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Insurance stocks, broader market stumble into close of Q3

Insurance stocks and the broader market both declined this week and closed the third quarter on a lower note.

The S&P 500 slid about 4.8% in September, its worst monthly performance since the COVID-19 pandemic took hold in the U.S. Despite that monthly decrease, the index managed a slender gain for the quarter overall.

Equities regained some lost ground on the final trading session of the week ended Oct. 1, but for the week, the S&P 500 declined 2.21% to 4,357.05 and the S&P 500 Insurance Index dropped 0.41% to 521.65.

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CFRA Research analyst Cathy Seifert said that while the financial services sector has done well as a whole this year, the insurance space has lagged. Property and casualty carriers have particularly underperformed the rest of the industry, according to Seifert. Investors in those stocks are focused on pricing, particularly in the commercial lines space, where the concerns are the demand for coverage and underlying network and premium growth.

"I think investors are going to be focused on ... underlying demand," Seifert said in an interview. "Does it prove to be more robust than people imagine, or are people's expectations for growth misplaced and too optimistic?"

Questions on claims generated by Hurricane Ida, which Seifert said are likely to top original estimates, will be front and center when the third-quarter earnings season rolls around. The CFRA analyst said concerns will revolve around the degree to which individual companies have exposure to Ida claims, especially from flooding in the Northeast, which Seifert said may not have been as heavily covered as the wind-driven claims.

The Travelers Cos. Inc., down 2.51% for the week, will be a good barometer for P&C companies due to its underwriting results and claim inflation trends, according to Seifert, who added that The Progressive Corp., down 0.29%, will give investors and analysts a good indication of the state of the personal auto market. One of the trends the analyst has seen is a year-over-year erosion in claim trends thanks to increased driver activity since the end of pandemic-related restrictions.

"As we get farther and farther away from the lockdown, that year-to-year contrast is going to diminish somewhat," Seifert said, "But I expect to see continued erosion in year-over-year underwriting trends at Progressive because of the uptick in driving activity and accident frequency and severity."

Seifert said American International Group Inc., down 2.72%, will also be under the microscope because it is in the middle of a "pretty significant restructuring," which includes a strategic alliance with Blackstone Inc. The analyst also anticipates investors being keen on seeing Chubb Ltd. continue to accelerate its topline growth and hearing a "very frank and candid discussion" from CEO Evan Greenberg.

Chubb ticked down 1.69% on the week.

In the life space, Lincoln National Corp., down 2.34%, will be one to keep an eye on when it reports because "it tends to have a very high correlation to equity market activity," Seifert said.

"From an operational and financial perspective, they've seen an increase in demand for many of their core products, and investors are going to be looking at that again," the analyst said.

Seifert described MetLife Inc., down 1.71% this week, and Prudential Financial Inc., down 0.40%, as "two large behemoths with somewhat different operating strategies."

MetLife has been very aggressive in winnowing down its business model and streamlining its offerings while updating and modernizing its distribution platforms and capabilities, Seifert said. Prudential's results could reflect "some disappointing trends" surrounding Prudential Global Investment Management Inc. Investors will be looking at the health of some flow trends at PGIM "to gain a sense of potential catalysts at Prudential."

Unum Groupreported this week that brokerage Aon PCL filed a lawsuit against four former employees who, in 2020, joined McGriff Insurance Services Inc., a subsidiary of Truist Financial Corp.

Aon alleges the employees, who joined McGriff's transportation practices' risk management/complex program division, violated the post-employment client restrictions in the restricted stock units they have received.

Aon shares declined 0.99% on the week.