U.S. equities broke its losing streak in a big way, carrying the insurance sector along for the ride, with stocks experiencing broad-based gains during the week ending May 27.
The S&P 500 Insurance index jumped 7.06% to 570.93, while the S&P 500 soared 6.58% to 4,158.24.
While the broader market had suffered a string of losses, insurance stocks, particularly in the property and casualty sector, have bucked some of the negative trends that have affected the rest of the market. CFRA Research analyst Cathy Seifert credited the ongoing hard pricing environment, which she said should continue thanks to inflationary pressures and solid growth in the first quarter.
"Most of the property-casualty insurers reported pretty decent top-line growth," Seifert said in an interview. "If you look across the financial services sector, they may have had one of the stronger ... underlying operating revenue growth not necessarily tied to asset values."
Seifert said insurers have the advantages of pricing power, decent valuations, and seeing investment income increase in a rising interest-rate environment. They are also generally not subject to risks connected with consumer credit, interest rates and housing, she said.
P&C carriers such as Chubb Ltd., up 3.41%, W. R. Berkley Corp., up 6.44%, and Markel Corp., up 5.33%, have all received "buy" recommendations from Seifert, as have multiline stalwarts The Hartford Financial Services Group Inc., up 8.88%, and American International Group Inc., up 6.11%.
While P&C insurers' stocks have held up well, the same cannot be said of life insurers, Seifert said. However, investors might start considering life stocks once more clarity is given on new accounting standards rules that go into effect at the start of 2023. The new rules target improvements to accounting for long-duration contracts. Seifert said the lack of clarity is "definitely a negative," and the changes will hit book values.
Among the week's top gainers in the life sector were Lincoln National Corp., up 3.62%, Equitable Holdings Inc., up 11.08%, and American Equity Investment Life Holding Co., up 9.94%.
Fla. carriers get boost
Some Florida insurers' share prices rose in the wake of the Florida legislature passing measures to address the state's property insurance crisis. A bill signed into law by Gov. Ron DeSantis enacted limits on attorney fees, initiated a $2 billion taxpayer-backed reinsurance fund and mandated changes to the way insurers cover roof damages.
Heritage Insurance Holdings Inc. rose 9.85% for the week, United Insurance Holdings Corp. was up 3.03% and HCI Group Inc. jumped 6.86%. FedNat Holding Co. edged up 0.65%.
Keefe Bruyette & Woods analyst Meyer Shields said in a note that some of the provisions in the bill were "positive first steps" to dealing with social inflation, which has led to multiple companies failing and an exploding policy count at the state's insurer of last resort. Shields does expect reinsurers to remain skeptical of the effectiveness of the changes, which implies "sustained reinsurance capacity pressure."