After a week where some life insurers saw double-digit gains, a majority of the group was trading down to flat this week as the Federal Reserve attempted to curb worries of an economic recession.
Broader U.S. and global markets spiked after central bank officials cut interest rates Sept. 18 for the second time this year. In a move that was widely expected, the Fed lowered the benchmark interest rate by 25 basis points.
Fed Chairman Jerome Powell declined to provide specific guidance on whether the Fed may cut rates again this year, saying the central bank's policy is "not on a preset course" and officials would continue carefully monitoring incoming data. Although Powell said the Fed believes its rate adjustments should be moderate right now, he indicated officials were open to taking more forceful action if necessary.
"If, in fact, the economy weakens more, then we're prepared to be aggressive," Powell said. "We'll do so if [that approach] turns out to be appropriate."
The S&P 500 slipped 0.51% to 2,992.07 for the week ending Sept. 20, while the SNL U.S. Insurance Index inched down 0.08% to 1,077.64.
Sandler O'Neill & Partners analyst John Barnidge said the Fed's commentary around the credit cycle seemingly served as a positive for life insurance stocks.
"If the Fed's commentary is supportive of the elongation of the credit cycle, that would be a positive for life insurers because investors would worry less about credit risk," he said in an interview.
B. Riley FBR analyst Randy Binner noted that the Fed's decision is only one input that affects interest rates, something to which life insurers are particularly sensitive. He focuses more on where the 10-year Treasury yield is since life insurance stocks are generally correlated with it.
"It's not always that highly correlated, but when the 10-year is either low or high or moving a lot, the correlation tends to be higher," Binner said. "That appears to be the case this week, and would be the majority of what would be driving trading on a day-to-day basis."
CNO Financial Group Inc.'s shares slipped 3.22% while Lincoln National Corp. slid 1.52%, MetLife Inc. declined 1.92%, and Unum Group lost 1.07%
Prudential Financial Inc.'s stock also saw a modest drop. Early in the week, two of its subsidiaries were charged by the SEC with failing to disclose conflicts of interest and making misleading disclosures to the boards for nearly 100 insurance-dedicated mutual funds they advised. The life insurer's shares edged lower by 0.81%.
Voya Financial Inc. and Athene Holding Ltd. were essentially flat, with the former ticking up 0.11% and the latter dipping 0.14%. Canada-based life insurers seemed to fare best among the group. Great-West Lifeco Inc. added 1.76% while Manulife Financial Corp. gained 1.33%.
In the property and casualty sector, lack of news from Allstate Corp. regarding its catastrophe losses for August means they were likely less than $150 million since the company has a policy of preannouncing its monthly catastrophe results if they exceed that mark, said Sandler O'Neill & Partners analyst Paul Newsome.
"That gives an indication that other companies will have likely similar levels of cat losses, and it suggests that those cat losses are coming in on the light end of what is typical for the third quarter," Newsome said.
Newsome added that earnings estimates for the third quarter are expected to rise for companies that have weather-related exposure in the U.S., which should be a positive for their share prices.
In the managed care space, several companies outperformed the overall insurance index, though not by much. Cigna Corp. and Humana Inc. shares moved up 0.31% and 0.95%, respectively.
In the latter half of the week, Centene Corp. announced that 17 state insurance departments granted approval for the company's pending acquisition of WellCare Health Plans Inc. Cantor Fitzgerald analyst Steven Halper said in a note that he views the state approvals as a "positive milestone" for the company and continues to believe the merger is "compelling" from both a "financial and strategic standpoint."
Centene and WellCare saw their shares rise slightly by 2.05% and 0.96%, respectively. The deal is expected to close by the first half of 2020, subject to approvals from additional states and the U.S. Department of Justice.
Elsewhere in the group, Molina Healthcare Inc.'s shares ended the week lower by 0.41%.
Health Insurance Innovations Inc. continued its rollercoaster ride. After being among one of the worst performers a week ago, the health insurance broker skyrocketed 19.67% to close the Sept. 20 session at $19.62. Progressive Corp. recovered some of the ground it lost the prior week, gaining 4.58%.
