Travelers logs solid quarter as earnings season kicks off; insurance stocks slip

The first major insurance companies to report fourth-quarter 2020 earnings highlighted a week that saw insurance stocks lose ground but the broader market move higher as a new presidential administration took office.

The S&P 500 climbed 1.94% to 3,841.47 for the week ending Jan. 22, while the SNL U.S. Insurance Index declined 0.93% to finish at 1,208.96.

Joe Biden's inauguration as the 46th president of the United States passed without incident on Jan. 20. While Biden's first few days were filled with a flurry of executive actions, there are indications that his pledge to hike corporate taxes on "day one" of his administration may be on hold as the pandemic continues and Democrats wrestle with extremely narrow majorities in Congress.

On the earnings front, Travelers Cos. Inc. on Jan. 21 reported figures that set a brisk pace for their property and casualty insurance competitors.

The company logged fourth-quarter 2020 net income of $1.31 billion, or $5.10 per share, compared to $873 million, or $3.35 per share, in the prior-year quarter. Core income jumped to $1.26 billion, or $4.91 per share, up from $867 million, or $3.32 per share, a year earlier.

It was a strong quarter across the board, said Piper Sandler analyst Paul Newsome, which he attributed to strong underwriting gains, net favorable prior-year reserve development, higher net investment income and lower catastrophe losses.

What stood out for Newsome was the company's increase in margin expansion on an underlying basis, "from basically pricing above claim-cost inflation in mostly commercial lines."

"That's a big deal," Newsome said in an interview. "It's showing that the hard market is really kicking in" and Travelers is "not losing pace with claims costs."

Newsome noted that while rates were up in all of Travelers' lines, the only negative he saw was a deceleration of renewal rates in auto insurance. That seems to be one segment where Travelers is "basically standing still," he said. But lower claims costs due to the pandemic's impact on frequency should help offset that, he added.

Travelers' stock gained 1.82% for the week.

Looking ahead, Newsome said investors and analysts will be looking at the strength of Chubb Ltd.'s results in comparison to Travelers, as well as business interruption claims issues pertaining to Cincinnati Financial Corp. Chubb finished the week down 1.71%, while Cincinnati Financial tumbled 6.81%.

UnitedHealth Group Inc. led off earnings season for managed care companies, reporting year-over-year earnings declines for the fourth quarter of 2020. Still, Cantor Fitzgerald analyst Steven Halper in a note said the results were above his expectations for both revenue and adjusted EPS. Halper told clients that UnitedHealth ought to be viewed as a "core holding in all large-cap growth portfolios."

UnitedHealth finished the week down 1.07%, while Cigna Corp. rose 2.06% and Centene Corp. fell 3.88%.

Genworth Financial Inc. informed a number of its employees this week that their positions will be eliminated after the company announced that its planned merger with China Oceanwide Holdings Ltd. was postponed indefinitely.

It marks the second round of layoffs in the last two years for the Richmond, Va.-based company. In March 2019, 80 employees were laid off after Genworth temporarily suspended sales of individual long-term care insurance policies.

Prior to that, Genworth in February 2016 eliminated 200 jobs in its Lynchburg, Va., office and 70 in Richmond after suspending life insurance and fixed annuity sales. The company's stock price was flat for the week.

Sun Life Financial Inc. was among the bigger movers in the life sector, rising 2.13%. Athene Holding Ltd. fell 2.43% and Voya Financial Inc. dropped 2.91%.