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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, Allstate Corp, W.R. Berkley Corp, Cincinnati Financial Corp and Fidelity National Financial 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 an 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%.
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.
5 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 the 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.
The Allstate Corp.: 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%.
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.
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%.
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%.
+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 >>
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights: Berkshire Hathaway, Allstate Corp, W.R. Berkley Corp, Cincinnati Financial Corp and Fidelity National Financial
For Immediate Release
Chicago, IL – June 30, 2021 – Today, Zacks Equity Research discusses Insurance - Property & Casualty, including Berkshire Hathaway (BRK.B - Free Report) , The Allstate Corporation (ALL - Free Report) , W.R. Berkley Corporation (WRB - Free Report) , Cincinnati Financial Corporation (CINF - Free Report) and Fidelity National Financial, Inc. (FNF - Free Report) .
Link: https://www.zacks.com/commentary/1755518/7-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, Allstate Corp, W.R. Berkley Corp, Cincinnati Financial Corp and Fidelity National Financial 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 an 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%.
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.
5 Property and Casualty Insurance Stocks to Keep an Eye On
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 the 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.
The Allstate Corp.: 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%.
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.
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%.
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%.
+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 >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.