Markets roiled as Fed raises rates; Heritage slides with widening Q1 loss

U.S. stocks were taken on a rollercoaster ride as equity markets rallied sharply in the middle of the week but then suffered their worst day of the year May 5 as investors digested the Federal Reserve's plans to counter soaring inflation.

The Fed this week raised its benchmark interest rate by 50 basis points for the first time in more than two decades and signaled its willingness to make similar hikes in the coming months. The S&P 500 lost 0.21% during the week ending May 6, closing at 4,123.34. Insurance stocks did a bit better as the S&P 500 Insurance index climbed 1.18% to 563.45.

In the property and casualty space, Heritage Insurance Holdings Inc.'s stock slumped during a week that saw the insurer post a wider first-quarter net loss than it did a year ago. CEO Ernesto Garateix said Heritage's first-quarter results were heavily impacted by severe weather. Net current accident year weather losses more than doubled to $63.8 million from $31.4 million in the prior-year quarter, while the net combined ratio soared to 129.5%, compared to 107.7% a year ago.

Piper Sandler analyst Paul Newsome said Heritage's results stood out as it reported unusually high weather losses even as the U.S. as a whole experienced relatively light catastrophe losses.

Heritage's stock finished the week down 12.68%.

A number of bigger P&C names fared much better. The Progressive Corp.'s stock climbed 1.96%, The Allstate Corp. added 3.18% and The Travelers Cos. Inc. ticked up 0.34%.

CFRA analyst Cathy Seifert said in an email that first-quarter earnings call themes varied by P&C carriers, depending on their mix of business. Personal auto underwriters like Allstate focused on the steps they were taking to counter the ongoing pressures from claim cost inflation.

Glenn Shapiro, president of property liability at Allstate, said the company took an average of 9.3% in rate hikes across 28 states in the first quarter. With ongoing inflationary pressure, Allstate has also boosted the magnitude of increases it expects to take over the course of the rest of the year, Shapiro said during an earnings call.

Progressive said it is implementing 7% rate increases in its private auto line on top of the 8 points it took in 2021. Those sharp rate hikes are slowing growth as CEO Tricia Griffith acknowledged the new policy applications were down year over year in the first quarter.

Commercial lines carriers had an easier go of it as premium growth for most was fairly robust amid a still-healthy level of demand and a continued adequate pricing environment, CFRA's Seifert said.

In the life insurance space, CEO Dennis Glass described Lincoln National Corp.'s first-quarter results as solid despite headwinds from the COVID-19 pandemic and a more normal level of alternative investment income. The company posted net income of $104 million, or 58 cents per share, down from $225 million, or $1.16 per share, in the first quarter of 2021.

Piper Sandler's John Barnidge said in a research note that investors reacted negatively to a large long-term disability claim that came in totaling five quarters worth of claims, lower-than-expected investment income and management commentary that suggested buyback activity would be lower than typical levels.

Lincoln National's stock ended the week down 4.94%.