These are not ordinary times. The COVID-19 pandemic has impacted all market sectors. The insurance sector did not escape the ensuing turbulence.
The shifts in insurance sector stock prices provide a key lesson for observers: that market sentiment is a major factor in moving prices for all sectors.
Consider, for example, how the insurance sector experienced the COVID-19 crises.
Fear and Relief
At first, several fears emerged. In particular, there were fears of business Interruption; increased litigation claims; and reduction in demand for insurance. Let's not forget to add the increased volatility and general economic uncertainty that emerged. Here's how one property and casualty (P&C) insurer, RLI, characterized the possible impact of COVID-19:
Certain risks and uncertainties are inherent to our day-to-day operations. Adverse changes in the economy could lower demand for our insurance products or negatively impact our investment results, both of which could have an adverse effect on the revenue and profitability of our operations. The COVID-19 pandemic may continue to result in significant disruptions in economic activity and financial markets. The cumulative effects of any public health outbreak could reduce demand for our insurance policies, result in increased level of losses, settlement expenses or other operating costs, reduce the market value of invested assets held by the Company or negatively impact the fair value of our goodwill.
Many of these initial fears, however justified, were mitigated and offset, indicating that COVID-19 was not totally negative in its financial impact.
More recently, according to the COVID Coverage Litigation Tracker, liability fears at P&C insurers have receded as courts have ruled that. unless there were actually physical losses, COVID-19 losses were not covered under current disaster loss policies.
In some cases, reduced economic activity benefited insurance companies.
Here' s what Dan Frey, the chief financial officer at another P&C insurer, Travelers Companies, said during an earnings call:
More than offsetting those losses were lower levels of auto claims and to a lesser extent, fewer non-COVID workers' comp and [general liability] claims due to lower levels of economic activity. The net impact of the COVID environment on the consolidated underlying combined ratio amounted to a benefit of about 2 points, mostly in personal insurance.
Of course, these examples involves P&C issuers, not life, health and annuity issuers, but the same principles apply to how sentiment can affect the stocks of publicly traded life, health and annuity issuers.
The Great Expectation Engine
Caught in the grip of pandemic uncertainty, asset managers and investment specialists are challenged to separate the signal from the noise.
The stock market is the great expectation engine, always processing emotions. It digests negative and positive sentiments, as well as any offsetting factors. It dynamically converts sentiments into price action.
(Chart: Abe Cofnas/Stocksnips.net) 
