Tag - NYSE:ALL

Small-cap stocks took a hit Thursday, snapping a string of four consecutive winning sessions with a resounding downside spiral as dreary economic data and lousy corporate profit reports triggered a wave of selling. The Russell 2000 (NYSE:IWM) tumbled 19.78, or 4.18%, to 453.24, and is now down 9.2% for the year. The Dow is now down 7.1% for 2009, while the S&P 500 is off 6.4%.

Just one day after generating the second-biggest rally of the year, the Russell slumped to the third worst daily decline, reminiscent of the roller coaster ride surrounding the Obama inauguration, which saw the best and worst days of 2009 in back-to-back fashion. It has become a familiar and uncomfortable trendless volatility as the market waffles between bargain hunting and renewed dread about the worst economic recession since the Great Depression 70 years ago.

Today’s big event was a trio of economic reports that stood to remind us all that even though data might be a “lagging” indicator for stocks, when the numbers get numbingly awful, the confidence to shrug them off starts to wane. This morning saw weekly unemployment claims rise to 588,000, which was slightly above the forecast. But it wasn’t the weekly figure that was troubling, it was the number of Americans forced to file for continuing unemployment benefits because they can’t find a job. That number swelled to 4.77 million, the highest number on record. There are now more people than ever before forced to draw unemployment insurance, and we’re supposedly not yet at the worst of the jobs situation.

“In addition to staggering layoff announcements in January across a wide spectrum of firms, the actual number of folks filing for unemployment insurance climbed 3,000 during the week ended Jan. 24. Continuing claims, which lag initial claims by one week, advanced to 4.776 million and the insured unemployment rate increased to 3.6%, which is a cycle high from 3.4% in the prior week. The January employment report is likely to show a grimmer picture of the labor market compared with the December data,” Asha Bangalore, economist with Northern Trust, said in an email. 

And while the weekly claims report alone was an uncomfortable piece of data, there was no relief to be found in the monthly durable goods report or the latest reading on new home sales. Durable goods orders declined for the fifth consecutive . . .

Small-cap stocks pushed lower on the opening, pressured by a sloppy batch of earnings reports this morning and another weak slate of economic reports that threatens to break a four-day winning streak for the market. At 10:02 a.m. ET, the Russell 2000 (NYSE:IWM) was down 11.00, or 2.32% at 462.03.

New home sales fell off a cliff today, sinking 14.7% to an annual rate of 331,000 units, way below the forecast of 400,000. The stock market appeared to extend the morning slide after the dreary home sales report.

The weekly claims report came in at 588,000, which was a tad higher than the forecast. The bleak news was on continuing claims, which rose to record highs at 4.77 million, topping the recessions from the 1970s and 1980s in the process. This was a sobering look at recent layoffs ahead of the big monthly employment report next week.

Also on the data front, the durable goods report came out at minus 2.5%, which was nominally worse than the projection for a decline of 2%. However, when stripping out the “big ticket” transportation orders, durables were off 3.6%. This marked the December report on durable goods; for the year, orders were down more than any year since 2001.

As for the latest earnings reports, Allstate Corp. (NYSE:ALL), QUALCOMM Inc. (Nasdaq:QCOM), Black and Decker Corp. (NYSE:BDK) and Fortune Brands Inc. (NYSE:FO) all posted various troubling numbers on profit reports, setting a bleak tone for the morning, just a day after investors were finding spots of good news on the profit front for buying enthusiasm.

Interestingly, all the bleak news on earnings and economic data shuttled aside excitement over the House passage of the Obama stimulus plan; but even before today’s data, the market was already lower, suggesting that the House passage wasn’t a surprise and that the market would need something fresh to . . .

You say synergy, I say mutually beneficial strategic relationship but let’s not call the whole thing off. Either way, when it comes to taking on insurance risk in an increasingly competitive rate market, it pays to have a friend to lean on — even if you’re a tower.

And it’s not hard to make friends when you have the charm of two years of approximately 20% return-on-equity and a 70% year-over-year rise in net income like New York-based property and casualty insurer Tower Group, Inc. (Nasdaq: TWGP) had in the third quarter of 2007.

The secret behind Tower’s market-defying profitability amid the softening North American insurance landscape is its expert specialization in serving small segments of the market that are less competitive, yet still lucrative and offer a unique strategic reinsurance relationship (more on that later).

“The company has been very successful in identifying underserved markets where pricing competition is less severe, allowing them to write new business at a faster rate than the industry average,” KeyBanc Capital Markets analyst Elizabeth Malone told SmallCapInvestor.com. Tower’s bread and butter has always been writing low- to moderate-risk small-sized “main street” policies (think restaurants, small businesses, retail stores, modestly priced homes), but it is now beginning to offer an even wider range of products.

The $633 million insurer is still a fairly small fish in the property and casualty pond, competing directly with the likes of Erie Indemnity Co. (Nasdaq: ERIE) and The Allstate Corp. (NYSE: ALL). With the purchase of a book of renewal premiums here and a debt offering there, however, Tower has moved slowly but surely from its modest beginnings in 1989 along a profitably expansionary path. The 2007 acquisition of New Jersey-based Preserver Group Inc. and its 300 retail agents in particular has enabled meaningful growth into New England markets and has opened up a new opportunity to move into the auto insurance segment.

Put financial services and insurance together in a sentence and most people think of some of the nation's largest companies in the industry: Berkshire Hathaway Inc. (NYSE: BRKA), American International Group, Inc. (NYSE: AIG), MetLife Inc. (NYSE: MET), Allstate Corp. (NYSE: ALL) and The Hartford Financial Services Group, Inc. (NYSE: HIG). But one ever-growing small-cap is poised to make a name for itself.
 
Meet American Physicians Service Group, Inc. (Nasdaq: AMPH), an Austin, Texas-based $130 million company that not only provides brokerage and asset management services to individuals and institutions, but also provides insurance services including medical malpractice insurance. The insurance services segment provides financial management service to banks and insurance companies that provide liability insurance to doctors, while its financial services segment provides brokerage, asset management and investment advisory services to individuals and institutions.
 
Though the company has been around since 1974, American Physicians Service Group is not exactly a household name. But with a strong second quarter under its belt and glowing future prospects, that is bound to change. The company owes much of its recent success to smart management. The ambitious firm is expanding from its rather modest local roots thanks largely to a savvy acquisition. In April 2007, the company completed its acquisition of American Physicians Insurance Company (API), a firm whose operations it had managed since the mid-1970s. 
 
In the quarter ended June 30, APS increased both revenue and earnings, reporting a net income of $12 million, or $2.37 a share, compared with $598,000, or $0.21 a share, in the same quarter last year. Revenues more than tripled to $29 million, compared with $8 million over the same period in 2006. In addition, the company posted a gain of $2.3 million related to the API merger. 2007 EPS projections of $3.38 are more than 300% higher than 2006 results.
 
"This is our first quarter to report combined results with API . . . and those results have exceeded our expectations. Due to continued positive claims trends, we lowered claims reserves and related reinsurance reserves by $14.1 million in aggregate this quarter. However, we remain very conservatively reserved at the upper end of the actuarial range," Chairman Ken Shifrin said in a statement. "In addition to favorable development in reserves, our policyholder count continues to increase. During the twelve months ended June 30, 2007, our total policyholder count increased by 462 to 4,802. This is largely due to our favorable 90% retention rate in 2007. Though the market continues to be characterized by rate pressure, our profit margin remains strong due to continued favorable trends in the frequency of claims.”

Shifrin also said that American Physicians financial services segment has performed very well, with revenues up 46% for the first six months of 2007, compared with the same period last year, and pretax profits up an impressive 68% in that same time frame.
 
Wall Street has taken notice.