The Progressive Corp.'s shares fell this week after the company released second-quarter results that indicated a substantial increase in claims frequency year over year, signaling what might be in the store for other property and casualty insurers this earnings season.
The broader markets finished down for the week ending July 16, with the S&P 500 declining 0.97% to 4,327.16. The SNL U.S. Insurance Index was basically flat on the week and closed at 1,393.66.
Reporting ahead of its peers, Progressive this week reported second-quarter net income attributable to the company of $790.1 million, or $1.34 per share, a 56% decline from $1.79 billion, or $3.04 per share, the prior year.
CFRA analyst Cathy Seifert in an interview said the insurer's results were in line with her expectations from a "topline perspective" but said the market's reaction was likely caused by a "pretty sharp deterioration in claims trends."
Progressive's personal auto incurred accident frequency increased 47% year over year for the second quarter and 19% for the first six months of 2021. Severity was also up by 8% for the second quarter year over year.
"The market was probably expecting a deterioration on a year-over-year basis," Seifert said. "My sense is this was significantly greater than expected in terms of claims frequency."
Seifert added that the results showed that people are "back on the road and driving aggressively." While it seems there is pricing adequacy, Seifert said it is likely there will not be too many carriers cutting rates to maintain a competitive stance. Many will be taking a "hard look" at the business being underwritten, she added.
Progressive landed a spot among the biggest losers of the week as its stock slid 3.46%.
UnitedHealth Group Inc. also reported second-quarter results this week, showing earnings from operations fell to $5.98 billion from $9.24 billion a year ago, when health insurers greatly benefited as people deferred care due to the COVID-19 pandemic taking hold in the U.S.
Cantor Fitzgerald analyst Steven Halper in a note said there were "no complaints" from him regarding the results. Halper maintains his long-held view that UnitedHealth should be a "core holding in all large-cap growth portfolios" due to the insurer's diversification, stable growth and healthy free cash flow generation.
UnitedHealth shares rose 1.84%.
The Allstate Corp. shares dropped 2.26% in the same week it announced an estimated pretax catastrophe loss of $195 million, or $154 million after tax, for the month of June.
There was also a flurry of deals this week from some major players in the insurance space.
American International Group Inc. announced it would sell a 9.9% equity stake in its life and retirement business to The Blackstone Group Inc. for $2.2 billion in cash. The insurer also agreed to sell its interests in a U.S. affordable housing portfolio to Blackstone Real Estate Income Trust Inc. for $5.1 billion.
After former AIG CEO Brian Duperreault stepped down and passed the CEO reins to Peter Zaffino, analysts have listed execution risk among their concerns around AIG's restructuring. Seifert said the recently announced transaction "moves the ball down the court significantly" in that respect.
AIG's stock was basically flat for the week.
Meanwhile, Horace Mann Educators Corp. this week said it is buying Madison National Life Insurance Co. Inc. from Independence Holding Co. for $172.5 million, and during a deal call indicated it would consider more M&A opportunities as well.
Horace Mann shares rose 3.2% on the week.
Also, Liberty Mutual Holding Co. Inc. revealed deal plans this week with State Auto Financial Corp. and State Automobile Mutual Insurance Co. to acquire insurance holding company State Auto Group. State Auto Financial's shares exploded higher, closing up 191.19% as it neared the takeout price.