Tom Piccin looks at the peformance of insurance stocks over the past year
The past year was a strong one for insurance stocks. Shares in the sector, which surged in 2005, have continued to rise in the past 12 months, fuelled by a combination of takeover speculation, a benign hurricane season and a healthy market.
Admiral was the success story of the year. The motor insurer has produced outstanding returns for shareholders since it floated at the tail end of 2004 at under 300p.
This year its stocks posted a 120% gain, beginning the year at 466p and closing at 1015p as Insurance Times went to press.
A 24% increase in first half profits in September pushed the stock to all time highs and cleared the way for a relentless run. It was given another boost in December, by the announcement that new reinsurance contracts had been signed with Swiss Re and Partner Re.
And the good news wasn't confined to insurers.
It's been a terrific year for AIM-listed Broker Network Holdings whose share price has almost doubled within the 12 months.
Earlier in the year, the group reported an 84% increase in profit before tax, adding that it was to shift the emphasis of its acquisition programme to target larger non-Broker Network members. Shares, currently at 221p, are up over 97% on the year.
THB Group also ended the year up nearly 100%. Earlier in the year, the company reported a 47% increase in full-year profits before tax to £3.3m, up from £2.2m in 2005. This brought the stock up from 81p to 117p.
FTSE 100 listed, Royal & SunAlliance (R&SA) put in another strong year, rallying over 15%.
After floundering in the first half of the year the stock found direction with the group's announcement of a range of growth initiatives designed to save £130m per annum in expenses by mid-2008, albeit aided by the loss of over 1,500 jobs worldwide.
The insurer also announced a significant restructure to its business and said it was to streamline its operations with the sale of its US arm to Arrowpoint Capital.
Shares jumped on the news but have moved sideways since November, when the move was dealt a blow by the announcement from General Motors that it would be launching a suit to prevent the sale. The deal has since stalled due to regulatory issues.
Shares in R&SA, which has continued to be touted as an acquisition target, stood at 151p as Insurance Times went to press.
Not all shares performed strongly. Jardine Lloyd Thompson (JLT) had a volatile year sending shareholders on a wild ride.
The broker's share price took a battering in the first few months of 2006, falling over 30% from its high at the beginning of January.
The downward spiral gathered momentum in March and the price dropped over 20% in two days, when the company reported a fall in pre-tax profits for 2005 and a lacklustre outlook in its trading performance for the year ahead.
Hampered by the resignation in April of Dominic Collins, executive chairman of JLT Risk Solutions division, the shares reached a nadir in June and then began a brief rally as traders mulled over the potential bid for rival broker Heath Lambert.
After this fell through, JLT nosedived again before slowly clawing back lost ground in the later part of the year as profits edged up. The company announced a major operational restructure and even trumped rival bids to win the Olympic contract.
As Insurance Times went to press, shares were at 427p.
A number of companies announced plans during the year to float on the stock market.
Heritage Underwriting Agency, launched this year on AIM, achieved a placing which raised the Lloyd's insurer £14.6m. Shares in the stock were placed at 75p and are now at 103p.
Meanwhile, software house SSP's listing in October raised £15m for the company to prepare the way for possible European expansion.
So will 2007 be another buoyant year for insurance stocks? With the FTSE 100 at its highest point since 2001 and still climbing, it could well be.
This view was echoed recently by Thomas Hess, Swiss Re's chief economist who stated that 2007 will be another profitable year for non-life insurance, adding: "A key to sustaining these attractive profits will be for the insurance industry to remain disciplined towards competition and pricing." IT