This is my very first Article of any kind; so I will make it Short; Simple and (hopefully) sweet.
The thesis is on considering insurance stocks as an investment at this time. Being a Macro - Themed investor; I will spend little time on individual companies and most on the Macro theme underlying this investment idea.
In one sentence; this investment idea is a way to play a potential theme for 2013; that is higher long - term interest rates; leading to a steeper yield curve.
This is a theme I believe will likely occur in 2013; is a rotation from investors from safety trades like long - term treasuries to a greater allocation into stocks and growth assets. I believe we are starting to see this play out in the early days of 2013.
This theme is bullish for all financials for the reasons outlined below; but particularly insurance stocks.
Insurance company stocks; as a group; have been crushed in recent years by suppressed long term interest rates; which they depend on for an income flow to pay out claims and previous annuities sold to policy holders.
They are an extremely distressed and out of favour group; and valuations are cheap, IMO. (from a macro view).
For safety reasons; because they have payment obligations; Insurance companies must invest premiums recieved extremely conservatively; in bond or bond - like investments.
Higher long - term interest rates benefit these companies through increased investment income.
As Financials continue to lead the broader market; I believe if longer term interest rates continue to increase at a measured pace; Insurance Stocks will benefit.
Ideas to research would include AIG, MFC, HIG. I am long AIG and MFC.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HIG over the next 72 hours.
Additional disclosure: Positions may change at any time. Do your own due diligence before investing.