Hedging Your Portfolio Through Insurance Stocks (AIG, HIG, AGO, HCC)
In general terms, what we understand that insurance companies are the most reliable and stable one, but this is not the case. If we remember, the recent Midwestern tornadoes shaken the insurance companies as they needed to pay for damages. Now summer hurricane season is on the way, now it’s the time to rattle your portfolio, before we see another storm.
Insurance companies get a secure flow of premium income, and hold the money, sometimes for years, until it finally is paid out as losses. In the meantime, investment returns add up.
On Thursday the U.S. government announced its plans to divest its holding in American International Group, Inc. (NYSE:AIG), expected to fetch around $6 billion in their kitty. AIG will buy back $3 billion of shares in the secondary offering, offsetting the overhang that would be created by the sale of the government stake.
Analysts had been projecting another share sale by the Treasury, with the share price approaching $29, higher than Uncle Sam’s break-even point of $28.73, and with the management also expressing interest in buying back stock.
AIG is all set to repay the government’s remaining $8.5 billion preferred stake, which will be partly contributed from the proceeds of the AIA public offering.
Importantly, even after the repayment, AIG will still owe $41. 8 billion to the government, which will continue to hold a majority (70%) stake in the company.
As per reports from Wall Street Journal report, bankers are negotiating an offer price of $29 a share and the offer is expected to be completed and priced on Thursday morning.
AIG’s last secondary offering did not go smoothly and CEO Robert Benmosche blamed investment bankers for doing a poor job in drumming up investor demand.
Shares of AIG slumped 4% after the news and ended at $28.31.
Hartford Financial Services (NYSE:HIG) is another stock which is getting traction as it closed above 200 day moving average of $19.80. The stock closed higher by 2.21% at $19.92 on Thursday.
Other insurance stocks to watch include, Assured Guaranty Ltd. (NYSE:AGO) ended 2.34% at $17.07 and HCC Insurance Holdings, Inc. (NYSE:HCC) surged 0.46% at $30.60 on Thursday.