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Battered Insurers Are Feeling Much Better, Thanks

Personal Business: Smart Money


Six years ago, beset by flat or declining prices, property and casualty insurers conducted a rash of stock buybacks to boost earnings per share. With the market soft for premium hikes, investors were wise to cash out.

Now, the industry is going through another spate of stock repurchases. But this time, the buybacks are a bullish sign: Insurers think their stocks are undervalued, since the fundamentals of most of these companies should soon improve.

QUAKE COSTS. A number of insurance stocks dropped 15% to 25% in the last quarter, primarily because of losses from the Los Angeles earthquake and bad storms in the Northeast. Still, with the economy turning around, property and casualty premiums are expected to rise 7.4% in 1994. Those increases should produce the highest operating profits in a decade and help elevate stock prices.

Gary Ransom, a senior vice-president at Conning & Co. in Hartford, likes four insurers that have announced stock repurchases: Allied Group, General Re, St. Paul, and UNUM. UNUM, based in Portland, Me., reported 1993 fourth-quarter earnings that surpassed estimates by 5%. Those good results should continue as more consum-ers buy disability coverage, a market in which UNUM is leader. General Re, a large reinsurer in Stamford, Conn., improved its underwriting performance in 1993 and expects international profits to take off this year.

Another company worth a look is Guaranty National, an Englewood (Colo.) insurer of high-risk drivers. The stock, trading 40% below its 52-week high of $24.75, became depressed after losses from insuring commercial trucks in the Southeast hurt 1993 fourth-quarter profits. But those problems aren't expected to recur, and Wall Street projects earnings to go up 43% this year. In a show of confidence, the Boston-based Pioneer Three mutual fund bought 530,000 shares.

Not all insurers with buyback plans are ripe for picking. S.G. Warburg's Jeffrey Cohen dropped Capital Holding, a Louisville multiline insurer, from "add" to "hold" because of concerns about two businesses not related to property and casualty. Smith Barney Shearson's Ronald Frank removed Capital from his buy list because of flat fourth-quarter earnings, though he still thinks the stock is cheap.TABLE:


Company Date Repurchase Market

announced price price*

ALLIED GROUP 2/11/94 $25.25 $25.25

CAPITAL HOLDING 1/31/94 36.25 34

FIRST COLONY 2/4/94 25.63 24.63

GENERAL RE 2/9/94 109.88 104.12

GUARANTY NATIONAL 2/2/94 17.25 15.63

JEFFERSON-PILOT 2/14/94 45.12 48.25

ST. PAUL COS. 2/11/94 81.25 80.12

UNUM 2/11/94 51.75 55

*Mar. 7, 1994 DATA: CONNING & CO.

Chris Roush

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