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Insurance Industry Gains 17% YTD: 6 Picks for Better Returns
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Though the pandemic is still weighing on the performance of insurers, banking on its core strength, the Insurance industry has outperformed the broader market year to date. While the insurance industry has rallied 17.3%, the Zacks S&P 500 composite and the Zacks Finance sector have increased 10.1% and 16.8%, respectively.
Better pricing, prudent underwriting, increased adoption of technology, increased exposure, redesigning and repricing of products and services, and solid capital position should continue to drive the industry. Streamlining operations, diversifying business and expanding global presence should add to the upside. In a year’s time, the industry’s earnings estimate for the current year has gone up 2.5%.
In its March FOMC meeting, the central bank was upbeat about its economic projections. The U.S. economy is projected to grow 6.5% in 2021, up from the December projection of 4.2%. Unemployment rate is expected to improve to 4.5% from 5% projected in December 2020. In its April FOMC meeting, the Federal Reserve pointed out that ‘Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened.’
A low interest rate environment weighs on investment results. Life insurers and long-tail Property and Casualty insurance insurers suffer more than non- life insurers, given their rate-sensitive products and investments. Life insurers are refraining from selling long duration term life insurance and moving away from guaranteed savings products toward protection products of unit-linked savings products. Also, a higher invested asset base and alternative investments are limiting downside.
Non-life insurance insurers should continue to benefit from exposure growth, better pricing, prudent underwriting and favorable reserve development. Per Willis Towers Watson’s 2021 Insurance Marketplace Realities report, except for one, 29 lines of business are expected to witness price rise this year. Workers’ compensation might experience flat pricing in 2021. However, higher claims due to the pandemic could put improve pricing.
Insurers are increasingly adopting technologies like artificial intelligence, robotic process automation, cognitive intelligence, advanced analytics, telematics, blockchain and cloud computing. This helps in managing costs and margin expansion.
The Zacks Insurance industry is currently undervalued compared with the Zacks S&P 500 composite as well as the Zacks Finance sector. The price-to-book (P/B) ratio, the best multiple for valuing insurers because of their unpredictable financial results, is 2.3, less than the Zacks S&P 500 composite’s P/B of 6.8 and the sector’s P/B of 3.6. Such below-market positioning hints at room for upside in the coming quarters.
Before their valuation increases, it is wise to add some undervalued stocks with growth potential to one’s portfolio.
Insurers Poised to Offer Solid Returns
With the help of the Zacks Stock Screener, we have selected six insurance stocks that are well poised for growth riding on operational strength. These Buy-ranked stocks have outperformed the insurance industry’s increase year to date and witnessed upward estimate revisions in the past four weeks.
Cincinnati Financial Corporation (CINF - Free Report) markets property and casualty insurance. Shares of this Zacks Rank #2 (Buy) insurer have gained 36.9% year to date. The Zacks Consensus Estimate for 2021 and 2022 has moved 3.6% and 9.3% north, respectively in the past four weeks. Strong performance at Commercial Lines segment, expansion of Cincinnati Re, agent-centered business model, rate increases, consistent cash flow generation, and favorable reserve release poise this insurer well.
W.R. Berkley Corp. (WRB - Free Report) is one of the nation’s largest commercial lines property casualty insurance providers. The Zacks Consensus Estimate for 2021 and 2022 earnings has moved up 9.7% each in the past four weeks. This Zacks Rank #1 insurer has gained 18.6% year to date. Increasing contribution from Insurance business, expanding international business, rate increases, and reserve discipline poise it well for growth.
Berkshire Hathaway (BRK.B - Free Report) : 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 #2. The expected long-term earnings growth rate is 7%.
American Financial Group (AFG - Free Report) engages primarily in property and casualty insurance, with focus on specialized commercial products for businesses. Shares of the company have gained 48.4% year to date. The Zacks Consensus Estimate for 2021 and 2022 has moved up 10.7% and 1.7%, respectively in the past four weeks. Consistent price increase in property and casualty business, small-to-medium sized acquisitions, and product launches and effective capital deployment poise this Zacks Rank #2 insurer well.
HCI Group (HCI - Free Report) engages in the property and casualty insurance, reinsurance, real estate, and information technology businesses in Florida. This Zacks Rank #1 insurer has gained 46.9% year to date. The Zacks Consensus Estimate for 2021 and 2022 earnings has moved up 6.7% and 2.7%, respectively in the last four weeks. Expanding product mix, geographic expansion, building on an InsurTech platform, additional operations in technology, real estate and reinsurance poise it well for growth.
Employers Holdings (EIG - Free Report) : This Reno, NV-based provider of workers' compensation insurance to small businesses in low-to-medium hazard industries carries a Zacks Rank #2 and has gained 29.3% year to date. The company should continue to benefit from solid presence in attractive markets and prudent underwriting. The Zacks Consensus Estimate for 2021 and 2022 has moved up 10.7% and 6.9%, respectively in the past four weeks.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.
Image: Bigstock
Insurance Industry Gains 17% YTD: 6 Picks for Better Returns
Though the pandemic is still weighing on the performance of insurers, banking on its core strength, the Insurance industry has outperformed the broader market year to date. While the insurance industry has rallied 17.3%, the Zacks S&P 500 composite and the Zacks Finance sector have increased 10.1% and 16.8%, respectively.
Better pricing, prudent underwriting, increased adoption of technology, increased exposure, redesigning and repricing of products and services, and solid capital position should continue to drive the industry. Streamlining operations, diversifying business and expanding global presence should add to the upside. In a year’s time, the industry’s earnings estimate for the current year has gone up 2.5%.
In its March FOMC meeting, the central bank was upbeat about its economic projections. The U.S. economy is projected to grow 6.5% in 2021, up from the December projection of 4.2%. Unemployment rate is expected to improve to 4.5% from 5% projected in December 2020. In its April FOMC meeting, the Federal Reserve pointed out that ‘Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened.’
A low interest rate environment weighs on investment results. Life insurers and long-tail Property and Casualty insurance insurers suffer more than non- life insurers, given their rate-sensitive products and investments. Life insurers are refraining from selling long duration term life insurance and moving away from guaranteed savings products toward protection products of unit-linked savings products. Also, a higher invested asset base and alternative investments are limiting downside.
Non-life insurance insurers should continue to benefit from exposure growth, better pricing, prudent underwriting and favorable reserve development. Per Willis Towers Watson’s 2021 Insurance Marketplace Realities report, except for one, 29 lines of business are expected to witness price rise this year. Workers’ compensation might experience flat pricing in 2021. However, higher claims due to the pandemic could put improve pricing.
Insurers are increasingly adopting technologies like artificial intelligence, robotic process automation, cognitive intelligence, advanced analytics, telematics, blockchain and cloud computing. This helps in managing costs and margin expansion.
The Zacks Insurance industry is currently undervalued compared with the Zacks S&P 500 composite as well as the Zacks Finance sector. The price-to-book (P/B) ratio, the best multiple for valuing insurers because of their unpredictable financial results, is 2.3, less than the Zacks S&P 500 composite’s P/B of 6.8 and the sector’s P/B of 3.6. Such below-market positioning hints at room for upside in the coming quarters.
Before their valuation increases, it is wise to add some undervalued stocks with growth potential to one’s portfolio.
Insurers Poised to Offer Solid Returns
With the help of the Zacks Stock Screener, we have selected six insurance stocks that are well poised for growth riding on operational strength. These Buy-ranked stocks have outperformed the insurance industry’s increase year to date and witnessed upward estimate revisions in the past four weeks.
Cincinnati Financial Corporation (CINF - Free Report) markets property and casualty insurance. Shares of this Zacks Rank #2 (Buy) insurer have gained 36.9% year to date. The Zacks Consensus Estimate for 2021 and 2022 has moved 3.6% and 9.3% north, respectively in the past four weeks. Strong performance at Commercial Lines segment, expansion of Cincinnati Re, agent-centered business model, rate increases, consistent cash flow generation, and favorable reserve release poise this insurer well.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
W.R. Berkley Corp. (WRB - Free Report) is one of the nation’s largest commercial lines property casualty insurance providers. The Zacks Consensus Estimate for 2021 and 2022 earnings has moved up 9.7% each in the past four weeks. This Zacks Rank #1 insurer has gained 18.6% year to date. Increasing contribution from Insurance business, expanding international business, rate increases, and reserve discipline poise it well for growth.
Berkshire Hathaway (BRK.B - Free Report) : 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 #2. The expected long-term earnings growth rate is 7%.
American Financial Group (AFG - Free Report) engages primarily in property and casualty insurance, with focus on specialized commercial products for businesses. Shares of the company have gained 48.4% year to date. The Zacks Consensus Estimate for 2021 and 2022 has moved up 10.7% and 1.7%, respectively in the past four weeks. Consistent price increase in property and casualty business, small-to-medium sized acquisitions, and product launches and effective capital deployment poise this Zacks Rank #2 insurer well.
HCI Group (HCI - Free Report) engages in the property and casualty insurance, reinsurance, real estate, and information technology businesses in Florida. This Zacks Rank #1 insurer has gained 46.9% year to date. The Zacks Consensus Estimate for 2021 and 2022 earnings has moved up 6.7% and 2.7%, respectively in the last four weeks. Expanding product mix, geographic expansion, building on an InsurTech platform, additional operations in technology, real estate and reinsurance poise it well for growth.
Employers Holdings (EIG - Free Report) : This Reno, NV-based provider of workers' compensation insurance to small businesses in low-to-medium hazard industries carries a Zacks Rank #2 and has gained 29.3% year to date. The company should continue to benefit from solid presence in attractive markets and prudent underwriting. The Zacks Consensus Estimate for 2021 and 2022 has moved up 10.7% and 6.9%, respectively in the past four weeks.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.
Click here for the 4 trades >>