Travelers, the twelfth-largest member of the Dow, recently reported “second quarter after-tax operating income of $673 million, down 18% from the $816 million it reported in the second quarter of 2013. The company has been using its excess capital to buy back shares, a trend that continued in the second quarter of 2014. Thanks to a buyback-driven 9% decline in share count, Travelers posted operating earnings of $1.93 a share for the quarter, down 9% from $2.13 a share in the second quarter of 2013,” notes S&P Capital IQ.
IAK has a 46% weight to property and casualty stocks. As its name implies, KBWP is entirely focused on property and casualty stocks, which could prove to be a positive trait as more Americans pass on getting life insurance. Traditional life insurance companies are losing ground to mutual funds and 401(k)s as Americans turned to the markets to accumulate enough money for retirement. [Americans Passing on Life Insurance]
KBWP’s top-10 holdings, a group that combines for about 60% of the ETF’s weight, include Allstate (NYSE: ALL), Travelers, Progressive (NYSE: PGR) and Chubb (NYSE: CB). The exclusive focus on property and casualty insurers keeps KBWP from being large-cap heavy as mid- and small-cap value stocks combine for nearly three-quarters of the fund’s weight.
“Insurers grow premium revenues in two ways: through rate increases and through exposure growth. While rates for many lines of coverage have started to trend upward, the other variable in the market cycle equation is exposure growth (i.e., the ability to expand or write new business). This will depend to a large degree on the rebound in economic activity. Many insurers in our coverage universe have held the line on pricing and have achieved rate increases. For some, however, the offset has been a decline in retention levels. During 2013, retention levels varied rather widely among carriers. Some of this is intentional: as firms seek to manage their risk profile and businesses, they may let certain business go,” said S&P Capital IQ.
PowerShares KBW Property & Casualty Insurance Portfolio
