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Life insurers tumble as Fed cuts interest rates, industry reports Q2 results

Life insurance stocks slumped the week ending Aug. 2 as the Federal Reserve's action on interest rates and second-quarter earnings results took center stage.

The S&P 500 skidded 3.10% to 2,932.05 while the SNL U.S. Insurance Index fell 2.73% to 1,083.89.

This was a difficult week for many financial stocks, Sandler O'Neill analyst Paul Newsome said in an interview. The sector's performance was driven primarily by concerns related to the Fed's decision regarding interest rates, he said. The Fed on July 31 announced a rate cut of 25 percentage points, as expected.

Life insurers can be particularly sensitive to interest-rate movement and many big names in the space saw their stocks take significant hits.

Prudential Financial Inc. was one of the biggest decliners, as its shares tumbled 14.24% to $88.56. While the company reported a modest year-over-year increase in operating income in the second quarter, it also disclosed a $49 million reserve charge in its individual life business.

On an earnings call, Steve Pelletier, COO of Prudential's U.S. businesses, said reserve charges led the company to kick off a plan to "bolster and improve" that line. He stressed that new business has been priced with "much more current assumptions" and said Prudential is looking into more reinsurance options to manage its in-force block.

Unum Group's stock likewise fell sharply the same week it announced second-quarter results. The company reported net income of $281.2 million, or $1.33 per common share, compared with $285.5 million, or $1.29 per common share, in the same period in 2018. Its shares dropped 10.01% to $29.69.

Elsewhere in the life space, Lincoln National Corp. slumped 11.97% to $58.66, American Equity Investment Life Holding Co. dropped 11.49% to $23.20 and Manulife Financial Corp. declined 7.40%.

Property and casualty insurers delivered more of a mixed bag of results this week.

P&C stocks fared reasonably well, despite disruptions in the macroeconomic environment, CFRA analyst Cathy Seifert said in an interview. Her opinion on the industry was positive, reflecting a view that pricing in commercial lines has shown some strength and that the personal lines market has attractive and defensive characteristics.

Arch Capital Group Ltd. this week confirmed it will purchase Barbican Group Holdings Ltd. from its private equity owners. The transaction is anticipated to close late in the third quarter or early in the fourth quarter, subject to regulatory approval.

Arch Capital is well positioned for long term growth that will likely remain superior to the peer group average, reflecting its mix of business, strategic and facile underwriting style and willingness to enhance growth through selective acquisitions, Seifert said in an interview. Its stock finished up 1.36% at $38.72.

Seifert this week raised her rating on Allstate Corp. to "buy" after the insurer reported second-quarter EPS of $2.18, exceeding her forecast of $1.95. Allstate's refined underwriting strategy and expansion into service businesses stand to provide the stock with a catalyst, she said in a research note. Allstate's stock ticked up 1.53% to $104.51.

Genworth MI Canada Inc., which remains on the selling block, was among the top performers of the week. Its shares soared 17.75% to $39.52.