedly off a lower 2H17 base). We have key company specific concerns (management instability at QBE; questionable execution of strategy at Suncorp), but feel these are outweighed by valuation support and profit cycles improving."
UBS says there is a case to own Suncorp and Insurance Australia Group shares which it rates "buy" and "neutral" respectively.
"Firming of premium rates across profit-challenged COBs is now more widely accepted, but we sense a low level of conviction in the duration and extent of margin recovery this could provide, particularly after so much reporting season volatility."
QBE Price at posting:
$10.41 Sentiment: Sell Disclosure: Not Held
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