Merrill boosts position on insurance credits, but still slightly cautious

By Ronda Fears

Nashville, Dec. 4 - Merrill Lynch & Co. high-grade bond analyst Angelo Graci boosted his recommended allocation to the insurance sector to a marketweight, after having cut it to underweight in June.

But he noted that insurance spreads currently reflect the risk profile of the sector and continue to lag the market.

"The insurance sector has lagged comparable banks and industrial bonds and we believe the risks of the sector are now fairly factored into spreads," Graci said in a report Tuesday.

"However, in our view, these risks have not dissipated. For this reason, we are not recommending an overweight in the sector and continue to look for clear signs of stability in investment portfolios, particularly credit exposures, investment yields, variable annuity products, asbestos exposures and ratings migration."

Within the sector, however, Merrill recommends overweights in the fixed-income securities of American International Group Inc. and a couple of other names, while recommending underweight in Chubb Corp. and a few others.

Yaw Debrah, head of U.S. convertible research at Merrill, said his group has a buy recommendation on the convertibles of Ace Ltd., AIG, Hartford Financial Services Group Inc., MetLife Inc. and The St. Paul Cos. Inc.

But he noted that the maturity dates on the Ace and MetLife convertibles are too close to be interesting.

On Chubb's new mandatory, Merrill's convertible rating is neutral.

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