Hammy09 --
The first place that I went was to Value Line, which ranks companies
by ranking within an industry -- and ranks industries by their
timeliness on the business cycle:
Value Line
"Timeliness Ranking System"
http://www.valueline.com/why_use_how.html
It turns out that Value Line splits the insurance category into two
parts: Life and Property/Casualty.
Property/Casualty has a timeliness ranking of 29 of 98 industries in
the most-recent survey; Life rated 40 of 97.
Value Line notes that Life has benefited from equity and credit
markets and with expected high interest rates, moving up over the past
year or so. They particularly note that the Life sector is
particularly heavy with stock market investments. Their advice:
investors should look at the length of company's portfolios (longer
yields produce better current returns but at a risk). Some companies
in this sector include Manulife Financial, Prudential Financial and
Aegon.
For Property/Casualty, gains were apparently due to losses being lower
than expenses. What's more worrisome to Value Line than investment
yields are expenses, particularly from catastrophic weather (think
hurricanes). A rise in short-term rates would actually help this
sector's new bond yields -- a solid indication that P/C has a
shorter-term portfolio than Life. Companies here include Accordia,
Allstate, Nationwide and Travelers.
Though the article is several years old, this piece on the P/C segment
is very interesting because it cites some fundamental weaknesses that
Myron Picoult, of Wasserstein Perella Securities, saw in the segment:
Rough Notes Magazine
"Insurance Stocks in 1999" (Picoult, January 1999)
http://www.roughnotes.com/rnmag/january99/01p42.htm
It's also important to note that using the following Google search
strategy, turns up dozens of articles on the strengthening of
insurance profits during the last 10 years of declining interest rates
-- so it IS reasonable to be cautious about any increase in interest
rates. Note too, that many of the inflation factors are "local" --
such as rapid shifts in health care funding shifting returns for
insurers in those markets:
"insurance stocks" + inflation
insurance + inflation
LOOKING AT PORTFOLIOS
=======================
We're getting close to Q1 earnings reports for public companies, a
good time to look at investor relations pages to help decipher what
the capital status of insurance companies. Note that many companies
broadcast their quarterly analysts calls and provide the financial
background that goes to Wall Street analysts. One example is St. Paul
Travelers (NYSE: STA)
"Financial Reports" (2004)
http://investor.stpaultravelers.com/phoenix.zhtml?c=177842&p=irol-reports
Another way to track the quarterly calls is to acquire transcripts
from companies like Call Street or Thomson/CCBN, which provide them
for a fee. Note that some libraries also have these services, as well
as Investext -- a fee-based database that has analysts' own reports.
In particular, you want to pay close attention to what chief financial
officers (CFOs) are saying about investment income and its changes.
In this answer, note too that I used the public library copy of Value
Line to help prepare the answer, rather than relying entirely on the
online site.
If there's any aspect of this Google Answer that is unclear, please
request a clarification before rating it.
Best regards,
Omnivorous-GA |
