Insurance stocks were modestly positive in a busy week that saw several big names release first-quarter earnings results.
The broader market was essentially flat with the S&P 500 edging down 0.13% to 4,180.17 for the week ending April 23, while the SNL U.S. Insurance Index added 0.95% to close at 1,388.23.
The Hartford Financial Services Group Inc. and The Travelers Cos. Inc. both reported earnings this week that were impacted by significant catastrophe losses. Piper Sandler analyst Paul Newsome said in an interview that the weather impact for the quarter is looking "a lot worse than expected."
"It'll be a rare insurer that manages to outpace the weather," he said. "What we're finding is that it wasn't just Texas; there were storms of meaningful amounts all over the place."
Another recurring theme he has seen so far is margin expansion in commercial lines, which is a positive.
The Hartford disclosed in its earnings release that it had turned down three merger offers from Chubb Ltd. In the most recent bid, Chubb offered $70 per share in cash and stock, saying that price was at the "top end" of its range.
The Hartford CEO Christopher Swift said during an earnings call that the company had "no interest" in pursuing a merger with Chubb ultimately because of the insurer's conviction in, and commitment to, executing its business plan.
Newsome said in a note that he believes that Chubb has the capability to offer a higher price that would be difficult for The Hartford to reject with justification. The biggest question now is whether another company may express interest, Newsome said.
"It's remarkable to me that other companies have not at least picked up the phone and called Hartford and said 'Would you be interested in us even if there's no actual offer?'" Newsome said, adding that there was no sense from any of the disclosures that another company might be involved, even in a preliminary way.
The Hartford's earnings results showed a decrease in first-quarter net income year over year. Results included the impact of a $650 million settlement with the Boy Scouts of America, $214 million in pretax net catastrophe losses, mainly driven by the U.S. winter storms and $185 million in COVID-19-related excess mortality losses in group benefits.
The Hartford's shares rose 3.14%. Chubb's stock ended the week up 3.99%.
Travelers' earnings release this week showed a year-over-year increase in net income despite a significant uptick in catastrophe losses thanks to the stormy U.S. winter. The insurer booked $835 million in catastrophe losses in the period, up from $333 million a year earlier.
Travelers' stock tracked along with the industry as a whole, gaining 1.21%.
Heritage Insurance Holdings Inc. was one of the biggest losers, falling 6.24% in the same week it projected that it would incur approximately $31.4 million of total net current accident quarter weather losses in the first quarter.
Argo Group International Holdings Ltd. announced that it expects to incur approximately $47 million in pretax catastrophe losses, net of reinsurance recoveries, in the first quarter. About half of all catastrophe losses were attributable to international operations, and about $43 million of the losses were driven by the February winter storm that caused a power crisis in Texas.
Argo's shares fell 2.01% for the week.
W. R. Berkley Corp. reported a jump in first-quarter net income to common shareholders year over year. During an earnings call, CEO Robert Berkley Jr. said the company is experiencing a "meaningful tailwind" in the commercial lines market and added that "attractive" growth and market conditions should persist.
W. R. Berkley's stock ticked up 1.81%
In managed care, Anthem Inc.'s shares rose 1.69% in the same week it released earnings showing a year-over-year increase in first-quarter shareholders' net income. The health insurer also raised its outlook for 2021.
