Blue Chips Rebounded In October

By Thomas K. Meakin

October was a disappointing month for investors in insurance stocks as we saw our specialty substantially underperform the general market.

The 116 stocks priced came very close to breaking even. As a portfolio they were down only a minimal 0.21%. But that was a far cry from the 10.60% gain in the DJIA, and an even better 13.45% surge in the NASDAQ Composite. The S&P 500 joined the general market advance with an 8.64% gain.

I think it is useful to look back at a very tough summer for insurance stocks. The issues we priced monthly were down 8.96% in July, 4.19% in August, and 6.52% in September, which brings us into October after an almost 20% average summer markdown in our specialty!

Breaking even in October is at least an indication that insurance stocks may have stabilized, or better, have bottomed out after a three-month bear market of their own. Suffice it to say, insurance stocks appear better positioned to do well in the market after taking their shareholders for exciting rides down the River Styx in July, August and September!

There were 79 advances and 37 declines, even though October was, in total, a breakeven month. It was a small number of large percentage decliners that reduced October to breakeven status. Cigna, for example, suffered a whopping 48.92% decline. Ceres Group plunged 47.67%. FPIC Insurance Group slid 56.82%.

The Financial Services sector starred with a startling gain of 14.05%. All seven stocks in the group moved to the upside. Citigroup was the star of the show with a 24.62% advance. American Express came in second with a 16.65% surge. Merrill Lynch hit the recovery trail with 15.17% advance.

What went on? I believe investors, having sold their shares in those great companies (and in lots of others), woke up and realized they were not invested in the likes of Enron, WorldCom, Tyco, etc. As October progressed, investors came back into the market and replaced the blue chip stocks they had unloaded, often in panic. I think they have just started to build back portfolios in the general market, and in our often-perverse specialty, insurance stocks!

The Financial Services sector was where the action was. After that there were only a few interesting performers.

American Intl Group stirred up the Multi-lines with a 14.35% jump to $62.55. Blue chip broker, Marsh & McLennan, was moved up 12.18% to $46.71 by institutional investors, domestic and foreign, while St. Paul was in demand and ended the month up 14.21% at $32.80.


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 25, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.