07/01/96 INSURANCE GETS SEXY

INSURANCE GETS SEXY
The stodgy business is rife with hot IPOs
APAC Teleservices Inc., whose sales have doubled in the past three years, went public last year at a price of 16, then soared to 88 before splitting 2 for 1 in May. SS&C Technologies Inc., whose revenues tripled in the past three years, initially filed in the 9-to-11 range but came out at 19. Riscorp Inc. also rolled out at 19 and traded as high as 24, a heady 36 times expected 1996 earnings.
Are we talking about hot new Web browsers? Digital animators? Companies with innovative telecom linkages? Nope. These companies, believe it or not, are in insurance.
Given the industry's mediocre returns and growth rates, it may seem curious to see investors chasing these initial public offerings. ``The macro numbers in insurance are kind of blah,'' says John B. Clinton, senior vice-president at Conning & Co., a Hartford consulting and investment firm. Yet insurance is one of the few corners of the market where good values remain. Some $3.2 billion was raised in insurance IPOs in 1995, a figure likely to be surpassed this year.
It's slow growth among giants that makes small outfits look hot. Consider Riscorp, a Sarasota (Fla.) company that takes a managed-care approach to workers' compensation insurance. Its revenues have risen nearly tenfold, to $166 million, since 1990, and analysts think profits will grow at a 30% annual rate for the next five years. Following a pattern common among IPOs, Riscorp has slipped below its offering price. Now at 16 1/4, or 24 times 1996 earnings, it's cheap if its forecast growth rate holds up.
Also seemingly cheap is IPC Holdings, a Bermuda reinsurer. It's a startup but with a big investor: American International Group Inc. has a 25% stake. Reinsurance companies, which help underwrite other insurers' risks, have boomed in recent years because of the natural catastrophes that have drained the reserves of many primary carriers. Now at 20 3/8, IPC is 10% below its IPO price and sells for a rock-bottom six times expected 1996 earnings.
UMBRELLA DEAL. Not all the action is in small companies. The IPO boom is also fueled by industry restructuring, which is creating a leaner breed of big companies. So far, the year's biggest insurance IPO was the April offering of a 10% stake in Travelers/Aetna. The new property-casualty insurer took shape last year, when Travelers Group Inc. acquired Aetna Life & Casualty Co.'s P&C unit for $4 billion. Travelers/Aetna, which went public at 25 and raised $886 million, now trades at 26 5/8. Another big outfit with a deal in the works is AXA. The French insurer expects to raise $200 million on the hot U.S. stock market with an offering of American depositary receipts.
Some of the best IPOs provide services to the industry. APAC Teleservices, a telemarketing company, gets a good chunk of its revenues from insurance carriers that hire it to do cold calling. SS&C Technologies sells investment-management software to leading insurers.
Still, Allan W. Fulkerson, who manages Century Shares Trust, a mutual fund specializing in insurance stocks, advises caution in playing the insurance IPOs. ``I'd just as soon let the euphoria die down,'' he says. With more IPOs and industry restructurings in the pipeline, investors can afford to be choosy.
By Tim Smart in Hartford