"Number of headwinds" to hurt EPS of insurance brokers: JPM

The biggest headwind facing the industry is foreign exchange and it could lead to pressure on foreign profits over the next four quarters, analyst Matthew G Heimermann said in a note to clients.

"Based on quarterly average exchange rates, major foreign currencies have declined by an average of 12 percent relative to the levels of the past four quarters. The euro and sterling, which are more material to most insurance brokers, are down even more," Heimermann said.

He said a likely increase in pension expenses and overall economic weakness could also hurt the insurance brokers.

"While reinsurance pricing gains, combined with continued expense and merger integration savings, should help mitigate these factors, EPS estimates for the entire sector appear relatively optimistic for us," he said.

Aon Corp will likely generate the best near-term performance given its acquisition of Benfield, which should benefit from improvements in reinsurance pricing, the analyst said.

Aon, the world's largest insurance broker, had made a recommended cash offer of 844 million pounds ($1.6 billion) for rival Benfield in August, in a deal that would create the biggest reinsurance broker.

Heimermann said the opportunity for gains in earnings is also high at Marsh & McLennan Companies Inc and Willis Group Holdings Ltd .

"We continue to believe Brown and Inc shares are expensive relative to growth prospects," he said.

(Reporting by Anurag Kotoky in Bangalore; Editing by Jarshad Kakkrakandy)