US equities largely broke their losing streak, leading the insurance sector on the run as stocks posted broad-based gains in the week ending May 27.
The S&P 500 Insurance Index jumped 7.06% to 570.93, while the S&P 500 jumped 6.58% to 4,158.24.
While the market as a whole suffered a series of losses, insurance stocks, particularly in the P&C insurance sector, bucked some of the negative trends that plagued the rest of the market. CFRA Research analyst Cathy Seifert credited the ongoing tough price environment, which she said is likely to continue thanks to inflationary pressures and solid growth in the first quarter.
“Most P&C insurers reported pretty decent revenue growth,” Seifert said in an interview. “If you look across the whole financial services industry, they’ve had perhaps one of the strongest…underlying growth in operating income, not necessarily tied to asset values.”
Seifert said insurers have the advantages of pricing power, decent valuations and seeing investment income rise in a rising interest rate environment. They are also generally not subject to consumer credit, interest rate and housing risks, she said.
P&C carriers such as Chubb Ltd., up 3.41%, WR Berkley Corp., up 6.44%, and Markel Corp., up 5.33%, all received “buy” recommendations from Seifert, as did multiline stalwarts The Hartford Financial Services Group Inc., up 8.88%, and American International Group Inc., up 6.11%.
While stocks of property and casualty insurers have held up well, the same cannot be said for life insurers, Seifert said. However, investors may start to consider life stocks once more clarity is provided on new rules of accounting standards which will come into force at the beginning of 2023. The new rules aim to improve the accounting for long-term contracts. Seifert said the lack of clarity is “certainly negative” and the changes will hit book values.
Some of the week’s top gainers in the life insurance sector include Lincoln National Corp., up 3.62%, Equitable Holdings Inc., up 11.08%, and American Equity Investment Life Holding Co., up 9.94%.
Florida carriers get a boost
The stock prices of some Florida insurers rose after the Florida legislature passed measures to deal with the state property insurance crisis. A bill signed into law by Governor Ron DeSantis imposed limits on attorney fees, launched a $2 billion taxpayer-backed reinsurance fund and forced changes to how insurers cover roof damage.
Heritage Insurance Holdings Inc. rose 9.85% for the week, United Insurance Holdings Corp. rose 3.03% and HCI Group Inc. jumped 6.86%. FedNat Holding Co. edged up 0.65%.
Keefe Bruyette & Woods analyst Meyer Shields said in a note that some of the bill’s provisions were “positive first steps” in dealing with social inflation, which has led to the bankruptcy of several businesses. and the explosion in the number of policies with the State’s insurer of last resort. . Shields expects reinsurers to remain skeptical about the effectiveness of the changes, implying “sustained pressure on reinsurance capacity”.