The global insurance sector
Eoin Treacy's view I mentioned in last night's Subscriber's Audio that I would review insurance companies today because they have cropped up in a number of “click-throughs” I have conducted over the last couple of weeks and have been notable for their relative strength and attractive medium-term chart patterns.
I reviewed a group of Hong Kong listed Chinese companies in Comment of the Day on December 13th, in response to a comprehensive report kindly forwarded by a subscriber early last week. While it did not specifically mention insurance companies, when I looked at Chinese financial companies, the insurance sector was noteworthy.
While looking at banking sector indices this week (please see Comment of the Day on December 19th ) the relative outperformance of insurance companies both when compared to banks and their wider markets was also conspicuous. This phenomenon is not only limited to a single country but appears to be observable on a global basis and suggests renewed interest in the sector.
The Bloomberg World Insurance Index found support in the region of the 200-day MA from November and has rallied for the last six consecutive weeks to post new four-year highs. While somewhat overbought in the short-term a sustained move below the MA would be required to begin to question medium-term scope for base formation completion and a new bull market.
Here is a list of the constituents sorted by domicile and then in ascending order by P/E. One of the more interesting characteristics of the sector is the number of companies trading on single digit P/Es.
Berkshire Hathaway has outperformed the Index and is testing its highs for the year. While a pause in this area is possible, a sustained move below the 200-day MA would be required to begin to question medium-term scope for additional upside.
All State (P/E 7.72, DY 2.18%) and Travellers (P/E 10.5, DY 2.45%) have been among the early leaders but are somewhat overextended relative to the 200-day MA and may consolidate before extending their respective medium-term uptrends.
Marsh & McLellan (P/E 7.72, DY 2.57%) remains in a relatively consistent uptrend and found support last week above the 200-day MA. A sustained move below $34 would be required to question medium-term scope for additional upside. Of the US shares, Marsh & McLellan has one of the more attractive chart patterns and one of the lowest P/Es.
In the UK there are a number of insurance companies with very competitive yields. RSA Insurance Group (P/E 14.36, DY 8.04%) completed a yearlong base two weeks ago and continues to extend the breakout. Legal & General (Est P/E 9.9, DY 5.07%) remains in a consistent uptrend and would be best bought following a reversion towards the mean. Prudential Financial (P/E 14, DY 3.26%) appears to have entered a process of mean reversion. Standard Life has rallied impressively but is approaching a potential area of resistance and is susceptible to mean reversion.
In the Eurozone, Spanish listed Mapfre (P/E 8.73, DY 4.94%) broke out of its three-month range this week to reassert medium-term demand dominance.
German listed Hannover Reuckversicherung (P/E 8.02, DY 3.53%) and Muenchener Reuckver (P/E 7.29, DY 4.55%) have rallied very impressively but are accelerating. The first clear downward dynamics will probably signal the beginning of a medium-term corrective phase. Allianz (P/E 10.53, DY 4.29%) has lagged these but broke successfully above €100 four weeks ago and a sustained move below that level would be required to check potential for additional medium-term upside.
France listed CNP Assurance (P/E 7.91, DY 6.63%) has held a progression of higher reaction lows since July and while somewhat overbought in the short-term, a sustained move below €10.50 would be required to question medium-term scope for continued higher to lateral ranging. AXA (Est P/E 7.13, DY 5.17%) broke out to new 15-month highs this week and a clear downward dynamic would be required to check potential for additional upside.
In Japan, Tokio Marine Holdings (Est P/E 14.17, DY 2.23%) rallied to break a lengthy progression of lower rally highs this week and while overbought in the short term, a sustained move below ¥2050 would be required to question the medium-term bullish hypothesis.
Hong Kong China Life Insurance (Est. 18.66, DY 1.16%) has one of the more attractive chart patterns as it tests the upper side of its 15-month base. A sustained move above HK$25 would confirm a return to medium-term demand dominance. This pattern is common to a number of Hong Kong listed insurance companies such as Ping An.
Australian listed SunCorp completed a four-year base earlier this month and has been consolidating the move since. A sustained move back below the 200-day MA, currently near A$9 would be required to question medium-term recovery potential. AMP Ltd (P/E 17.88, DY 6.73%) has held a progression of higher reaction lows since July and has returned to test the A$5 area. A sustained move below A$4.50 would be required to question medium-term scope for additional upside. Insurance Australia Group (Est P/E 11.51, DY 5.17%) and QBE Insurance Group (Est P/E 9.61 DY 6.66%) are at opposite ends of the spectrum. The former is susceptible to mean reversion following an impressive advance while the latter has dropped back to test a potential area of support.
The patterns of demand dominance evident across the insurance sector globally, coupled with a similar condition in the banking sector and renewed interest in the industrial sector suggest that the perception of future growth has improved considerably over the last few months despite short-term anxiety over the outcome of fiscal cliff negotiations in the USA.