Life insurance stocks did not get the same boost as the rest of the financial sector when the Federal Open Market Committee trimmed 50 basis points from interest rates, but they did get their own nudge from Sandler O'Neill & Partners, which issued a report saying the entire sector is undervalued.

The American Banker index of top 225 banks, which had gained 5.25% by midday, closed at 1,005, up 3.87% from Tuesday's close. However, whether the index can sustain this level remains to be seen. It hit the 1,000 mark for the first time after the Fed's last surprise cut, on Jan. 3., but failed to hold. The index of top 50 banks climbed 3.88%, while the Standard & Poor's 500 index rose 3.89%, and the Nasdaq composite gained 8.13%.

Investment banking firms in particular got an enormous boost Wednesday. Merrill Lynch & Co shot up 9.32%, despite reporting just before the rate cut that its first-quarter earnings fell 21% from a year earlier. Morgan Stanley Dean Witter & Co. rose 13.68%.

Monoline credit card lenders also enjoyed particularly strong gains. Providian Financial Corp. shares rose 9.38%, MBNA Corp. jumped 8.29%, and Capital One Financial Corp. surged 13.03%.

Insurance companies did not get quite the same boost from the Fed cut, but Sandler analyst Nick Pirsos said the sector is undervalued and has suffered from uncertain near-term earnings and the continued weakness of the equity markets.

The sector has come a long way, Mr. Pirsos said. Asset quality has improved, product lines and distribution have diversified, earnings should stabilize in the second half, and public scrutiny of the traded insurers should drive returns higher, he stated.

Mr. Pirsos said he expects the sector to diversify. On Wednesday he initiated coverage of John Hancock Financial Services with a "buy," Sandler's strongest rating, and Mony Group Inc. with "outperform."

Both companies have successfully expanded their product lines and distribution, Mr. Pirsos said. He expects John Hancock's per-share earnings to increase 10% this year, to $2.60, and 13% next year, to $2.95.

It could also become a takeover candidate next year; the company's demutualization plan precludes mergers until then, he said.

John Hancock shares rose 0.29% Wednesday, and Mony Group climbed 1.73%.

Consolidation will continue within the insurance industry, as well as between insurance and banking companies, he said. "We are in the early stages of cross-industry conversion."

Everybody wants to see whether Citigroup Inc., which was formed in 1998 when Citicorp merged with Travelers Corp., will succeed or fail in the long run, he said.

However, Adwin Walczak, who manages the Vontobel U.S. Value Fund for Vontobel USA Inc., said that takeover premiums are largely priced into the stocks, since talk about consolidation has been ongoing on for years. He said he favors investment opportunities in property and casualty stocks.

Michelle A. Girodano of J.P. Morgan Securities wrote in an industry report last month that "companies with a significant portion of earnings from traditional life insurance products will find it increasingly difficult to generate meaningful bottom-line earnings growth."

But Mr. Pirsos predicted that within five or ten years, all life insurers will offer broad financial services, including mutual fund products and money market sweep accounts.

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