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Interesting Insurance Stocks For 2009
While insurance companies were not ground zero of the financial crisis, as that honor belongs to brokers and banks, the industry was hit by enough collateral damage to send investors fleeing in 2008.
American International Group (NYSE:AIG), the grand daddy of the insurance sector, was forced to seek a credit line from the government of more than $100 billion to meet its obligations. Even storied name Berkshire Hathaway (NYSE:BRK.A) saw its shares sell off to $78,000 a share, a five-year low, as investors questioned a large derivative position the company took on.
So what do investors have to look forward to in 2009?
Industry Outlook
There is sure to be more pain as insurers' investment portfolios are marked to market every quarter. There has been talk from regulatory authorities about relaxing the accounting rules that require mark to market accounting, but so far nothing concrete has been announced.
On the good side, one of the side effects of the financial crisis was an aversion to risk taking, which led to capacity leaving the market. Evan Greenberg, the CEO of Ace (NYSE:ACE) declared during the third quarter conference that the end of the soft market in insurance had arrived. Also, the hurricane season was fairly benign in 2008, with only two named storms hitting the Gulf Coast during the period.
Look for some insurers to purchase banks, so they can qualify for funds under the Capital Purchase Plan of the TARP in 2009. So far at least three insurers have announced an intention to go this route to boost capital ratios, including Hartford Financial Services Group (NYSE:HIG), Genworth Financial (NYSE:GNW) and Lincoln National (NYSE:LNC).
Valuations for the industry are at rock bottom as measured by price-to-book, but this analysis requires that an investor put faith in the value of the assets, or the denominator of the equation. It may some time until investor faith is restored in this measure due to the large writeoffs that have occurred to date.
Travelers (NYSE:TRV), Allstate (NYSE:ALL) and Chubb (NYSE:CB) are some large cap names that warrant further investigation as investors search for names to play the eventual recovery in the sector.
To learn more about investing in this sector, check out our Insurance Industry Handbook.
American International Group (NYSE:AIG), the grand daddy of the insurance sector, was forced to seek a credit line from the government of more than $100 billion to meet its obligations. Even storied name Berkshire Hathaway (NYSE:BRK.A) saw its shares sell off to $78,000 a share, a five-year low, as investors questioned a large derivative position the company took on.
So what do investors have to look forward to in 2009?
Industry Outlook
There is sure to be more pain as insurers' investment portfolios are marked to market every quarter. There has been talk from regulatory authorities about relaxing the accounting rules that require mark to market accounting, but so far nothing concrete has been announced.
Look for some insurers to purchase banks, so they can qualify for funds under the Capital Purchase Plan of the TARP in 2009. So far at least three insurers have announced an intention to go this route to boost capital ratios, including Hartford Financial Services Group (NYSE:HIG), Genworth Financial (NYSE:GNW) and Lincoln National (NYSE:LNC).
Valuations for the industry are at rock bottom as measured by price-to-book, but this analysis requires that an investor put faith in the value of the assets, or the denominator of the equation. It may some time until investor faith is restored in this measure due to the large writeoffs that have occurred to date.
Travelers (NYSE:TRV), Allstate (NYSE:ALL) and Chubb (NYSE:CB) are some large cap names that warrant further investigation as investors search for names to play the eventual recovery in the sector.
To learn more about investing in this sector, check out our Insurance Industry Handbook.
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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