Pet insurance provider Trupanion Inc.'s stock rose sharply as the broader market recovered some in the wake of a recent major interest rate hike.
Equity markets, including insurance stocks, fell after the Federal Reserve on June 15 raised the benchmark interest rate by 75 basis points. Stocks recovered ground in the holiday-shortened week ending June 24, as the S&P 500 Insurance index climbed 5.62% to 539.19, and the S&P 500 soared 6.45% to 3,911.74.
Trupanion was among the week's biggest winners, and those gains come as a new report by Advanced Market Analytics forecasts "revolutionary growth" in the pet insurance market in the next five years. In addition to general recovery in the stock market led by growth names, Piper Sandler analyst John Barnidge in an interview said another sale in the pet insurance space likely also benefited Trupanion.
Fairfax Financial Holdings Limited announced June 20 that it had agreed to sell all of its interests in Crum & Forster Pet Insurance Group and Pethealth Inc. to Jab Holding Company SARL's pet insurance business for $1.4 billion. The transaction is expected to close in the second half of the year. Barnidge said the pending sale shows the interest in the "growing pet insurance marketplace."
Dirk Beeckman, CEO of Jab's pet insurance portfolio, said in a statement that the deal was a major milestone in the company's mission to be a "global leader" in the pet insurance industry.
Trupanion's stock finished up 21.51% on the week. Fairfax Financial shares ticked up 0.50%.
Lemonade Inc. and Metlife, which also have pet insurance products, saw their stocks rise. Lemonade added 14.07%, while Metlife increased 5.50%.
Progressive's May results
A number of property and casualty insurers also had good weeks. The Progressive Corp., for instance, saw its shares jump as it reported earnings results for the month of May.
William Blair analyst Adam Klauber said in a research note that Progressive's May results suggest that its stock has a way to go before it recovers fully from a period of underperformance. Auto underwriting rebounds typically take two or three years, and little benefit is seen in year one, according to Klauber. Various factors, including the combination of higher gas prices and a slowing economy, could further add to 2023 upside, he said.
"The favorable loss and premium rate trends exhibited in May's monthly results suggest that Progressive has turned the corner," Klauber said. "While results in the next few months may have some bumps due to weather and summer driving, good potential for upward 2023 revisions will likely drive the stock higher."
Wells Fargo analyst Elyse Greenspan took a more cautious view, as she holds a more circumspect position on the personal lines sector as a whole. Despite higher investment income from rising yields and premiums written, Greenspan said an underweight ranking on Progressive's stock was more appropriate, due in part to margin pressures continuing unabated and negative policies-in-force growth.
"We remain cautious on the personal lines sector as we do not think there is enough pricing to combat the elevated loss trends," she said.
Progressive shares rose 5.87% on the week.
