Insurance stocks rise after week of 'healthy' Q2 earnings reports

U.S. equity markets finished the week ending July 29 strong, while property and casualty insurers continued to roll out relatively solid second-quarter earnings reports.

The S&P 500 rose 4.26% to 4,130.29, while the S&P 500 Insurance index climbed 2.72% to 538.09 for the week.

Second-quarter earnings results, particularly in the property-casualty sector, have been "healthy," according to CFRA Research analyst Cathy Seifert. But the hard pricing cycle in that industry "is getting a little long in the tooth," she said, so the rate of growth in demand may also begin to slow as the economy cools.

"The tailwind of double-digit price increases and an increase in year-over-year exposure is kind of going away," Seifert said in an interview. "So now we're sort of getting into a more muted environment."

The quarterly figures Seifert has seen indicate that some carriers are executing their strategies better than others, pointing specifically to Chubb Ltd., up 2.45% for the week, and Cincinnati Financial Corp., down 12.17%.

Earnings results for the second quarter were indicative of "late-cycle dynamics" where "dominant, high quality, top-tier underwriters" like Chubb kept ahead of the pack, the CFRA analyst said.

Others, such as Cincinnati Financial, may be seeing their strategies not working out so well. Cincinnati Financial's failure to aggressively deal with claim-cost inflation is now coming home to roost, Seifert said, adding that she questions whether its management could deal with the challenge.

"The company historically has traded at a premium to the peer group because the market rewarded their more aggressive investment strategy, and they're above peer top-line growth," Seifert said. "I think that strategy is starting to sort of come undone or it's being harder to implement and I have a tough time seeing how that stock is going to hold on to its premium valuation."

In the case of Arch Capital Group Ltd., up 1.67%, Seifert said it had "some real nice underwriting trends," but also experienced investment results that adversely affected the top line. Though Arch Capital's top-line growth may not be as robust as once thought, Seifert still feels its stock is "undervalued."

Lemonade lays off Metromile staff

In the insurtech space, Lemonade Inc. laid off about 60 Metromile Inc. employees one day after completing its acquisition of the company, according to a report from Insurance Business America.

Former Metromile CEO Dan Preston, who now serves as Lemonade's senior vice president of strategic initiatives, reportedly told staff members that the layoffs were a major shock.

Insurtech Advisors analyst Kaenan Hertz in an email to S&P Global Market Intelligence said the job cuts should not have been surprising.

"You don't lay off 20% and act like it was unexpected," Hertz said, noting that at least seven insurtechs have laid off more than 350 people since May. Those staffing reductions have cut across most lines of business, as well as enablers, distributors, and managing general agents, he said.

The motive behind the layoffs is conserving cash, Hertz said. The insurtech space has seen few large capital raises of late, with the exception of the $400 million raised in a series D funding round conducted by wefox Germany GmbH.

"Everywhere, I'm hearing that nobody wants to take a potential down round, so people are trying to weather the storm," Hertz said. "On the other hand, there's so much [venture capital] money that there are still investments going on, but they're different [because] VCs want to make sure they see a path to profitability."

The Metromile layoffs amount to 20% of its staff, according to the news report. Metromile shares ceased trading on Nasdaq on July 28, while Lemonade's stock closed out the week down 1.51%.