Silver Lining In Dismal Year For Insurers

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2002 was a dismal year in insurance stocksbut with a silverlining!

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Just a cursory analysis of year 2002 price movements in ourportfolio reveals a startling statistic. That is, more than halfthe issues suffered double-digit losses. Sixty of the 117 stocksqualified as double-digit downers. Further counting of losers andgainers brought the total to 81 losers and only 36 gainers.

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Seven of the eight industry sectors went from bad to worse. Onlythe broker group stayed in the black with a 5.3 percent gain. Asoften said, and worth repeating, the brokers are primebeneficiaries of a hardening market. Rate increases benefit brokersfirst and then the results of property-casualty insurers. Inparticular, companies with high percentages of commission incomeare beneficiaries.

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Richmond-based Hilb, Rogal & Hamilton was first by far witha 44.9 percent surge to $40.90 from $28.03. Willis Group HoldingsLtd. was next best with a 21.7 percent gain to $27.67.

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Property-casualty stocks, possibly helped from going lower byinvestors hopes for the hardening markets effect, were down 9.1percent. There were a number of modest gainers, but only oneconspicuous fast-forwardRLI Corp. RLI advanced 24.0 percent to$27.90 from $22.50.

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A few big p-c stocks ended ahead for the year.

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Allstate was up and down, and ended up almost 10 percent at$36.99. W.R. Berkeley Corp. advanced 10.6 percent to end at $39.61.SAFECO Corp. recorded a comeback gain and ended up 11.3 percent at34.67. And United Fire & Casualty of Cedar Rapids moved up 16.8percent to close the year at $33.45, up from $28.63.

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The second largest group, consisting of the life-health stocks,was a major loser after falling 16.0 percent for the year. In afield of 26 stocks, there were only seven advances against 19declines. But two of the advances were in large, well-knownstocks.

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Aetna Life, now Aetna Inc., a major health care provider,restructured and added to reserves. Institutional investors likedwhat they saw happening and bought the stock. AET was ahead 24.6percent in the year just ended, as the stock advanced to $41.22from $32.99.

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AFLACs now well-known duck quacked its way into the statisticswith a 22.6 percent fast waddle to $30.12, from $24.56. Both salesand earnings for the company outpaced projections, here and inJapan. AFLAC President Dan Amos gives his quacking prodigy muchcredit for the increased recognition the name AFLAC hasenjoyed.

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The seven financial services stocks were off 10.9 percent. OnlyLeucadia National did well. LUK soared 29.2 percent to close at$37.31, up from $28.87 when the year began.

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The stocks of the four largest financial services providers hadsimilar recordsall bad. Citigroup was off 30.3 percent; MorganStanley, Dean Witter followed suit with a 28.6 percent decline.Merrill Lynch crumbled 27.2 percent. Goldman Sachs fell 26.6percent.

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The reinsurers boasted five winners and one stock that brokeeven for year. Odyssey Re Holdings Corp. started 2002 at $17.70 andended at that price. There was one huge winner, Montpelier Re,which began at $20.00 and closed at $28.80, up 44.00 percent.

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RenaissanceRe Holdings Ltd. excelled with a 24.53 percent gainto $39.60, up from $31.30. Platinum Underwriters Holdings posted a17.11 percent advance, which took the stock from $22.50 to$26.35.

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Note that two reinsurers, Annuity & Life Re and TrenwickGroup, have clobbered the performance of the reinsurers as a whole.On their way out of business and out of coverage in this column,they have subtracted 90.8 percent and 92.9 percent, respectively,for Annuity Re and Trenwick Group. No need to worry further. Theyare gone, if not forgotten.

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Saving the worst of 2002 until last, we turn to the multi-linegroup. The multi-lines are, generally speaking, among our biggestand best-known, and most widely held stocks. Over the years theyhave most often been numbered among the best performing insurancestocks. But not in 2002.

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They were the worst performers in 2002. The question is“Why.”

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There is neither time nor space available to discuss a number ofobvious reasons why insurance stocks performed badly in the yearjust committed to our record book. Those reasons begin withasbestos and end with war. Investors could find few reasons to goback into stocks, and sat licking their wounds on thesidelines.

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This review of insurance stocks in the year 2002 started with“2002 was a dismal year in insurance stocksbut with a silverlining!” The dismal year has been discussed. So where is the silverlining?

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Just turn to the GENERAL MARKET Statistics for the year 2002.Note that:

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The DJIA was down for the year 16.8 percent.

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The S&P 500 was down 23.4 percent.

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The NASDAQ Composite was down 31.5 percent.

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The NASDAQ Insurance was down only 1.8 percent.

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All insurance stocks included in this year-end review were down11.9 percent.

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And there is the silver lining for owners and investors ininsurance stocks. Insurance stocks decisively outperformed thegeneral market and the major market indicators of performance inthe difficult and challenging year 2002.

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Thomas K. Meakin is affiliated with LIM SystemsInternational in Voorhees, N.J. Stock results are supplied by TheFiremark Group in Morristown, N.J. This is his farewell columnafter more than 20 years writing for National Underwriter. See page32 for an “Editorial” tribute.


Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, January 27, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.


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