Mr. Lewis: I cover both the life insurance group and the specialty property-casualty groups. We believe that the life insurance group could potentially underperform overall if the economy begins to rebound. Historically, life insurance stocks have done particularly well when the economic conditions are weakening and S&P 500 earnings are declining. We believe once the S&P 500 earnings begin to rebound, there will be an increased focus toward economically sensitive names and a shift overall from life insurance names to the more economically sensitive companies. Within the life insurance group, there are some economically sensitive names that could perform very well during 2003. Most notable are the variable annuity writers. Our favorite in this group is Lincoln National (LNC), and for a more speculative account, UnumProvident (UNM), as their business is very closely tied to economic trends that impact both the investment portfolio and their claim trends on the disability business.
TWST: What has gone on in the group over the past year or so?
Mr. Lewis: The group, since 2000, has outperformed the broader
markets, notably the S&P 500. The weak economic environment is
the primary reason that investors have shifted to the more stable
life insurance names. More recently, there have been increased
concerns regarding investment losses in life insurance company
portfolios and a decline in the industry's excess capital as a
result. We believe that this could continue to be a concern for
companies with less well-capitalized balance sheets. However,
those that are well positioned with strong capital bases should
be able to weather the storm without any significant difficulty
and ultimately will be the winners once the economy rebounds and
investment losses diminish.
Tickers included in this excerpt: BRO, FPIC, LNC, MKL, MLAN, PRA, SPC, UNM
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