Insurance Stocks Pull Back Slightly

Insurance stocks pulled back Thursday, a move analysts said most likely came about because of the increasing likelihood that the Federal Reserve's aggressive rate-cutting campaign has come to an end.

AIG (AIG Quote) was off 1.8% to $74.75, Chubb (CB Quote) was lower by 0.8% to $73.99, AllState (ALL Quote) fell 2.2% to $35.93, and Cigna (CI Quote) was behind by 0.9% to $96.25.

AXA (AXA Quote) dropped 1.3% to $20.58, Allmerica Financial (AFC Quote) lost 1.6% to $43.99, Marsh & McLennan (MMC Quote) fell 1.6% to $108.69, and Progressive (PGR Quote) and St. Paul lost almost 3%.

"Quite possibly, the group is moving lower because interest rates are more likely to go up than down," said Bob Basel, a trader at Salomon Smith Barney. "That doesn't bode well for insurance stocks."

The reason, said Tony Crescenzi, bond market strategist at Miller Tabak, is that the balance sheets of insurance companies include corporate bonds. "The value of those assets might decline, with a drop in bond prices," he said.

According to the latest Federal Reserve data, life insurance companies held $1.34 trillion in corporate bonds in the fourth quarter, while the total of their equity holdings was $819 billion.

In testimony Thursday, Fed chair Alan Greenspan acknowledged an economic turnaround has begun. "The recent evidence increasingly suggests that an expansion is already well under way," Greenspan said.

Following the speech, U.S. Treasuries headed lower as investors began to worry the Fed may hike interest rates later in the year. The 10-year note was recently off 1 1/32 to 97 20/32.

Over the past few days, financial stocks have led the market higher, and some investors might have felt the time was right to collect some gains. "The group has been doing pretty well, so people are probably taking profits," Basel said.

The move could prove to be temporary, as analysts still tend to be bullish on insurance stocks over the near term. The stocks were of course hit in the marketwide selloff that followed the Sept. 11 terrorist attacks, but now many of the issues are closer to their 52-week highs than to their lows of the last year.