Insurance stocks have extended their gains, with the State Street Insurance ETF (KIE) reaching an all-time high in July. This rally is driven by strong underwriting trends, lower catastrophe losses, and rising investment income. Companies like Travelers, Chubb, and Aflac are leading the sector, benefiting from improved profitability and capital returns. The broader market is seeing a rotation of capital out of the tech sector, which is grappling with an AI sell-off, and into more stable areas like financials and insurance.
Travelers, for example, saw its stock climb almost 8% to a new all-time high after reporting second-quarter core earnings per share of $10.04, significantly exceeding the consensus estimate of $5.39. The company's net income reached $2.2 billion, and its return on equity was 24.9%. Catastrophe losses fell to $518 million from $927 million a year earlier, and investment income rose 14% year-over-year. Management attributed about half a point of the improvement in its Business Insurance underlying loss ratio to AI-driven claims processing, and its digital underwriting platform, Travis, now extracts data and generates quotes in seconds. Travelers also returned capital aggressively, repurchasing $1.31 billion in stock and paying $266 million in dividends, with $3.9 billion remaining under its repurchase authorization.
Chubb also reported strong results, with first-quarter operating earnings per share up 85% to $6.82. Net premiums written increased 10.7% to $14 billion, and its invested asset base reached a record $173 billion, benefiting from higher reinvestment rates. Aflac, another key player, saw first-quarter sales in Japan grow 25.5% on the back of three new products and maintained a 43-year streak of dividend increases, returning $1.3 billion through buybacks and dividends. The State Street Insurance ETF (KIE) has none of its constituents below their 50-day moving average, with 85% of holdings above their 200-day average, indicating broad sector strength.
The shift into insurance and other financial sectors comes as the technology and semiconductor sectors face a significant sell-off, with the Nasdaq 100 heading towards a technical correction and the Philadelphia Semiconductor Sector index falling around 4.5%. Investors are rotating capital away from crowded AI consensus plays due to reassessments of rising competition and future demand, as well as uncertainty surrounding Federal Reserve policy and potential interest rate hikes. Lower oil prices, with Brent crude sinking 5% and West Texas Intermediate down 3.8% to $79.46 per barrel, have also eased inflation worries, making traditional financials more attractive.
