Many property and casualty stocks saw a lift this week as the U.S. Congress edged closer to tax legislation and the calm aftermath of a destructive hurricane season continued.
With P&C insurers, "you either get bad news or no news," KBW analyst Meyer Shields said in an interview. "We haven't seen any catastrophes comparable to what we saw in the third quarter."
The SNL Insurance Index jumped 4.14% to 1,052.29, while the S&P 500 rose 1.74% to 2,647.58 during the week ended Nov. 30.
Optimism around tax reform is also helping to bolster the P&C insurance industry's share prices, though Shields cautioned that the boost is probably temporary.
Potential holdout Sen. John McCain, R-Ariz., has said he will support Senate Republicans' tax plan. On Nov. 29, the Senate voted along party lines to begin debate on the legislation. Among other provisions, the bill would slash the corporate tax rate to 20% from the existing 35% rate, starting in 2019.
In the near term, Shields expects tax reform to make some domestic carriers more competitive with international companies if the bill passes. However, Shields said, rate competition will probably squeeze out most of the bottom-line benefits from reform.
The third quarter's revised annual GDP growth of 3.3%, up from a 3.0% initial estimate, and higher interest rates are also helping P&C stocks, Shields said.
AmTrust Financial Services Inc. was one of the biggest movers of the week. Early in November, the company reported higher-than-expected adverse reserve development expenses. One analyst downgraded AmTrust following the news. The stock rallied this week, rising 8.80% to close at $9.64.
Initially, the adverse reserve development was viewed almost entirely negatively, a reaction Shields called "too pessimistic." The charge was intended as a conservative move, rather than as a recognition of deterioration, the analyst said. Still, Shields expects AmTrust's stock to be "very volatile" for a while.
Maiden Holdings Ltd. also bounced back this week. The majority of Maiden's premiums come from AmTrust, its primary customer. The company closed the week up 2.03% at $6.50.
Another P&C stock, State Auto Financial Corp., ended the week up 3.71% at $27.92. Shields said the company "very optimistically" renewed Chairman, President and CEO Michael LaRocco's contract, which sent a strong signal to investors.
Embattled Patriot National Inc. filed for bankruptcy this week and announced that it will be acquired by two investment groups. The previous week, Patriot National's stock plummeted 62.75% when it defaulted on its credit agreement. In filing for bankruptcy, Patriot National will distinguish its stock.
Elsewhere, Genworth Financial Inc. and China Oceanwide Holdings Group Co. Ltd. extended their merger agreement deadline to provide additional time for regulatory reviews. The proposed acquisition still awaits a number of regulatory approvals, including from the U.S. Committee on Foreign Investment. Genworth's stock was down 1.74% to close at $3.39.
On Nov. 30, reports emerged that CVS Health Corp. is closing in on a deal to buy Aetna Inc. for more than $66 billion. The deal was reported to be under discussion in October.
Although the potential deal could create an all-in-one health shop, analysts have said a combined Aetna-CVS would not threaten UnitedHealth Group Inc.'s spot as the top healthcare services conglomerate.
Aetna's stock was up 2.86% to close at $180.18 for the week, while UnitedHealth's stock was up 7.37% to $228.17.
