Something Stinks At the Insurance Corral

Like many groups, insurance was highly shorted in late winter, and once momentum jumped in the group, investors betting against the group were crushed. Further helping insurance firms specifically was the government riding to the rescue TARP], a la commercial REITs, banks, et al. [Mar 12, 2009: The Next Big Bailout Choice - Insurance]

As I scan through stocks which are looking weak for potential short set ups, I am seeing a lot of weakness in this group all of the sudden. Even the best-run like Metlife (MET) or Travelers (TRV) are acting poorly. I'm not sure what this is signaling, but I am pointing it out. I know Doug Kass, for one, really likes this group on the long side, but I think his rationale is longer term.

Here are 6 representative charts of varying quality companies

Highest quality



Middle of Pack

Speculative

[Mar 31, 2009: Lincoln Financial Implodes, Principal Financial Cutting Salaries]


No positions

Comments

[youngolf:]

Even BCBS in my state is laying off 150. Trust me, when BCBS lays off, it is bad. They typically have multi-hundreds of billions in that old quote-unquote 'claim reserves' account - that is never used to offset any underwriting loss from the year, thats right, the ins dept allows them to keep that money 'separate'...and of course they can always find an actuary to state they need that amount of funds 'to assure there is monies to cover the risks of all the members they insure'....and they continue to gain 'earnings' on those reserves, that are also protected from being used to offset underwriting losses each year.........so, this is typical absurdity and greed that is ruining this country, sucking money out of productive uses and 'stashing it' to enrich the insurers. It is sad indeed - for the little guy.

Jul 03 08:58 AM

[youngolf:]

someday, maybe when we collapse, someone will realize that with all the trillions the insurers have stashed, and the admin costs from processing claims by profit making companies, and the ancillary businesses that have evolved......that we could fund a startup for and provide care for USA citizens and have money left over.

its time to end BCBS execs walking the hallways in armani suits, $150 pinpoint oxfords, and $175 ernesto zegilda ties.....

Jul 03 09:02 AM

[TeresaE:]

BCBS just raised group insurance rates (non-big union contract) and seniors by over 30%, seniors took the biggest hit.

And aw, they have to lay off 150 workers, cry me a river.

Guess what, small business is the grease that turns the insurance wheel.

And small business is being eradicated.

The insurers will be getting their "free" money soon enough.

We will all be getting the bill.

Jul 03 09:51 AM

[paulg828:]

I would be curious to know where your ignorance of loss reserves comes from?


On Jul 03 08:58 AM youngolf wrote:

> Even BCBS in my state is laying off 150. Trust me, when BCBS lays
> off, it is bad. They typically have multi-hundreds of billions in
> that old quote-unquote 'claim reserves' account - that is never used
> to offset any underwriting loss from the year, thats right, the ins
> dept allows them to keep that money 'separate'...and of course they
> can always find an actuary to state they need that amount of funds
> 'to assure there is monies to cover the risks of all the members
> they insure'....and they continue to gain 'earnings' on those reserves,
> that are also protected from being used to offset underwriting losses
> each year.........so, this is typical absurdity and greed that is
> ruining this country, sucking money out of productive uses and 'stashing
> it' to enrich the insurers. It is sad indeed - for the little guy.

Jul 03 10:25 AM

[User 440277:]

I think what we've seen in these financials and other segments of broad markets has been a dead cat bounce off the hard and fast lows.
Of course this is easy to say now, but take a look at how our markets got revived in the first place.... by artificial govt stimulus. The patch to the financial system is starting to peel off and what we see is sellers capturing speculative gains off of lows about 1-8 months ago. All that printed money will fuel inflation and deflate the dollar. TBT is an ETF that does well when govt bonds do poorly. Take a look at the bottom left to upper right pattern forming here. Interest rates are moving higher and gold appears ready to rise. Oil already is....again.

Jul 03 11:11 AM

[Jasper M:]

Mark,
Seems to me the recent announcement of yet More loses coming for AIG (or rather, the taxpayers) has invited reexamination of rosy assumptions for all in that business.
And there is plenty worth reexamining.
MBI was trying to shed collectability of debts by splitting off its muni unit - but what god does that do, with whole States about to default?
As from Met being well run, I think can't save them, as the problem is that in the current environment, at their size, there just aren't enough good places to put their business. They have grown too big to hide in any of the available bushes, and now there are predators about.

Jul 03 06:42 PM

[RECON605:]

I believe the drop in stock prices was caused by the recent Supreme Court ruling.

You will see that on all of your stocks the volume dropped with the prices so people are shying away right away especially because we don't have a clue what our current administration is planning courtesy of Ted Kennedy and his cronies.

Jul 03 06:51 PM

[youngolf:]

response to paulg828,,,,please just ask questions and don't attempt to insult.....lets keep the dialogue intelligent. If you'd like to present some thoughts I'd be happy to respond.

Jul 03 09:01 PM

[ain't no fo...:]

Insurers are loaded to the gills in CRE and the Street is finally starting to figure out that the sugarplum fairy isn't going to magically save CRE at the last minute, which everyone seems to have just hoped would happen.

Most of these charts look like yesterday's breakfast, breaking down like many of the major indices yesterday like SPX and INDU below their inverted (basis the 200) 50 day EMA's.

If you look back to their action since they started deteriorating around the first week of June, they started to roll over, then started to form short 5 or 6 day bear flags where they made weak rally attempts that bumped up against overhead moving average resistance - often the 20 day EMA. Now they appear to be breaking down out of the flags, which is a typical result.

Interestingly, the two sickest charts are in the high quality pair - MET and TRV. If you held a gun to my head and said buy any two, without regard to fundies, I would take LNC and PRU because they are at least for today holding their 50 and trading relatively flat.

There are no oscillators on these charts, and its late so I'm not going to look them all up, but I'll take a wild guess and say the MACD and STO are rolling over on most of them, and exhibiting negative divergences.

Frankly, after looking at the performance of the indices yesterday, these are disturbing charts.

Jul 03 11:34 PM

[igggy:]

I suspect they are all selling stock hand over fist while they still can. It's a better way to raise capital than to issue debt at 10.75% like MET just did.
www.reuters.com/articl...

Jul 04 01:20 AM

[User 440757:]

Iggy,
What is the cusip for the MetLife bonds, I can't seem to find it. Thanks.

Jul 05 06:55 AM

[mr clark:]

u guys are missing the obvious, SHORT these down to teens/single digits!!! stocks like ALL, MET, PRU especially are directly tied to the mkts, so when DOW hits 5000 a year from now, u can cover for awesome gains (just leave room to avg in on the headfakes)

imho

Jul 08 09:54 AM

[madasheck:]

Clark: Meanwhile, we can all wait for our Margin calls if things don't go as planned?

Jul 08 03:12 PM