Carrie Coolidge On Insurance
The Big Trend
Property casualty insurers will post record results in 2008, barring any big natural catastrophe. Investment gains in 2008 from the equity markets will be unimpressive, which will put more pressure on insurers to earn a profit from underwriting instead. Property/casualty insurers will be increasingly selective when reviewing insurance applications and will achieve some of the best underwriting results in nearly 50 years.
The Unconventional Wisdom
The banking sector is headed for troubled times, but not the insurance industry. Interest rates will creep up, which will be a boon for insurers, since the majority of their assets are invested in bonds. Property/casualty insurers will further benefit from profitable underwriting, and 2008 will bring few major natural catastrophes. Flush with cash, some of the larger property/casualty and life insurers will seek acquisitions abroad.
The Misplaced Assumption
For many years, it has been assumed that bigger is better in financial services, including the insurance industry. In 2008, this will prove to be a misplaced assumption. Citigroup's (nyse: C - news - people ) subprime credit losses will lead to its eventual breakup, which will lead to other large financial services companies being dismantled. The insurance industry will experience few, if any, large-scale domestic mergers in 2008. Insurers will look to grow organically in the U.S., and by acquisition abroad, where the growth opportunity is greater, especially in Japan, China, Russia and India.
The Watch List
Hartford Financial Services (nyse: HIG - news - people ) and MetLife (nyse: MET - news - people ) -- Both insurers will have record-setting performances, largely due to the retirement products they offer. Both companies will benefit from an aging population in the U.S. as well as Japan, where each has a significant presence. Both companies will continue to expand internationally.
A Bold Prediction
2008 is going to be a banner year for the stocks of many property/casualty insurers, including Travelers (nyse: TRV - news - people ), Chubb (nyse: CB - news - people ), MetLife, Allstate (nyse: ALL - news - people ) and Hartford, with all seeing impressive gains and solid fundamentals. Few insurers will suffer tremendous losses due to the subprime credit crisis. Seeking a safe haven, investors will choose to invest in insurance stocks over bank stocks, and the sector will thrive. In 2008, insurance stocks will outperform the S&P 500 and the banking sector.
Carrie Coolidge is a staff writer at Forbes covering the insurance industry.
No comments:
Post a Comment