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Life insurance shares rally as prospect of faster interest rate hikes rises

Many life insurance companies saw their stocks surge during a week that saw the Federal Reserve's chairman indicate that the central bank could speed up the pace of prospective interest rate increases.

The S&P 500 ticked down 0.30% to 4,662.85 for the week ending Jan. 14, while the S&P 500 Insurance Index slipped 0.41% to 561.52.

Federal Reserve Board Chairman Jerome Powell, during his confirmation hearing before the U.S. Senate Banking Committee, said the Fed will raise interest rates faster than it now plans if it is needed to reduce inflation.

"If we see inflation persisting at high levels longer than expected, then if we have to raise interest more over time, we will," Powell said. "We will use our tools to get inflation back."

The possibility of higher interest rates on the horizon was welcome news to insurers, especially among the life companies, said Piper Sandler analyst John Barnidge. He cited 10-year Treasury yields rising above 1.70% and an improving outlook on the pandemic as other positive factors in insurers' favors.

"We have a general rotation into value from growth continuing to unfold, and you have a seemingly improved outlook on COVID mortality or at least lower community infection levels, all good reasons for [share prices] to outperform," Barnidge said in an interview.

Barnidge in a note said he was upgrading Globe Life Inc., up 5.21% for the week, to "overweight," citing, among other things, reduced COVID-19 sensitivity and mortality results in the fourth quarter of 2021 given its focus on the Southern U.S. He also increased his price target on Globe Life's stock to $117 from $105. Other top performers in the segment for the week included Midwest Holding Inc., up 8.13%, American Equity Investment Life Holding Co., up 6.09%, and Aflac Inc., up 3.06%.

Barnidge said the life group has been "pumping" recently and acting almost like a "group trade."

The few life companies that were in the negative for the week included Trupanion Inc., down 8.03%, and Jackson Financial Inc., down 3.78%.

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IPO delay hammers HCI

HCI Group Inc. was a big part of an overall down week for property and casualty companies. The Tampa, Fla.-based carrier's stock price plunged 14.28% for the week after announcing Jan. 12 that it was not moving ahead with the planned IPO for insurtech subsidiary TypTap Insurance Group Inc.

HCI Chairman and CEO Paresh Patel in a news release said current market pricing for the planned IPO does not properly value TypTap.

"We believe we have the resources to execute TypTap's growth plan without the funds raised from an IPO," Patel said. "We will continue to monitor market conditions over the next several quarters and will move forward with a TypTap IPO when and if conditions are appropriate."

Also experiencing steep losses in the sector were Palomar Holdings Inc., down 12.56%, Lemonade Inc., down 5.17%, Kinsale Capital Group Inc., down 7.74%, and Erie Indemnity Co., down 5.91%.