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7 Property & Casualty Insurers to Watch Amid an Active Hurricane Season
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The Zacks Property and Casualty Insurance (P&C) industry is likely to benefit from better pricing, prudent underwriting and exposure growth. Industry players like Berkshire Hathaway (BRK.B - Free Report) , Allstate Corporation (ALL - Free Report) , Chubb Limited (CB - Free Report) , W.R. Berkley Corporation (WRB - Free Report) , Cincinnati Financial Corporation (CINF - Free Report) , Everest Re Group and Fidelity National Financial (FNF - Free Report) are poised to grow despite a rise in catastrophes. Given a very active hurricane season, policy renewal rate should accelerate, apart from rate firming up. This apart, increasing adoption of technology and emergence of insurtech will help in smooth functioning of the industry players. Though pandemic-related uncertainties weigh on merger and acquisition (M&A) activities, a low rate environment, improvement in surplus, and reopening of economic activities should set the stage for a better M&A environment this year.
About the Industry
The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property, and casualty insurance products and services. Such insurance coverage helps to safeguard property in case of any natural or man-made disaster. Liability coverages are also provided by some industry players. Insurance coverages offered by the companies also include automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, and professional indemnity and surety. Premiums are the primary source of revenues for these insurers. These companies invest a portion of premiums collected to meet their commitments to policyholders. Thus, a low rate environment is a concern for P&C insurers (especially for long-tail insurance providers).
4 Trends Shaping the Future of Property and Casualty Insurance Industry
Improved pricing to help navigate claims payment: Catastrophes are a concern for insurers due to the high degree of losses incurred. They implement price hikes to ensure uninterrupted claims payment. Per Marsh, global commercial insurance prices in first-quarter 2021 increased 18% — marking the 14th straight quarter of price increase. According to Willis Towers Watson’s 2021 Insurance Marketplace Realities report, except for one, 29 lines of business are expected to witness price rise this year. Better pricing will help insurers address claims payment.
Catastrophe loss weighing on underwriting profitability: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profit. Per Colorado State University (CSU), 2021 is likely to witness above-average hurricane season that may have 17 named storms, including eight hurricanes and four major hurricanes. This year’s hurricane season could be about 140% of average season per CSU. Exposure growth, better pricing, prudent underwriting and favorable reserve development will help withstand the blow. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
Merger and acquisitions: Consolidation in the property and casualty industry is likely to continue as players look to diversify their operations into new business lines and geography. Buying businesses in the same lines will also continue as players look to gain market share and grow in their niche areas. Per Willis Towers Watson report, deal volume has declined considerably in 2020 due to the uncertainty surrounding the pandemic. Nonetheless, things are looking up in 2021 with the reopening of the economy, optimistic growth outlook, sturdy capital level and a low rate environment (helping in borrowing funds at low coupon rate). Rob Kindler, Global Head of M&A at Morgan Stanley said, “All the elements are there for an active M&A market in 2021, from corporations looking for scale and growth to private equity firms and SPACs looking to invest capital.”
Increased adoption of technology: The industry is witnessing increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation that expedite business operations and save cost. The industry has also witnessed the emergence of insurtech — technology-led insurers — creating competition for incumbent players. The focus of insurtech is mainly on the property and casualty insurance industry. Adoption of technologies has helped in seamless underwriting and claims processing during the pandemic that has led to social distancing norms. As insurtechs use the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains huge market risk.
Zacks Industry Rank Indicates Dull Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak prospects in the near term. The Zacks Property and Casualty Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #173, which places it in the bottom 31% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 31% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate.
Before we present a few property and casualty stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 but Lags Sector
The Property and Casualty Insurance industry has outperformed the Zacks S&P 500 composite over the past year but underperformed its own sector. The stocks in this industry have collectively gained 41.4% in the past year compared with the Finance sector’s increase of 46.9% and the Zacks S&P 500 composite’s rise of 40.4%.
One-Year Price Performance
Current Valuation
On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.35X compared with the S&P 500’s 7.12X and the sector’s 3.35X.
Over the past five years, the industry has traded as high as 1.71X, as low as 0.97X and at the median of 1.48X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
7 Property and Casualty Insurance Stocks to Keep an Eye on
Cincinnati Financial: Fairfield, OH- based Cincinnati Financial markets property and casualty insurance. This Zacks Rank #2 company should continue to grow given disciplined expansion of Cincinnati Re, agent-focused business model, and strong performance at Commercial Lines segment. Estimates for its 2021 bottom line have jumped over the past 60 days by 5.4% and suggest 30.8% increase from the year-ago reported number.
Price and Consensus: CINF
The Allstate Corporation: Based in Northbrook, IL, it is the third-largest property-casualty insurer and the largest publicly-held personal lines carrier in the United States. It also provides a range of life insurance and investment products. Allstate is poised to grow on the back of its solid property and liability segment. It carries a Zacks Rank #2. Estimates for its 2021 bottom line have climbed 24.8% over the past 60 days and suggest 6.2% increase from the year-ago reported number. The expected long-term earnings growth rate is 7.5%.
Price and Consensus: ALL
Fidelity National Financial: Jacksonville, FL based Fidelity National Financial provides various insurance products in the United States. Estimates for its 2021 bottom line have jumped over the past 60 days by 9.2%, and suggest 2.4% increase from the year-ago reported number. Its leading market share in the residential purchase, refinance, and commercial markets, efforts to diversify from core title insurance business, industry-leading margins, and solid capital position bode well for growth of this Zacks Rank #2 company.
Price and Consensus: FNF
Berkshire Hathaway: Omaha, NE-based Berkshire is a holding company, which owns more than 90 subsidiaries in insurance, rail roads, utilities, manufacturing services, retail and home building. The company is expected to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments and strategic acquisitions. It carries a Zacks Rank #3. Estimates for its 2021 bottom line have jumped over the past 60 days by 5.3%, and suggest 22.5% increase from the year-ago reported number. The expected long-term earnings growth rate is 7%.
Price and Consensus: BRK.B
Chubb: Based in Zurich, Switzerland, it is one of the world’s largest providers of P&C insurance and reinsurance. It has diversified through acquisitions into many specialty lines and also provides specialized insurance products. The company is poised to benefit from its focus on capitalizing on the potential of middle-market businesses, and strategic initiatives, which pave the way for long-term growth. It carries a Zacks Rank #3. The Zacks Consensus Estimate for 2021 indicates year-over-increase of 3.2% and moved 3.2% north in the last 60 days. The expected long-term earnings growth is 10%, better than the industry average of 9.7%.
Price and Consensus: CB
Everest Re Group: Based in Hamilton, Bermuda, this Zacks Rank #3 company writes property and casualty, reinsurance and insurance in the U.S, Bermuda and international markets. The company is poised for growth given its global presence, product diversification, capital adequacy and traditional risk management capabilities. Estimates for its 2021 bottom line have jumped over the past 60 days by 10.4%, and suggest about 244% surge from the year-ago reported number.
Price and Consensus: RE
W.R. Berkley: Greenwich, CT. based W.R. Berkley is one of the nation’s largest commercial lines property casualty insurance providers benefiting from its insurance business. This Zacks Rank #3 insurer should continue to benefit from its well performing insurance business. Rate increases, reserving discipline, and growing premiums from international business, mainly supported by the emerging markets of the United Kingdom, Continental Europe, South America, Canada, Scandinavia, Asia and Australia bode well. The Zacks Consensus Estimate for 2021 indicates a year-over-increase of 71.6%. The expected long-term earnings growth rate is 10%,
Price and Consensus: WRB
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7 Property & Casualty Insurers to Watch Amid an Active Hurricane Season
The Zacks Property and Casualty Insurance (P&C) industry is likely to benefit from better pricing, prudent underwriting and exposure growth. Industry players like Berkshire Hathaway (BRK.B - Free Report) , Allstate Corporation (ALL - Free Report) , Chubb Limited (CB - Free Report) , W.R. Berkley Corporation (WRB - Free Report) , Cincinnati Financial Corporation (CINF - Free Report) , Everest Re Group and Fidelity National Financial (FNF - Free Report) are poised to grow despite a rise in catastrophes. Given a very active hurricane season, policy renewal rate should accelerate, apart from rate firming up. This apart, increasing adoption of technology and emergence of insurtech will help in smooth functioning of the industry players. Though pandemic-related uncertainties weigh on merger and acquisition (M&A) activities, a low rate environment, improvement in surplus, and reopening of economic activities should set the stage for a better M&A environment this year.
About the Industry
The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property, and casualty insurance products and services. Such insurance coverage helps to safeguard property in case of any natural or man-made disaster. Liability coverages are also provided by some industry players. Insurance coverages offered by the companies also include automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, and professional indemnity and surety. Premiums are the primary source of revenues for these insurers. These companies invest a portion of premiums collected to meet their commitments to policyholders. Thus, a low rate environment is a concern for P&C insurers (especially for long-tail insurance providers).
4 Trends Shaping the Future of Property and Casualty Insurance Industry
Improved pricing to help navigate claims payment: Catastrophes are a concern for insurers due to the high degree of losses incurred. They implement price hikes to ensure uninterrupted claims payment. Per Marsh, global commercial insurance prices in first-quarter 2021 increased 18% — marking the 14th straight quarter of price increase. According to Willis Towers Watson’s 2021 Insurance Marketplace Realities report, except for one, 29 lines of business are expected to witness price rise this year. Better pricing will help insurers address claims payment.
Catastrophe loss weighing on underwriting profitability: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profit. Per Colorado State University (CSU), 2021 is likely to witness above-average hurricane season that may have 17 named storms, including eight hurricanes and four major hurricanes. This year’s hurricane season could be about 140% of average season per CSU. Exposure growth, better pricing, prudent underwriting and favorable reserve development will help withstand the blow. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
Merger and acquisitions: Consolidation in the property and casualty industry is likely to continue as players look to diversify their operations into new business lines and geography. Buying businesses in the same lines will also continue as players look to gain market share and grow in their niche areas. Per Willis Towers Watson report, deal volume has declined considerably in 2020 due to the uncertainty surrounding the pandemic. Nonetheless, things are looking up in 2021 with the reopening of the economy, optimistic growth outlook, sturdy capital level and a low rate environment (helping in borrowing funds at low coupon rate). Rob Kindler, Global Head of M&A at Morgan Stanley said, “All the elements are there for an active M&A market in 2021, from corporations looking for scale and growth to private equity firms and SPACs looking to invest capital.”
Increased adoption of technology: The industry is witnessing increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation that expedite business operations and save cost. The industry has also witnessed the emergence of insurtech — technology-led insurers — creating competition for incumbent players. The focus of insurtech is mainly on the property and casualty insurance industry. Adoption of technologies has helped in seamless underwriting and claims processing during the pandemic that has led to social distancing norms. As insurtechs use the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains huge market risk.
Zacks Industry Rank Indicates Dull Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak prospects in the near term. The Zacks Property and Casualty Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #173, which places it in the bottom 31% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 31% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate.
Before we present a few property and casualty stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 but Lags Sector
The Property and Casualty Insurance industry has outperformed the Zacks S&P 500 composite over the past year but underperformed its own sector. The stocks in this industry have collectively gained 41.4% in the past year compared with the Finance sector’s increase of 46.9% and the Zacks S&P 500 composite’s rise of 40.4%.
One-Year Price Performance
Current Valuation
On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.35X compared with the S&P 500’s 7.12X and the sector’s 3.35X.
Over the past five years, the industry has traded as high as 1.71X, as low as 0.97X and at the median of 1.48X.
Price-to-Book (P/B) Ratio (TTM)
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Price-to-Book (P/B) Ratio (TTM)
7 Property and Casualty Insurance Stocks to Keep an Eye on
We are recommending three Zacks Rank #2 (Buy) stocks from the P&C Insurance industry. We are also presenting four stocks with a Zacks Rank #3 (Hold) from the same industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cincinnati Financial: Fairfield, OH- based Cincinnati Financial markets property and casualty insurance. This Zacks Rank #2 company should continue to grow given disciplined expansion of Cincinnati Re, agent-focused business model, and strong performance at Commercial Lines segment. Estimates for its 2021 bottom line have jumped over the past 60 days by 5.4% and suggest 30.8% increase from the year-ago reported number.
Price and Consensus: CINF
The Allstate Corporation: Based in Northbrook, IL, it is the third-largest property-casualty insurer and the largest publicly-held personal lines carrier in the United States. It also provides a range of life insurance and investment products. Allstate is poised to grow on the back of its solid property and liability segment. It carries a Zacks Rank #2. Estimates for its 2021 bottom line have climbed 24.8% over the past 60 days and suggest 6.2% increase from the year-ago reported number. The expected long-term earnings growth rate is 7.5%.
Price and Consensus: ALL
Fidelity National Financial: Jacksonville, FL based Fidelity National Financial provides various insurance products in the United States. Estimates for its 2021 bottom line have jumped over the past 60 days by 9.2%, and suggest 2.4% increase from the year-ago reported number. Its leading market share in the residential purchase, refinance, and commercial markets, efforts to diversify from core title insurance business, industry-leading margins, and solid capital position bode well for growth of this Zacks Rank #2 company.
Price and Consensus: FNF
Berkshire Hathaway: Omaha, NE-based Berkshire is a holding company, which owns more than 90 subsidiaries in insurance, rail roads, utilities, manufacturing services, retail and home building. The company is expected to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments and strategic acquisitions. It carries a Zacks Rank #3. Estimates for its 2021 bottom line have jumped over the past 60 days by 5.3%, and suggest 22.5% increase from the year-ago reported number. The expected long-term earnings growth rate is 7%.
Price and Consensus: BRK.B
Chubb: Based in Zurich, Switzerland, it is one of the world’s largest providers of P&C insurance and reinsurance. It has diversified through acquisitions into many specialty lines and also provides specialized insurance products. The company is poised to benefit from its focus on capitalizing on the potential of middle-market businesses, and strategic initiatives, which pave the way for long-term growth. It carries a Zacks Rank #3. The Zacks Consensus Estimate for 2021 indicates year-over-increase of 3.2% and moved 3.2% north in the last 60 days. The expected long-term earnings growth is 10%, better than the industry average of 9.7%.
Price and Consensus: CB
Everest Re Group: Based in Hamilton, Bermuda, this Zacks Rank #3 company writes property and casualty, reinsurance and insurance in the U.S, Bermuda and international markets. The company is poised for growth given its global presence, product diversification, capital adequacy and traditional risk management capabilities. Estimates for its 2021 bottom line have jumped over the past 60 days by 10.4%, and suggest about 244% surge from the year-ago reported number.
Price and Consensus: RE
W.R. Berkley:
Price and Consensus: WRB
+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities
In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.
Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.
Click here to download this report FREE >>