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Reinsurers, P&C slide in 1st full week of 2020; AIG poised for growth

The first full week of the new year brought bad tidings for property and casualty companies and reinsurers, the majority of which ended in the red.

Insurance stocks in general delivered mixed results in a week that began with increased tensions between the U.S. and Iran after a leading Iranian military commander was killed in a U.S. airstrike, and Iran retaliated.

But the broader market surged higher Jan. 8 after the U.S. signaled a move toward de-escalation with Iran, enabling the S&P 500 to inch up 1.49% to 3,265.35 for the week ending Jan. 10, while the SNL U.S. Insurance Index grew 0.64% to 1,179.38.

Although there is a possibility that some of the P&C losses could be correlated with the recent Jan. 1 reinsurance renewals, Piper Sandler analyst Paul Newsome said a bit of "historic seasonality" might have been the greater influence.

"There's a tendency for hope around reinsurance renewals to always be higher than they actually are," Newsome said. "I'm not really certain if renewals really were better than expected or worse than expected at this point."

Chubb Ltd. and W. R. Berkley Corp. slipped 3.07% and 1.72%, respectively. Mercury General Corp.'s shares also decreased to end the week down 3.09%.

Progressive Corp. recorded a modest decline of 0.83% while Protective Insurance Corp. shares lost 1.18%.

A number of reinsurers also ended the week down.

Reinsurance Group of America Inc. landed a spot among the biggest losers with its shares falling 4.03%. RenaissanceRe Holdings Ltd. followed closely behind, with its stock slipping 3.14%. Everest Re Group Ltd. and Third Point Reinsurance Ltd. shares fell 0.87% and 0.09%, respectively.

In the managed care space, companies fared well.

Molina Healthcare Inc. and Centene Corp. found themselves among the biggest winners of the week with their shares gaining 8.16% and 5.43%, respectively. Cigna Corp.'s stock also rose, ending the week up 3.49%.

AIG could be poised for another strong year

Although American International Group Inc.'s stock was not particularly strong during the week, Wells Fargo analyst Elyse Greenspan said she thinks the company may maintain the momentum that made 2019 its best-performing year since 2013.

"In my view, [2019] was kind of a step in the right direction in terms of that they got their general insurance results to a profitable level," Greenspan said. "Now 2020 becomes the year where we expect you're going to see even better inflection both in terms of the loss ratio ... and some more expense efficiencies."

Greenspan said she also expects to see more details of the AIG 200 plan, which the company described on a recent earnings call as a "multiyear, enterprise-wide program to improve core processes and infrastructure."

Newsome said people who were positive on the stock would be hoping to see continued rising prices in commercial lines, more progress in the restructuring on the P&C side, greater underwriting profitability in 2020 than in 2019, and lastly, that the life insurance business holds up.

The life business has done "very well" in terms of profitability, Newsome said, but that poses a challenge in itself.

"The issue is that the overall interest rate environment isn't terribly favorable," Newsome said. "They have the high-class problem that it's difficult to go from great to greater, so they're just trying to continue the performance there, and that's not always easy."

Greenspan pointed out that AIG also should not have to make any big changes with its reinsurance purchases in 2020 as it has already implemented a "more effective" reinsurance tower.

"You could actually start to see some growth in their net premium, which would flow down into their earned premium, which impacts their bottom-line profit," Greenspan said.

AIG also recently appointed Peter Zaffino to the role of president, which Greenspan said sets him up to succeed CEO Brian Duperreault if he decides to step down.

Greenspan noted that if Duperreault were to leave in 2020, it would be a year in advance of when the company is expected to hit its 10% return on equity target. It could signal that AIG has "effectively reached its goals" and may hit its target earlier than expected, she said.

"Essentially, if Brian steps aside that would really be a positive sign to the market that AIG is fixed and positioned for long-term success," Greenspan said.

But Newsome disagreed.

"Brian Duperreault is a very well-regarded person by the insurance community," he said. "It's almost certainly some level of negative if he leaves just because he's a bit of a rock star in the insurance world."