Silver Lining In Dismal Year For Insurers

2002 was a dismal year in insurance stocksbut with a silver lining!

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

Seven of the eight industry sectors went from bad to worse. Only the broker group stayed in the black with a 5.3 percent gain. As often said, and worth repeating, the brokers are prime beneficiaries of a hardening market. Rate increases benefit brokers first and then the results of property-casualty insurers. In particular, companies with high percentages of commission income are beneficiaries.

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

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

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

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 at 34.67. And United Fire & Casualty of Cedar Rapids moved up 16.8 percent to close the year at $33.45, up from $28.63.

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

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

AFLACs now well-known duck quacked its way into the statistics with a 22.6 percent fast waddle to $30.12, from $24.56. Both sales and earnings for the company outpaced projections, here and in Japan. AFLAC President Dan Amos gives his quacking prodigy much credit for the increased recognition the name AFLAC has enjoyed.

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

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

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

RenaissanceRe Holdings Ltd. excelled with a 24.53 percent gain to $39.60, up from $31.30. Platinum Underwriters Holdings posted a 17.11 percent advance, which took the stock from $22.50 to $26.35.

Note that two reinsurers, Annuity & Life Re and Trenwick Group, 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. They are gone, if not forgotten.

Saving the worst of 2002 until last, we turn to the multi-line group. The multi-lines are, generally speaking, among our biggest and best-known, and most widely held stocks. Over the years they have most often been numbered among the best performing insurance stocks. But not in 2002.

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

There is neither time nor space available to discuss a number of obvious reasons why insurance stocks performed badly in the year just committed to our record book. Those reasons begin with asbestos and end with war. Investors could find few reasons to go back into stocks, and sat licking their wounds on the sidelines.

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

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

The DJIA was down for the year 16.8 percent.

The S&P 500 was down 23.4 percent.

The NASDAQ Composite was down 31.5 percent.

The NASDAQ Insurance was down only 1.8 percent.

All insurance stocks included in this year-end review were down 11.9 percent.

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

Thomas K. Meakin is affiliated with LIM Systems International in Voorhees, N.J. Stock results are supplied by The Firemark Group in Morristown, N.J. This is his farewell column after more than 20 years writing for National Underwriter. See page 32 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 serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Silver Lining In Dismal Year For Insurers

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