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Willis Towers Watson up modestly amid board shake-up; reinsurance stocks fall

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Willis Towers Watson up modestly amid board shake-up; reinsurance stocks fall

Willis Towers Watson PLC's shares ticked up modestly during a week the broker announced that it is replacing four nonexecutive directors on its board in an effort to remake itself in the aftermath of its failed merger with Aon PLC.

Insurance stocks generally underperformed the broader markets, which approached but did not reach record highs during the week ending Nov. 19. The S&P 500 added 0.32% to finish at 4,697.96, while the S&P 500 Insurance index tumbled 2.33% to 533.17.

Willis Towers Watson said its board changes were part of a culmination of its existing multiyear succession-planning process but also come as the broker is under intense pressure from institutional investors over what they see as lackluster financial performance. Its stock ended the week up 0.82%.

Fellow broker Marsh & McLennan Cos. Inc. this week disclosed a number of changes to its executive committee, effective Jan. 1, 2022, including the appointment of new CEOs at Guy Carpenter and Marsh LLC. The stock added 1.57% on the week.

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A number of reinsurers lost ground this week, with Alleghany Corp., Reinsurance Group of America Inc. and Everest Re Group Ltd. declining 3.02%, 5.82% and 2.57%, respectively. The sector was dealt a heavy catastrophe loss blow in the third quarter as a number of prominent companies reported losses for the period. That said, revenue was up year over year for many reinsurance names, and the industry is positive on de-risking action in its portfolios and on the prospects for future rate hikes.

Berenberg analyst Kathryn Fear said the reinsurance market is currently very attractive, with rates continuing on an upward trajectory thanks to increased risk aversion by primary insurers due to the COVID-19 pandemic and lingering global economic uncertainty.

In the life insurance sector, Manulife Financial Corp.'s shares underperformed even as the company announced that Venerable Holdings Inc. will be reinsuring about US$22 billion of its variable annuity business.

Scotiabank analyst Meny Grauman in a research note said it is hard not to be favorable on the reinsurance deal for Manulife given that it reduces tail risk and was on more favorable terms than what the market anticipated. The transaction will release about C$2.0 billion of capital, including a one-time after-tax gain of about C$750 million to net income attributed to shareholders.

Manulife also said this week that it is increasing its proposed normal course issuer bid to permit the purchase for cancellation for up to about 5% of its issued and outstanding common shares. That transaction is expected to close in the first quarter of 2022, subject to customary closing conditions.

The Canadian life insurer's stock was down 3.06% on the week.