Strong gains for some stocks despite negative news for sector

The two week period ending 25 September should have been, by most calculations, a testing time for insurance stocks as it was for banking stocks.

This is not only because of insurance sector specific negative factors such as insured damage caused by Hurricane Ike and Gustav over the previous three weeks and the highly public $85.0bn bailing out of AIG, the world’s largest insurance company, by the US government, but also because of the widespread doubts about the federal government’s bail out plan for the financial sector, the details of which were circulating around the market a week earlier. But while some of the insurance and reinsurance stocks tracked by WIR suffered marked declines (most notably, AIG, which fell by 82.8% from $17.55 to $3.02 over the period), others posted some surprisingly strong gains. It was as if investors, amidst the chaos, had pulled themselves together and taken a view on the companies most likely to benefit from the breakup of AIG; a view reinforced by all three of the main rating agencies further reducing their ratings on the company. In terms of US listed stocks, Berkshire Hathaway, which is already benefiting from the dislocation in the mortgage insurance and financial guaranty markets, gained 13.3%; Ace gained 16.0%; and Odyssey Re Holdings 19.4%.