Canaccord cuts profit forecasts on Beazley following California wildfires

Analysts at Canaccord Genuity took a fresh look at insurance and underwriting service Beazley on Friday, a day after the firm warned claims from the recent California wildfires had cost it roughly $40m.

In response, Canaccord cut its 2018 pre-tax profit forecasts 38% to $67.5m to reflect the loss. The Canadian broker also nudged back its estimate for the company's investment income to $27.1m but noted that all other assumptions were unchanged.

"Whilst another profit before tax downgrade is likely to have a near-term (small) negative impact on the share price, the fact that Beazley has suffered a loss from these horrific wildfires should come as no surprise," said Canaccord.

The broker reminded investors that it had been warning "for a while" that the insurance sector would see heightened claims activity as a result of the fires, with insured losses now being forecast at more than $10bn.

However, Canaccord noted that there was a silver lining in all this, noting that losses from the second half will help underpin rates going into 2019.

"We have previously commented that we look for overall flat reinsurance rates at the January renewals and for the incremental uplift in most commercial insurance lines to continue into 2019."

"Arguably, the market has already accepted that 2018 is going to be another more challenging year for (re)insurers and so it's focused on the underwriting outlook for 2019 and the improving investment return on the back of interest rate rises."

Canaccord reiterated its 'buy' rating and 610p target price on Beazley.