US insurance stocks are experiencing a significant rally, positioning themselves as a safe haven amidst a broader market shift away from the high-flying AI sector. This rotation is driven by investor concerns regarding excessive capital expenditure and spending by AI companies, which are feared to eat into returns. Analysts like Kyle Rodda from Capital.com and Hebe Chen from Vantage Global Prime highlight that doubts about spending, returns, and valuations in the AI sector are deepening, leading investors to seek more stable alternatives. This trend is exemplified by a 2.8% fall in the XLK (technology ETF) while the XLF (financials ETF) gained 1.5% as investors moved into financials ahead of a crucial Federal Reserve policy announcement.
Travelers, a key player in the insurance sector, reported exceptional second-quarter earnings, exceeding consensus estimates. The company posted core earnings per share of $10.04, significantly higher than the $5.39 consensus, and recorded a net income of $2.2 billion. This strong performance, partly attributed to AI-driven claims processing and a digital underwriting platform, led to an almost 8% surge in its stock to an all-time high. Travelers also aggressively returned capital to shareholders, repurchasing $1.31 billion in stock and paying $266 million in dividends, with $3.9 billion remaining under its repurchase authorization.
Broader insurance sector strength is evident, with the State Street Insurance ETF (KIE) reaching all-time highs in July. Other insurers like Chubb and Aflac also reported robust results. Chubb saw an 85% increase in first-quarter operating earnings per share to $6.82, with net premiums written growing by 10.7% to $14 billion, and its invested asset base hitting a record $173 billion. Aflac's first-quarter sales in Japan grew by 25.5%, and the company returned $1.3 billion through buybacks and dividends. The improving outlook for the financial sector is further supported by lower oil prices and contained credit stress, reducing inflation fears and allowing capital to rotate outside traditional tech leadership. Underwriting profits are benefiting from better pricing, reinsurance arrangements, and accelerated digitalization, which is curbing costs and aiding margins, despite an estimated $24 billion in global insured catastrophe losses for the quarter.
