Insurance stocks set the ASX alight
What Mattered Today
A solid day on the ASX with the index opening higher and once again we saw sustained buying throughout the session. The market is now less than 100pts from its 12 month highs and looks poised for further upside this side of Christmas. Overnight the US market cracked to new highs and continues to fit in well with our preferred script; a blow off style top followed by a reasonably large correction and for that reason, we’ll be looking to increase cash levels towards the end of December / early January. Insurance stocks were in focus on the back of IAG’s investor day where they re-confirmed guidance and a $250m cost out program + they are targeting earnings growth of +10% pa out to 2020. The commentary was bullish from IAG and they expect revenue to grow at 3-5% for the next 3-5 years which suggests to us, they think the cycle is turning…
A couple of interesting slides that caught our eye – and of most interest below was their commentary around ‘Further encouraging signs of bottoming of the commercial market, notably in Australia” which is extremely positive.
Source; IAG
Insurance stocks are leveraged beasts and are very susceptible to external macro trends. They make money in two main areas – from writing premiums which has been tough in recent years given competition has been high, particularly in the US where low interest rates have allowed new entrants into the market, and they also make money from investing those premiums, mostly in Bonds. Low interest rates hurt this side of the business, so as rates increase, the insurers are very leveraged to it, from both a premium side and in their investment books.
We don’t own IAG which was up 4.46% today, however we do have 16% of our portfolio in QBE & Suncorp – which is aggressive but working well with QBE up 4.92% and Suncorp up 2.62% today.
Suncorp (SUN) Daily Chart
QBE Insurance (QBE) Daily Chart
We had a range today of +/- 72 points, a high of 5,550, a low of 5478 and a close of 5543, up 66 pts or +1.2%.
ASX 200 Intra-Day Chart
ASX 200 daily chart
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