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The question with the employee benefits business is whether the sale of that sort of business is subject to the same problems as the brokerage of casualty business. Having worked in employee benefits at one point, it is possible for there to be some conflicts of interest in the sales process, but some companies explicitly avoided those practices, mainly because of the potential for violations of ERISA; the consequences of that would be very severe. Though New York Attorney General Eliot Spitzer said Friday that his investigations extend into health, life and auto insurance, the nature of the complaint would have to be different, unless he is dealing with cases where group sales go on -- that is, employee benefits and commercial auto. In individual sales, the agent is always an agent for the company, even when he is an independent agent. That doesn't mean that Spitzer can't bring a case, but it does mean that it would have to be a different sort of case. After my posts Thursday, a number of people pinged me, asking for names. Without saying whether you should buy or sell now, here are a few names that I am long: Personal lines: Allstate (ALL - commentary - Cramer's Take)
As longtime readers know, I'm not an aggressive trader; I tend to hold my positions a while. Also, my focus on strong balance sheets and conservative managements protects me in bad times. Thursday was worse for the insurance industry than the initial trading day after 9/11 was. It was a study in contrasts: my worst absolute performance day, and my best relative performance day ever in insurance stocks. Today is shaping up to be an echo of yesterday. Be ultra-careful.
At time of publication, Merkel and/or his fund was long StanCorp, Prudential, MetLife, Allstate, Assurant, Montpelier, PartnerRe and Old Republic, though positions may change at any time.David J. Merkel, CFA, FSA, is a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. Previously, he managed corporate bonds for Dwight Asset Management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Merkel cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send your comments to david.merkel@thestreet.com. Analyst Certification: All of the views expressed in the report accurately reflect the personal views of the research analyst about any and all of the subject securities or issuers. No part of the compensation of the research analyst named herein was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst in this report. Merkel is employed by Hovde Capital Advisors LLC (the "firm"), a registered investment advisor with its principal office located in Washington, D.C. The Firm and/or its affiliates have or may have a long or short position or holding in the securities, options on securities, or other related investments of the issuers mentioned herein.
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