As I expected both equity and bond markets are quiet at 6 a.m. central as everyone waits for the Fed statement and press conference–we don’t need to wait on the actual rate increase as it will be 75 basis points. It is a rarity that I watch these press conferences, but today it may be worth watching. If Powell appears hawkish markets are heading down hard.
Already today the mortgage bankers have announced that mortgage applications are down 85% for refinancing’s and down 41% for new house purchases. Over the course of the last week applications were flat–of course when you are down 85% how much lower can it go? Here is the MBA press release.
Today we have the ADP employment report being released. Forecast is for 195,000 new jobs in October versus 208,000 last month. Does anyone care about the ADP numbers? Just barely—if you are grasping at straws looking for weakness in economic conditions I guess you look at their number hoping for a sign of weakness–but otherwise folks look to the ‘government’ number which will come on Friday.
Has anyone paid attention to insurance company earnings (or lack thereof)? Heavy ‘mark to market’ investments have cratered many company earnings. Hurricanes and Covid (still) have weighed heavy on some of them as well. Renaissance RE (RNR) reported last night and showed an underwriting loss of $683 million and $641 million in realized and unrealized gains/losses on investments. The press release is here. Prudential Financial (PRU) also reported yesterday and their numbers were kind of ugly–Covid in Japan hit earnings. PRU also manages a lot of money and fee income was lower because assets under management were off 20% from a year ago (no surprise here). Their press release is here. Both of these company’s have investment grade preferreds and baby bonds.
Well let’s buckle up and get ready for the ‘show’.
This is why the market is a mystery to me. Prudential announces ugly earnings and yet their stock is at $108.42, up over 2% today, up from around $85 a few weeks ago, and only off 10% from its 52 month peak. I’ve owned this stock many times, because of it’s dividend and history of increasing dividends. It’s a solid company, but why it’s price fluctuates so much and in which direction baffles me.
I sold PRU today after seeing the drop in book
value:
https://www.siliconinvestor.com/readmsg.aspx?msgid=34061961
There is probably more to it than meets the eye, but I doubt I could comprehend the arcane accounting involved.
In addition to Renaissance Re, other companies projected to take Ian hits include Berkshire Hathaway, Chubb, Arch Capital, Progressive, EverestRe, and to a lesser extent, AIG and Axis. Auto carriers as well as homeowner carriers are expected to take hits. The insurers and reinsurers haven’t been hit as bad by Ian as I expected. Ian was more of a water event than a wind event.
A large part of Ian’s headline losses were uninsured, inland flooding of uninsured properties. Another large part will be covered by federal flood insurance. Industry losses seem to be within their capacity to handle. Quasi-public Citizens seems to be able to handle its losses with its reinsurance coverage. IMHO, it will be getting a lot more business.
I wouldn’t be surprised to see a dozen or more smaller Florida insurers fail within the next year. Many were already on the ropes. Florida is litigious and the industry was racking up billion dollar losses from lawsuits before the storm. Many smaller insurers couldn’t find any reinsurance coverage. Florida’s already high homeowner rates will rise again, no doubt.
When dealing with reinsurers, keep in mind net and gross casualty losses- reinsurers insure out a portion of their own risk, so net losses are often less than headline losses. Or as the industry joke goes,
“Reinsurer 1 calls Reinsurer 2 and says, “I just had a hurricane loss, pay me.” Reinsurer 2 says, “Let me put you on hold for a minute” and dials up Reinsurer 3.
Reinsurer 2 tells Reinsurer 3, “I just had a hurricane loss, pay me.” Reinsurer 3 says, “Let me put you on hold for a minute” and dials up Reinsurer 1.
Reinsurer 3 then tells Reinsurer 1, “I just had a hurricane loss, pay me.”
Mark to market is another issue.
Tim
Insurance like whole life is one of the first things dropped by a person if they lose their job , or things get tight. Insurance companies make a lot of money off these type of policies. Rising rates are great time to get a term life.
20 yr term at 35 or 40 is a good investment for the major bread winner if you have a lot of assets to protect