While stock markets gave back some of the first half’s strong gains around the world, insurance stocks extended their slump.
For the quarter ended September 30, the benchmark Morgan Stanley Capital International World ETF (symbol MXWO.L) declined 2%, while the IIS 100 Global Index fell more than 3%.
As a consequence, the relative performance of our industry to the overall stock market for the first nine months of 2014 was abysmal. The Morgan Stanley World Index advanced 5%, while the IIS 100 dropped 3%. Investors are generally ascribing low valuations to insurers as they see the industry generating returns below its cost of capital.
The real culprit was Europe. The IIS Europe index plummeted more than 6% for the nine months as the regional economic malaise deepened. Declines of 22% for Ageas and 20% for Unipol were the worst in Europe, but the continent was weak overall, especially the Life Insurance sector. Life insurers there continued to struggle with meager investment returns and a difficult macro sales environment. Gains in the 15% area by Topdanmark and Swiss Life did little to ameliorate the European gloom.
The rest of the world’s insurance stocks were about flat overall for the first three quarters. The IIS Americas Index eked out a 1% gain, led by double digit advances by Allstate, WR Berkley and Markel. Nonlife insurers, experiencing much reduced property losses from the prior year, saw strong earnings increases, whereas most life insurers continued to struggle. Mortgage and financial guaranty insurers fared worst of all.
Asia Pacific insurance stocks were just above breakeven for the first nine months. With many strong gains and a number of substantial declines, reflecting the diversity of the region. Four of the top ten performing APAC insurance stocks were Australian, two Life (AMP and Challenger) while two were Nonlife (Suncorp and Insurance Australia). The major Nonlife writers were widely dispersed, with PICC and Samsung F&M showing big gains, but Mitsui Sumitomo and Hyundai M&F falling sharply due to earnings disappointments.
Worldwide, Life Insurers and Composite Insurers declined about 3% for the nine months, as Nonlife Insurers finished just below breakeven. As price competition resurfaces in both the primary and the reinsurance areas of the Nonlife business, their stocks will face headwinds over the next year.
An extended review will accompany full year 2014 results, hopefully featuring news of an insurance stock resurgence.
Michael J. Morrissey