Standouts: ING Canada Inc.

Property and casualty insurance giant ING Canada was a darling of investment managers through 2005 and into 2006. The stock rose from less than $30 to a high of just over $60 early last year. Since then, however, the price has languished and, in fact, registered a drop of more than 10% on our Investor 500 list. What's going on?

“Everyone is asking me that,” says Stephen Boland, an analyst with CIBC World Markets. In February, ING announced its third straight quarterly loss; net income in the fourth quarter declined to $109.4 million from $196.9 million, a 44% drop. Revenue was also off, falling 1.4% to just under $1.1 billion, and the general sell-off of the stock continued.

Blame it on a highly competitive, cyclical market. Conditions were good in the P&C market over the past couple years, and companies made strong profits. But competitive pricing pressure has reasserted itself. “The market is very tough,” says Boland. “It's very competitive. That's led to the contraction in profits.” ING may be taking a bit more of a hit than other P&C insurers. It has $1 billion in cash on the books, and president Claude Dussault talked freely about making acquisitions. As a result, a bit of a premium was built into the stock. But apparently, possible acquisition targets were too pricey and ING's cash has stayed on its books. As the P&C cycle grinds away, that premium is set to come off. “Industry-wide, profits were good for the past couple of years, but ING in particular built up a bit of excess capital and a premium was built in. That looks to be fading now,” says Boland.

Though his outlook on financial services as a whole is still positive — “When markets are good, financial services do well” — Boland doesn't expect ING stock to recover in the short term. “I don't think we're going to see an improvement in the P&C market for 18 months,” he says.