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Zacks Industry Outlook Highlights Berkshire Hathaway, Chubb, The Progressive, Fidelity National Financial and United Fire Group
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For Immediate Release
Chicago, IL – July 18, 2022 – Today, Zacks Equity Research discusses Berkshire Hathaway Inc. (BRK.B - Free Report) , Chubb Ltd. (CB - Free Report) , The Progressive Corp. (PGR - Free Report) , Fidelity National Financial, Inc. (FNF - Free Report) and United Fire Group, Inc. (UFCS - Free Report) .
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 Inc., Chubb Ltd., The Progressive Corp., Fidelity National Financial, Inc. and United Fire Group, Inc. are poised to grow despite a rise in catastrophic activities.
Given an active catastrophe environment, the policy renewal rate should accelerate, apart from the firming up of rates. Also, the increasing adoption of technology and the emergence of insurtech will help in the smooth functioning of the industry players.
Though pandemic-related uncertainties weigh on merger and acquisition (M&A) activities, a still low rate environment, improvement in surplus, and reopening of economic activities set the stage for a better M&A environment.
About the Industry
The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property insurance, and casualty insurance products and services. Such insurance helps to safeguard property in case of any natural or man-made disasters. Liability coverages are also provided by some industry players.
The insurance coverage offered also includes 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 to meet their commitments to policyholders. The interest rate environment has started to improve. The Fed has already made three hikes in 2022 with more to come. An improving rate environment is a boon for insurers, especially long-tail insurers.
4 Trends Shaping the Future of the Property and Casualty Insurance Industry
Improved pricing to help navigate claims: 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 the first quarter of 2022 increased 11%, marking the 18th straight quarter of price increase.
Per Willis Towers Watson's 2022 Insurance Marketplace Realities report, rates will continue to rise but by a small margin. Better pricing will help insurers write higher premiums and address claims payment prudently. Per Deloitte insights, global non-life premiums are estimated to grow 3.7% in 2022.
Catastrophe loss induces volatility in underwriting profits: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profit. The industry incurred a $3.8 billion net underwriting loss in 2021 against a $5.2 billion underwriting gain in 2020, per a report from Verisk and the American Property Casualty Insurance Association.
The combined ratio deteriorated 100 basis points to 99.6 in 2021. Per Colorado State University (CSU), the 2022 above-average hurricane season may have 19 named storms, including nine hurricanes and four major hurricanes. This year's hurricane season could be about 130% of the average season per CSU.
The first quarter of 2022 incurred insurance and reinsurance industry losses from catastrophes of $14 billion or about $13 billion in economic losses, per a report from Aon. However, 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 along the same lines will also continue as players look to gain market share and grow in their niche areas. With the reopening of the economy, optimistic growth outlook and sturdy capital level, the industry is witnessing a number of mergers, acquisitions and consolidations.
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. Accelerated digitalization has become the need of the hour and insurers continue to invest heavily in technology to improve basis points, scale and efficiencies.
Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022. As insurtechs use the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains a 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 #142, which places it in the bottom 43% 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 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. The estimates have moved down 10.7% in a year's time.
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 and Sector
The Property and Casualty Insurance industry has outperformed both the Zacks S&P 500 composite as well as its sector over the past year. The stocks in this industry have collectively lost 6.1% in the past year compared with the Finance sector's decrease of 13.2% and the Zacks S&P 500 composite's decline of 12.6%.
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 1.2X compared with the S&P 500's 5.71X and the sector's 2.89X.
Over the past five years, the industry has traded as high as 1.71X, as low as 0.98X and at the median of 1.42X.
5 Property and Casualty Insurance Stocks to Keep an Eye on
We are recommending one Zacks Rank #1 (Strong Buy) stock and one Zacks Rank #2 (Buy) stock from the P&C Insurance industry. We are also presenting three stocks carrying a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank stocks here.
United Fire Group: This Cedar Rapids, IO-based company provides property and casualty insurance for individuals and businesses in the United States. Better pricing, expanded analytics capabilities, effective management of portfolio by diversifying its book of business, focus on attractive markets and products and growing profitable lines like E&S, surety and assumed reinsurance bode well for this Zacks Rank #1 insurer.
The Zacks Consensus Estimate for its 2022 bottom line has moved 23.5% north over the past 60 days and suggests a year-over-year increase of 46.2%. UFCS delivered a four-quarter average earnings surprise of 270.83%
Fidelity National Financial: Jacksonville, FL-based Fidelity Financial provides various insurance products in the United States. Being the nation's largest title insurance and settlement services company, Fidelity National has a leading market share in the residential purchase, refinance, and commercial markets and industry-leading margins. This Zacks Rank #2 insurer should continue to witness momentum in refinance volumes, strong purchase demand and a rebound in commercial real estate activity.
Estimates for Fidelity National Financial's 2022 and 2023 bottom line have moved 0.3% and 0.5% north, respectively, over the past 60 days. FNF delivered a four-quarter average earnings surprise of 27.61%.
Berkshire Hathaway: Omaha, NE-based Berkshire Hathaway owns more than 90 subsidiaries in insurance, railroads, utilities, manufacturing services, retail and homebuilding. BRK.B boasts one of the largest property and casualty insurance companies measured by premium volume.
The company should continue to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments. Continued insurance business growth fuels an increase in float, drives earnings and generates maximum return on equity. With Warren Buffett at its helm, Berkshire continues to create tremendous value for shareholders.
The expected long-term earnings growth rate is 7%. BRK.B delivered a four-quarter average earnings surprise of 11.01%.
Progressive: This Mayfield, OH-based company is a leading auto insurer in the United States and has one of the largest auto insurance groups. PGR is the largest seller of motorcycle policies, a market leader in commercial auto insurance and one of the top 15 homeowner carriers based on premiums written. PGR's compelling product portfolio, leadership position, strength in both Vehicle and Property businesses, healthy policies in force and retention continue to bode well for growth
The Zacks Consensus Estimate for Progressive's 2022 and 2023 bottom line suggests a respective year-over-year increase of 2.3% and 43.6%. The expected long-term earnings growth rate is 17.6%, better than the industry average of 11.4%. It has a VGM Score of B.
Chubb: Based in Zurich, Switzerland, Chubb 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.
The Zacks Consensus Estimate for Chubb's 2022 and 2023 bottom line suggests a respective year-over-year increase of 18.8% and 10.8%. The expected long-term earnings growth rate is 10%. It has a VGM Score of B. CB delivered a four-quarter average earnings surprise of 13.45%.
Why Haven't You Looked at Zacks' Top Stocks?
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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.
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Zacks Industry Outlook Highlights Berkshire Hathaway, Chubb, The Progressive, Fidelity National Financial and United Fire Group
For Immediate Release
Chicago, IL – July 18, 2022 – Today, Zacks Equity Research discusses Berkshire Hathaway Inc. (BRK.B - Free Report) , Chubb Ltd. (CB - Free Report) , The Progressive Corp. (PGR - Free Report) , Fidelity National Financial, Inc. (FNF - Free Report) and United Fire Group, Inc. (UFCS - Free Report) .
Industry: Insurance - Property & Casualty
Link: https://www.zacks.com/commentary/1952791/5-property-casualty-insurers-to-gain-despite-rise-in-catastrophes
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 Inc., Chubb Ltd., The Progressive Corp., Fidelity National Financial, Inc. and United Fire Group, Inc. are poised to grow despite a rise in catastrophic activities.
Given an active catastrophe environment, the policy renewal rate should accelerate, apart from the firming up of rates. Also, the increasing adoption of technology and the emergence of insurtech will help in the smooth functioning of the industry players.
Though pandemic-related uncertainties weigh on merger and acquisition (M&A) activities, a still low rate environment, improvement in surplus, and reopening of economic activities set the stage for a better M&A environment.
About the Industry
The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property insurance, and casualty insurance products and services. Such insurance helps to safeguard property in case of any natural or man-made disasters. Liability coverages are also provided by some industry players.
The insurance coverage offered also includes 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 to meet their commitments to policyholders. The interest rate environment has started to improve. The Fed has already made three hikes in 2022 with more to come. An improving rate environment is a boon for insurers, especially long-tail insurers.
4 Trends Shaping the Future of the Property and Casualty Insurance Industry
Improved pricing to help navigate claims: 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 the first quarter of 2022 increased 11%, marking the 18th straight quarter of price increase.
Per Willis Towers Watson's 2022 Insurance Marketplace Realities report, rates will continue to rise but by a small margin. Better pricing will help insurers write higher premiums and address claims payment prudently. Per Deloitte insights, global non-life premiums are estimated to grow 3.7% in 2022.
Catastrophe loss induces volatility in underwriting profits: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profit. The industry incurred a $3.8 billion net underwriting loss in 2021 against a $5.2 billion underwriting gain in 2020, per a report from Verisk and the American Property Casualty Insurance Association.
The combined ratio deteriorated 100 basis points to 99.6 in 2021. Per Colorado State University (CSU), the 2022 above-average hurricane season may have 19 named storms, including nine hurricanes and four major hurricanes. This year's hurricane season could be about 130% of the average season per CSU.
The first quarter of 2022 incurred insurance and reinsurance industry losses from catastrophes of $14 billion or about $13 billion in economic losses, per a report from Aon. However, 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 along the same lines will also continue as players look to gain market share and grow in their niche areas. With the reopening of the economy, optimistic growth outlook and sturdy capital level, the industry is witnessing a number of mergers, acquisitions and consolidations.
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. Accelerated digitalization has become the need of the hour and insurers continue to invest heavily in technology to improve basis points, scale and efficiencies.
Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022. As insurtechs use the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains a 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 #142, which places it in the bottom 43% 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 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. The estimates have moved down 10.7% in a year's time.
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 and Sector
The Property and Casualty Insurance industry has outperformed both the Zacks S&P 500 composite as well as its sector over the past year. The stocks in this industry have collectively lost 6.1% in the past year compared with the Finance sector's decrease of 13.2% and the Zacks S&P 500 composite's decline of 12.6%.
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 1.2X compared with the S&P 500's 5.71X and the sector's 2.89X.
Over the past five years, the industry has traded as high as 1.71X, as low as 0.98X and at the median of 1.42X.
5 Property and Casualty Insurance Stocks to Keep an Eye on
We are recommending one Zacks Rank #1 (Strong Buy) stock and one Zacks Rank #2 (Buy) stock from the P&C Insurance industry. We are also presenting three stocks carrying a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank stocks here.
United Fire Group: This Cedar Rapids, IO-based company provides property and casualty insurance for individuals and businesses in the United States. Better pricing, expanded analytics capabilities, effective management of portfolio by diversifying its book of business, focus on attractive markets and products and growing profitable lines like E&S, surety and assumed reinsurance bode well for this Zacks Rank #1 insurer.
The Zacks Consensus Estimate for its 2022 bottom line has moved 23.5% north over the past 60 days and suggests a year-over-year increase of 46.2%. UFCS delivered a four-quarter average earnings surprise of 270.83%
Fidelity National Financial: Jacksonville, FL-based Fidelity Financial provides various insurance products in the United States. Being the nation's largest title insurance and settlement services company, Fidelity National has a leading market share in the residential purchase, refinance, and commercial markets and industry-leading margins. This Zacks Rank #2 insurer should continue to witness momentum in refinance volumes, strong purchase demand and a rebound in commercial real estate activity.
Estimates for Fidelity National Financial's 2022 and 2023 bottom line have moved 0.3% and 0.5% north, respectively, over the past 60 days. FNF delivered a four-quarter average earnings surprise of 27.61%.
Berkshire Hathaway: Omaha, NE-based Berkshire Hathaway owns more than 90 subsidiaries in insurance, railroads, utilities, manufacturing services, retail and homebuilding. BRK.B boasts one of the largest property and casualty insurance companies measured by premium volume.
The company should continue to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments. Continued insurance business growth fuels an increase in float, drives earnings and generates maximum return on equity. With Warren Buffett at its helm, Berkshire continues to create tremendous value for shareholders.
The expected long-term earnings growth rate is 7%. BRK.B delivered a four-quarter average earnings surprise of 11.01%.
Progressive: This Mayfield, OH-based company is a leading auto insurer in the United States and has one of the largest auto insurance groups. PGR is the largest seller of motorcycle policies, a market leader in commercial auto insurance and one of the top 15 homeowner carriers based on premiums written. PGR's compelling product portfolio, leadership position, strength in both Vehicle and Property businesses, healthy policies in force and retention continue to bode well for growth
The Zacks Consensus Estimate for Progressive's 2022 and 2023 bottom line suggests a respective year-over-year increase of 2.3% and 43.6%. The expected long-term earnings growth rate is 17.6%, better than the industry average of 11.4%. It has a VGM Score of B.
Chubb: Based in Zurich, Switzerland, Chubb 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.
The Zacks Consensus Estimate for Chubb's 2022 and 2023 bottom line suggests a respective year-over-year increase of 18.8% and 10.8%. The expected long-term earnings growth rate is 10%. It has a VGM Score of B. CB delivered a four-quarter average earnings surprise of 13.45%.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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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.