The United Auto Workers' strikes against US automakers are unlikely to "meaningfully impede" the expected improvement in personal auto underwriting margins in the second half of this year and through 2024, UBS Securities said Monday.
The UAW's coordinated strikes have entered its second week. General Motors (GM) and Stellantis (STLA) has seen more parts and distribution centers added to facilities that have been shut down, while Ford Motor (F) has been insulated from an expanded strike.
The strikes created "some concern that it will drive a resurgence in used car and auto parts inflation, pushing out the 'turn' in personal auto margins," UBS analysts, including Brian Meredith, said in a note. Historically, the impact of UAW strikes on personal auto claims severity has been "modest," they wrote.
The strikes are expected to last about 60 days, with existing inventory levels remaining "strong," UBS said, citing an expert call hosted by its auto team. If vehicle production were to stop immediately, the industry would have nearly 38 days of new inventory in stock, with each of the three automakers having more than 50 days, according to the note.
"Given the strike-strategy UAW president, Shawn Fain, has implemented, we don't expect a full shut down of production" across the three automakers, the brokerage said. UBS doesn't expect auto parts inflation to pick up, as the strike is currently targeted at assembly plants and not part-manufacturing plants, the analysts said.
When personal auto margins start to improve, it is a catalyst for upward estimate revisions and share price gains, compared with the rest of property and casualty insurance, according to the note. The pace and extent of margin improvement could be better than projected.
UBS said Allstate (ALL) continues to be its top pick in personal lines. "While elevated auto repair inflation due to labor costs are continuing to pressure claims severity, we believe that earned price increases for (Allstate's) personal auto insurance business in (the third quarter) will be close to, if not in excess of, loss trend," the analysts said. The company is expected to have positive earnings in the third quarter, which should "help to allay capital adequacy fears" as its builds capital, the brokerage said.
UBS said Progressive (PGR) was the "least favored" name in its personal auto margin improvement thesis. Allstate shares were up 1.6% in Monday late afternoon trade, while Progressive fell 0.8%.2023-09-25T19:34:07Z dg43tfdfdgfd