Is It Time To Buy The Insurance Sector?

I just came across a survey from the Council of Insurance Agents and Brokers that gives confirming evidence that the soft market in insurance may be over.

The survey concludes that "Commercial property/casualty market premiums showed definite signs of leveling off in the fourth quarter of 2008 across small, medium and large accounts and for most major lines of commercial business."

Rates still declined in the fourth quarter of 2008, but at a slower rate than the last few quarters, according to the survey.

“We see evidence in the fourth quarter that premium rates eased as insurers tried to hold the line on pricing. It’s still a competitive market, but we think this may signal the bottom of the soft market, following six years of steady decline. We will see if this trend continues in the first quarter of 2009 as price increases in the reinsurance market begin to trickle down and as the full impact of the economy and market conditions comes home to roost on insurers’ bottom line,” Council President Ken A. Crerar said.

Most insurers are trading below book value due to investor concern about the investments they hold, so is it possible that a return of the hard market along with decade low valuations might be a buying opportunity for investors?

The survey is here.

More TARP Banks

The Treasury released the list of banks getting money from the government as part of the Capital Purchase Plan. The total amount given out was $14.77 billion for 43 banks. Some are household names and others are rather obscure:

Nine Surprises For 2009

In the spirit of Byron Wien, who every year releases a list of surprises to expect during the coming year, I submit my own surprises for 2009:

1. Investors stop listening to the talking heads on TV after realizing that they are on TV to shill for their own portfolio and not to help them out.

2. Jim Cramer is finally institutionalized after changing his mind ten times in one week about a stock.

3. Commodity bulls admit that oil futures are no different than any other financial instrument and that there are speculators in the oil futures market. The speculators are rounded up, taken to the basement of the Federal Reserve in New York, and hung by the neck with piano wire.

4. After blinding leading individual investors into commodities, the third great investment bubble in ten years, the Sell Side is prohibited from recommending any stock or other investment ever. The terms Buy, Sell and Accumulate are replaced with “the hell if I know.”

5. The term “smart money” is banned from being used in the financial media. A crowd of investors burns an effigy of “smart money” at the corner of Wall and Broad Street.

6. After hiding out for months during the Energy Bear market, Matt Simmons is finally located in Carthage, Illinois and beaten by a crowd of angry peak oil enthusiasts. He is quoted as being “flabbergasted” by his treatment by the mob.

7. Hedge Funds admit that Hedge Funds are not a separate asset class. “We just go long and short stocks, bonds and derivatives like everyone else.”

8. Shareholder activist investors admit that they don’t really care about the long-term health of the companies they are targeting. “We just want the stocks to go up in the short term, and then dump our position at a profit. We have to say we are long term investors so management will listen to us.”

9) Investors start investing rationally, they ignore rumors, they weigh stocks rather than vote for them.

Words of Wisdom - Part II

More words of wisdom from Henry Clews to get us through the harrowing market that we find ourselves stuck in. Henry Clews lived from 1836-1923 and wrote several books on his views and experiences on Wall Street, including "The Wall Street Point Of View" and "Fifty Years in Wall Street."

"I cannot refrain from expressing the opinion that there are permitted to exist in this country conditions which needlessly aggravate the perils of financial upheavals, when they occur. In every panic much depends upon the prudence and self-control of the money-lenders. If they lose their heads, and indiscriminately refuse to lend, or lend only to the few unquestionably strong borrowers, the worst forms of panic ensue."

Just like back then, banks hold the keys to the recovery.

"If, on the contrary, they accommodate to the fullest extent of their ability the larger class of reasonably safe borrowers, then the latter may be relied upon to protect those whom the banks reject, and thus the mischief may be kept within some bounds. Everything depends upon anxiety being held in check by an assurance that deserving debtors will be protected. This is tantamount to saying that all depends on the calmness and wisdom of the banks. They may easily mitigate or aggravate the severity of the crisis according as they are prudently liberal or blindly selfish."

The Words of Wisdom of Henry Clews

Henry Clews lived from 1836-1923 and wrote several books on his views and experiences on Wall Street, including "The Wall Street Point Of View" and "Fifty Years in Wall Street." Here's a quote that seems to sum up very succinctly and without emotion what we are going through now:

"The action of commerce, like the motion of the sea or of the atmosphere, follows an undulatory line. First comes an ascending wave of activity and rising prices; next, when prices have risen to a point that checks demand, comes a period of hesitation and caution; then contraction by lenders and discounters, and then a movement, in which holders simultaneously endeavor to realize, thereby accelerating a general fall in prices."

"Credit thereupon becomes more sensitive and is contracted; transactions are diminished; losses are incurred through the depreciation of property, and finally the ordeal becomes so severe to the debtor class that forcible liquidation has to be adopted, and insolvent firms and institutions must be wound up. This process is a periodical experience in every country, and the sharpness of the crisis that attends it depends chiefly on the steadiness and conservatism of the business methods in each community affected."

What we are going through now is no different than what other generations experienced. We are probably better off because we have more of a social safety net and an activist government to smooth the rough edges of this downturn.

So Who Should We Believe?

The Securities and Exchange Commission (SEC) just released its voluminous report totaling more than 200 pages that investigated whether fair value accounting was to blame for any or all of the credit crisis and financial dislocations over the past year. The SEC concluded that fair value accounting "did not appear to play a meaningful role" in the 25 bank failures that have occurred this year or the tumult at collapsed investment banks."

The next day a group of insurers say just the opposite in its report.

"The application of fair value accounting measurements to an inactive, illiquid, and disorderly market for structured credit products helped fuel the worldwide credit crisis, an organization of major insurers and reinsurers told the U.S. Financial Accounting Standards Board (FASB)....that while the organization does not believe that fair value measurements caused the global credit crisis, "unreliable, and non-transparent fair value measurements served as a powerful accelerant."