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Stocks gain with broader markets during week of FOMC meeting


The World's Largest P&C Insurers, 2023


The Worlds Largest Life Insurers, 2023


Essential IR Insights Newsletter Fall - 2023


Insurers get to grips with evolving net zero standards

Stocks gain with broader markets during week of FOMC meeting

Insurance stocks gained with the broader markets during theweek ended Sept. 22, managing a bounce around the time of the latest FederalReserve meeting despite the panel's decision to maintain the funds rate.

The SNL Insurance Index rose 1.64% to 774.85, and theS&P 500 gained 1.78% to 2,177.18.

Although the Fed chose to hold the line on the target funds rate following theFederal Open Market Committee meeting, the macroeconomic sentiment is thathigher rates are on the way, S&P Capital IQ analyst Cathy Seifert said inan interview.

"I think the optimism there reflects a belief that atightening cycle is in the cards in the near future," Seifert said.

Chatter during the conference season carrying over from theprevious week bolstered that notion. Adding to the improved overall mood wasthe streamlining on the part of multiline insurers, some of which continued toshed assets, Seifert said.

AmericanInternational Group Inc. announced plans to sell its stake in Ascot UnderwritingHoldings Ltd. to the CanadaPension Plan Investment Board in a deal valued at $1.1 billion.Also, a media report surfaced that The Hartford Financial Services Group Inc. is looking tosell its U.S. variable annuity business, Talcott Resolution, which could bringup to $4 billion and allow the company to focus on auto insurance.

The AIG sale announcement follows another in August on theplanned sale ofUnited GuarantyCorp., an indication that the insurance giant is making progress onits restructuring plan, Sandler O'Neill analyst Paul Newsome said in a Sept. 16note. The company's managers know their positions depend on that progress,Newsome wrote.

"We think this suggests a very motivated managementteam," he said.

Newsome said the company had an attractive valuation tradingat 71% of book value at the time of his note. He kept his "buy"rating on the stock with a price target of $66.

AIG's shares flattened what had been a steeper declinepreceding the announcement, then gained value along with the rest of the marketbeginning Sept. 20. The company's stock finished the week with a 1.88% gain to$58.99.

Similarly, The Hartford's share price turned a gradual declinethat same day into a sharp increase and closed the week up 3.18% at $43.13.

For P&C companies, heavy catastrophe claims in 2016fueled speculation that the reinsurance space could get some relief from theprice softening that has dogged the business for years, Seifert said.

"Some of the reinsurers are starting to talk about aneasing in some of the reinsurance price pressure, which should ultimatelytrickle down to some of the primary carriers," she said.

AllstateCorp. shares rose 2.27% for the week to $68.94, while edged up 0.45%to $31.27.

Catastrophe risk management company RMS released aprojection that P&C insured losses from Hurricane Hermine would be no morethan $400 million.

"Hermine produced damage within the expectations of acategory 1 hurricane, and [an] RMS analysis shows that this event won'tseverely impact the insurance industry," RMS hurricane modeler TomSabbatelli said in a statement.

Also during the week, Kemper Corp. gave its long-awaited presentation on itsplan to restore the company to profitability. Management said the companyneeded to address, among other problems, an aging technology infrastructure anda culture of complacency surrounding its substandard results.

Prior to the conference call and presentation, the companydisclosed that itexpected a third-quarter charge of about $50 million related to a change in itsprocedure for handling life insurance claims.

Kemper's shares ticked down following the announcement butpicked up with the rest of the market Sept. 20. The company gained 5.45% forthe week to finish at $37.93.

Sandler O'Neill's Newsome thinks the company's managementhas the right ideas to deal with a lack of scale and investment needs for itsback-office system. The after-tax charge and the change for life insuranceclaims is further indication of the company's willingness to address problems,Newsome wrote in a Sept. 22 note.

"In our opinion, the actions described in its strategicplan appear to be only a first step towards making Kemper a company thatdeserves a premium valuation," he said. He maintained his "hold"rating on the company's shares with a $39 price target.