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Life insurance stocks see 'bounceback'; Watford soars after deal announcement

Life insurance stocks, which have languished for much of the pandemic, picked up some ground this week with many big names finishing with solid gains.

The S&P 500 rose 3.84% to 3,477.13 for the week ending Oct. 9, while the SNL U.S. Insurance Index increased 3.95% to 1,095.90.

Credit Suisse analyst Andrew Kligerman said there was a generally stronger performance over the course of the week by "old economy" stocks, as opposed to the technology sector.

"Life companies within the financial sector ... have been among the heaviest underperformers, so we think that the last week the rally has really been reflective of value-oriented names that have underperformed for a while seeing a bounceback," Kligerman said. Whether that continues going forward is not certain, he added.

Kligerman pointed out that the lower multiple life names such as Brighthouse Financial Inc., Equitable Holdings Inc. and Lincoln National Corp. were among the bigger movers.

Lincoln National was one of the biggest winners of the week, recording a 6.77% gain, as was CNO Financial Group Inc., which saw shares jump 9.13%. Brighthouse Financial and Equitable saw share increases of 6.69% and 15.40%, respectively.

Unum Group, Voya Financial Inc. and Prudential Financial Inc. also fared well during the week, with shares growing 5.94%, 2.22% and 6.26%, respectively.

Life insurers entered 2020 performing well, but the pandemic undid that momentum, Kligerman said. While there was a bit of a rally in May and June, life companies have yet to see their stocks return to pre-pandemic levels.

"Year-to-date a lot of these names are down 20% or more, so there's still a ways to go before we can get to start of the year figures," the Credit Suisse analyst said.

As was the case last week, the insurance space saw a significant deal this week as Arch Capital Group Ltd. announced it will acquire all the common shares of Watford Holdings Ltd. in an all-cash transaction valued at about $622 million.

Per terms of the deal, Watford shareholders receive $31.10 in cash for each share they own. Arch Capital was successful in warding off a challenge from Enstar Group Ltd., which had offered $31 per share for Watford and suggested it may be open to increasing that figure.

Arch Capital and Watford shares gained 6.16% and 10.28%, respectively. Enstar saw its shares dip after the deal announcement but finished in the green with a gain of 3.83%.

In the property and casualty space, several companies released third-quarter catastrophe estimates during the week.

Palomar Holdings Inc. said it expects to book between $34 million and $38 million in pretax catastrophe losses for the third quarter, net of reinsurance. The company said these losses were mainly driven by Hurricanes Hanna, Isaias, Laura and Sally.

Piper Sandler analyst Paul Newsome in a note called the loss estimate "rather significant," pointing out that the Palomar has reported "insignificant" losses since its initial public offering. Newsome said overall he still views these losses as "manageable."

Palomar's stock tumbled 20.50% this week.

Meanwhile, Kingstone Cos. Inc. released estimates that put its third-quarter losses between $8.5 million and $9 million pretax. The company said the losses stem from Hurricane Isaias and three smaller Property Claim Services events.

In a separate note, Newsome said those losses are only slightly above his estimate, and in light of the number of catastrophe events that occurred during the quarter, can be seen as a "distinct positive."

Kingstone's shares were flat on the week.

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