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Insurance stocks, broader market mostly flat as industry readies for new year

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Insurance stocks, broader market mostly flat as industry readies for new year

Insurance stocks edged down modestly during a week that was marked by wildfires continuing to ravage California and investor presentations by some of the largest publicly traded insurance companies.

The SNL Insurance Index slipped 0.49% for the week ending Dec. 14 to 1,042.24, while the S&P 500 was basically flat, up just 0.02% to 2,652.01.

The reinsurance sector, pressured for years by capital competition and declining premium rates, garnered some discussion during the week, RBC Capital Markets analyst Mark Dwelle said in an interview. Renewals are scheduled for the start of 2018, and observers wondered whether catastrophe losses since the third quarter could reverse the sector's negative pricing trend, Dwelle said.

"There seems to be a mix of opinions as to how good Jan. 1 renewals might turn out to be," he said. Another point of speculation was the impact that tax reform could have on the industry's financial results, he said.

Principal Financial Group Inc., Unum Group and Prudential Financial Inc. held investor presentations this week, and management guidance and operating assumptions appeared to be in line with consensus, according to the RBC analyst.

Principal Financial declined 2.61% on the week to $69.89, while Prudential Financial ticked down 2.29% to $114.47.

Unum was one of the week's biggest decliners with its shares falling 5.62% to $54.26. The company carries exposure to long-term care insurance blocks, an area that has dogged some life companies. The company disclosed rising loss ratios from the block, but does not expect a fourth-quarter charge. If interest rates remain low, results from the business could worsen during the next two years, executives said during the insurer's investor presentation.

In California, wildfires continued to burn and remain a threat to some of the state's premium real estate.

CFRA analyst Cathy Seifert thinks record industrywide catastrophe losses for the year could lead to higher premium rates. California is one of the nation's largest insurance markets, and homeowners' insurance is remarkably concentrated, with the 10 largest carriers accounting for more than three quarters of the market, Seifert wrote in a Dec. 11 research note. State Farm Mutual Automobile Insurance Co. and Farmers Insurance Exchange are the largest writers of business, and Allstate Corp., Travelers Cos. Inc. and American International Group Inc. among the largest publicly traded homeowners' insurers within CFRA's coverage, she noted.

Those companies can absorb the losses from the fires, but the experience could change the coverage landscape.

"If the top carriers in the state reassess their risk profile and decide to reduce their exposures in the aftermath of these fires, the homeowners' market could face some strain," Seifert said.

Allstate posted modest gains on the week, rising 0.15% to $102.65. AIG declined 2.35% to $58.11, and Travelers edged lower by 0.87% to $132.58.

While insurers can expect a hit to capital from elevated catastrophe losses, Keefe Bruyette & Woods analyst Meyer Shields does not think that alone will prompt companies to adjust pricing. The industry typically prices according to profitability expectations rather than capital capacity, Shields said during a KBW podcast discussion.

Rates will probably rise in Florida, Texas, California and other areas directly affected by natural disasters, but not for those who were unaffected by catastrophes, Shields said.

"We do not agree with the widely asserted belief that significant catastrophe losses in the third quarter of this year will drive up prices in either lines of business or geographic regions unaffected by those catastrophes," he said, according to a transcript.