Mr. Hall: I'm responsible for the life insurance sector, and I am also responsible for the asset management sector. The way that I've gone about building my universe of life insurance stocks is to focus on those companies that have the greatest amount of their business largely in what I'd call asset accumulation businesses, or companies that are also involved in some substantial way in the business of asset management directly. The companies that I have in my universe that fit those qualifications would be names like Lincoln National (LNC), Nationwide Financial (NFS), American General (AGC), Liberty Financial (L). So that's a representation of the types of companies on which I focus.
TWST: As a background for your outlook for the companies and for the
stocks going forward, will you review what's been happening in the
sector over the past 12 months? Any developments or trends that stand
out in your mind?
Mr. Hall: For the stocks it certainly hasn't been a pretty picture over
the last 12-18 months in the world of life insurance. Clearly the
repercussions of the bond market and interest rates have negatively
impacted these names and they've had a hard time escaping from that
overhang. In large measure we've seen the group trade down, and there is
virtually no one in our universe who has been immune to that type of
performance. Our Prudential Life Insurance Index shows that the stocks
traded down in the aggregate by about 17% or so in 1999, and so far in
the beginning of 2000 have traded down in the aggregate by about 12%.
That's clear underperformance relative to the market, relative to just
about anything you can benchmark against. Interest rates have been a big
factor during that whole move. Now, despite the interest rate
environment, you've seen companies actually come through on an operating
basis and post reasonably solid earnings. The life insurance group,
through a variety of different economic cycles, has a tendency to have
earnings that are perhaps a little bit more stable. They don't go up as
a group when the economy booms quite as much as other sectors, and they
have a tendency to be not so risky on the downside when the economy
contracts. In the strong economy that we've had, there are clearly other
sectors that have been able to post higher growth rates in the
aggregate, and the life insurance sector doesn't look as attractive in
that relative comparison. That also has had a negative impact on the
group.
Tickers included in this excerpt: AEG, AGC, AIG, ALRE, C, L, LNC, MER, NFS, RLR
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