Pro Perspectives 4/9/24





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April 09, 2024

We get the March inflation report tomorrow.
As you can see in the chart below, the yearly change on the headline inflation has stalled, and has hovered above the 3% level since last summer.  The consensus view is that this leveling-off continued in March (orange dotted line). 
With that, let's revisit the insurance component we've been discussing the past few months, which has been a key contributor to the stall in the disinflation.  In fact, Jerome Powell has said rising insurance prices have "added meaningfully to inflation."
As we've discussed, the insurance industry has dramatically increased premiums over the past two years.  That's in response to the dramatic rise in asset values.  But this is a lagging feature of a hot inflation period.  
The question is:  When will the reset in the price of insurance catch up with the reset that has taken place in the prices of the underlying assets? 
If we look at Q1 earnings expectations in the insurance industry, it doesn't appear that the price hikes are over yet. 
FactSet expects the insurance industry to report 37% year-over-year earnings growth for Q1.  That follows better than 50% earnings growth in Q4 (which nearly doubled Wall Street expectations).
That said, as we head into tomorrow's number, the insurance stocks were down big today, in a stock market (S&P 500) that finished slightly UP.  Was that a signal?
Hartford was down 3.8%.  AIG, down 3%.  Travelers, down 3%.  Progressive, down 2.7%.  Allstate down 2.3%.  Aflac, down 2.3%.
Here's what the chart of Allstate looks like (with a hook at the end) …
This is a chart consistent across the industry, driven by aggressive price increases, lower losses, and the related record margin expansion.  An analyst asked the Hartford CEO in the Q4 earnings call, are these peak margins?  Translation:  Has the power to push through price increases exhausted?