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3 Value Stocks to Bet on From Undervalued Insurance Space
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The Zacks Insurance industry is undervalued than the Zacks S&P 500 composite and the Zacks Finance sector. The insurance industry’s price-to-book (the best multiple for valuing insurers because of their unpredictable financial results) of 1.77 was less than the Zacks S&P 500 composite’s P/B of 5.8 and the sector’s P/B of 3.17. Such below-market positioning hints at room for an upside in the days ahead.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Thus, before their valuation increases, locating some undervalued stocks with growth potential is wise.
Driving Forces
Product diversification helps insurance industry players lower concentration risks, ensure uninterrupted revenue generation, and improve the retention ratio. The industry is well-poised to benefit from better pricing, prudent underwriting, increased exposure, faster economic recovery on the receding impacts of the pandemic and increased vaccinations.
The insurance industry remains exposed to catastrophe loss from natural disasters, which drag down underwriting profit. Colorado State University (CSU) predicted 2023 hurricane activity to be about 130% of the average season. The team also predicted 18 named storms in 2023. In the first half of 2023, Aon estimated global economic losses from natural disasters at $194 billion, the fifth highest on record. Per Aon, in the first half of 2023, global insured losses from natural disaster events were 46%, above the 21st-century average.
Exposure growth, improved pricing, prudent underwriting, favorable reserve development and a sturdy capital position will help absorb catastrophe losses. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
With four rate hikes already in 2023, investment income is likely to have improved, as insurers are beneficiaries of a rising rate environment. The Fed had raised its key interest rate by 0.25% and reached a target range of 5.25% to 5.5%, which marked the highest level in 22 years. An improving rate environment is a boon for insurers, especially long-tail insurers. Also, investment income is an essential component of insurers’ top line.
Increased awareness, driving higher demand for protection products, should benefit sales and premiums for life insurance operations. Continued improvements in pricing and an increase in exposure should support premium growth. Per Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023, while non-life premiums are expected to increase 2.2%.
Players are investing heavily in technology to improve scale and efficiencies. While a solid policyholders’ surplus will help the property and casualty insurance industry absorb losses, a sturdy capital level continues to aid the insurers in pursuing strategic mergers and acquisitions, investing in growth initiatives, engaging in share buybacks, and increasing dividends or paying out special dividends.
Price Performance
The insurance industry has outperformed the Zacks S&P 500 composite and the Finance sector in the past year. The insurance industry has risen 17.1%, outperforming the Zacks S&P 500 composite’s growth of 13.7% and the Finance sector’s increase of 5.3% in the said time frame.
Image Source: Zacks Investment Research
Better pricing, prudent underwriting and increased exposure should help the insurers retain the momentum and remain well-poised for the longer term.
Value Picks
With the help of the Zacks Stock Screener, we have selected three insurance stocks with an impressive Value Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 (Buy). Back-tested results have shown that stocks with a favorable Value Score and a solid Zacks Rank are the best investment options. You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks with growth potential have witnessed positive estimate revisions, reflecting analysts’ confidence in the companies’ operational efficiency and having a cheaper valuation.
Axis Capital Holdings Limited (AXS - Free Report) : Headquartered in Pembroke, Bermuda, this property and casualty insurer provides various specialty insurance and reinsurance products worldwide. AXIS Capital continues to build on its Specialty Insurance, Reinsurance and Accident and Health to pave the way for long-term growth. Focus on deploying resources prudently while enhancing efficiencies, improving its portfolio mix, and underwriting profitability, apart from fortifying the casualty and professional lines in the insurance segment, bode well. Its expected long-term earnings growth rate is pegged at 5%.
This insurer has a decent record of beating earnings estimates in three of the trailing four reported quarters and missed in one, the average surprise being 9.75%.
AXIS Capital is a leading specialty insurer and global reinsurer aiming for leadership in specialty risks. The company thus remains focused on growth in Marine Cargo, Cyber and Renewable Energy, which is likely to provide a solid double-digit return on equity (ROE) opportunities. AXIS Capital continues to boost shareholder value through stock buybacks and dividend hikes. The company’s return on equity in the trailing 12 months was 14%, better than the industry average of 6.7%.
Axis Capital’s P/B ratio is 1.04. AXS shares have gained 1.9% in the past year.
Image Source: Zacks Investment Research
Radian Group Inc. (RDN - Free Report) : Philadelphia, PA-based Radian is a credit enhancement company, which supports homebuyers, mortgage lenders, loan servicers and investors with a suite of private mortgage insurance and related risk-management products and services. Improvements in quality and the size of mortgage insurance in force poise it well for growth.
Radian’s mortgage insurance portfolio will create a strong foundation for future earnings. RDN is focused on improving its mortgage insurance portfolio, the primary catalyst of long-term earnings growth. Based on a total mortgage origination market of $1.7 trillion, Radian expects the private mortgage insurance market in 2023 to be around $325 billion. Its expected long-term earnings growth rate is pegged at 5%.
A strong capital position helps Radian deploy capital via share repurchases and dividend hikes, enhancing shareholder value. The multi-line insurer’s dividend yield of 3.4% betters the industry average of 2.8. The insurer expects Radian Guaranty to pay between $300 million and $400 million of additional ordinary dividends during the remainder of 2023, based on current performance expectations and consistent with the prior guidance. The board approved a new two-year $300-million share buyback program in January 2023.
It has a decent track of beating earnings estimates in each of the trailing four reported quarters, the average surprise being 30.88%. The company’s return on equity in the trailing 12 months was 17.3%, better than the industry average of 10.5%.
Radian’s P/B ratio is 0.99. RDN shares have rallied 26.3% in the past year.
Image Source: Zacks Investment Research
Everest Group, Ltd. (EG - Free Report) : Headquartered in Hamilton, Bermuda, this multi-line insurer provides reinsurance and insurance products in the United States and internationally. Everest Group remains well poised for growth on the back of initiatives like product diversification, property insurance geographic footprint expansion, international insurance expansion, and new business opportunities. The company made substantial progress in advancing the global Insurance business. The company also grew in specialty lines, including marine and aviation. Its deliberate initiatives to shape the portfolio and manage volatility continued improving the results of the EG Reinsurance segment. Its expected long-term earnings growth rate is pegged at 30.5%, better than the industry average of 12.2%.
Everest Group should benefit from its capital adequacy, financial flexibility, long-term operating performance and traditional risk management capabilities. The company boasts a consistent dividend increase, with the metric witnessing an eight-year (2016-2023) CAGR of 34.9%. The company should make consistent payouts and buybacks, given its disciplined capital management strategy and strong balance.
The company’s return on equity in the trailing 12 months was 14.9%, better than the industry average of 10.5%. EG has a decent record of beating earnings estimates in three of the trailing four reported quarters and missed in one, the average surprise being 17.36%.
Everest Group’s P/B ratio is 1.36. EG shares have rallied 35.2% in the past year.
Image Source: Zacks Investment Research
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3 Value Stocks to Bet on From Undervalued Insurance Space
The Zacks Insurance industry is undervalued than the Zacks S&P 500 composite and the Zacks Finance sector. The insurance industry’s price-to-book (the best multiple for valuing insurers because of their unpredictable financial results) of 1.77 was less than the Zacks S&P 500 composite’s P/B of 5.8 and the sector’s P/B of 3.17. Such below-market positioning hints at room for an upside in the days ahead.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Thus, before their valuation increases, locating some undervalued stocks with growth potential is wise.
Driving Forces
Product diversification helps insurance industry players lower concentration risks, ensure uninterrupted revenue generation, and improve the retention ratio. The industry is well-poised to benefit from better pricing, prudent underwriting, increased exposure, faster economic recovery on the receding impacts of the pandemic and increased vaccinations.
The insurance industry remains exposed to catastrophe loss from natural disasters, which drag down underwriting profit. Colorado State University (CSU) predicted 2023 hurricane activity to be about 130% of the average season. The team also predicted 18 named storms in 2023. In the first half of 2023, Aon estimated global economic losses from natural disasters at $194 billion, the fifth highest on record. Per Aon, in the first half of 2023, global insured losses from natural disaster events were 46%, above the 21st-century average.
Exposure growth, improved pricing, prudent underwriting, favorable reserve development and a sturdy capital position will help absorb catastrophe losses. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
With four rate hikes already in 2023, investment income is likely to have improved, as insurers are beneficiaries of a rising rate environment. The Fed had raised its key interest rate by 0.25% and reached a target range of 5.25% to 5.5%, which marked the highest level in 22 years. An improving rate environment is a boon for insurers, especially long-tail insurers. Also, investment income is an essential component of insurers’ top line.
Increased awareness, driving higher demand for protection products, should benefit sales and premiums for life insurance operations. Continued improvements in pricing and an increase in exposure should support premium growth. Per Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023, while non-life premiums are expected to increase 2.2%.
Players are investing heavily in technology to improve scale and efficiencies. While a solid policyholders’ surplus will help the property and casualty insurance industry absorb losses, a sturdy capital level continues to aid the insurers in pursuing strategic mergers and acquisitions, investing in growth initiatives, engaging in share buybacks, and increasing dividends or paying out special dividends.
Price Performance
The insurance industry has outperformed the Zacks S&P 500 composite and the Finance sector in the past year. The insurance industry has risen 17.1%, outperforming the Zacks S&P 500 composite’s growth of 13.7% and the Finance sector’s increase of 5.3% in the said time frame.
Image Source: Zacks Investment Research
Better pricing, prudent underwriting and increased exposure should help the insurers retain the momentum and remain well-poised for the longer term.
Value Picks
With the help of the Zacks Stock Screener, we have selected three insurance stocks with an impressive Value Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 (Buy). Back-tested results have shown that stocks with a favorable Value Score and a solid Zacks Rank are the best investment options. You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks with growth potential have witnessed positive estimate revisions, reflecting analysts’ confidence in the companies’ operational efficiency and having a cheaper valuation.
Axis Capital Holdings Limited (AXS - Free Report) : Headquartered in Pembroke, Bermuda, this property and casualty insurer provides various specialty insurance and reinsurance products worldwide. AXIS Capital continues to build on its Specialty Insurance, Reinsurance and Accident and Health to pave the way for long-term growth. Focus on deploying resources prudently while enhancing efficiencies, improving its portfolio mix, and underwriting profitability, apart from fortifying the casualty and professional lines in the insurance segment, bode well. Its expected long-term earnings growth rate is pegged at 5%.
This insurer has a decent record of beating earnings estimates in three of the trailing four reported quarters and missed in one, the average surprise being 9.75%.
AXIS Capital is a leading specialty insurer and global reinsurer aiming for leadership in specialty risks. The company thus remains focused on growth in Marine Cargo, Cyber and Renewable Energy, which is likely to provide a solid double-digit return on equity (ROE) opportunities. AXIS Capital continues to boost shareholder value through stock buybacks and dividend hikes. The company’s return on equity in the trailing 12 months was 14%, better than the industry average of 6.7%.
Axis Capital’s P/B ratio is 1.04. AXS shares have gained 1.9% in the past year.
Image Source: Zacks Investment Research
Radian Group Inc. (RDN - Free Report) : Philadelphia, PA-based Radian is a credit enhancement company, which supports homebuyers, mortgage lenders, loan servicers and investors with a suite of private mortgage insurance and related risk-management products and services. Improvements in quality and the size of mortgage insurance in force poise it well for growth.
Radian’s mortgage insurance portfolio will create a strong foundation for future earnings. RDN is focused on improving its mortgage insurance portfolio, the primary catalyst of long-term earnings growth. Based on a total mortgage origination market of $1.7 trillion, Radian expects the private mortgage insurance market in 2023 to be around $325 billion. Its expected long-term earnings growth rate is pegged at 5%.
A strong capital position helps Radian deploy capital via share repurchases and dividend hikes, enhancing shareholder value. The multi-line insurer’s dividend yield of 3.4% betters the industry average of 2.8. The insurer expects Radian Guaranty to pay between $300 million and $400 million of additional ordinary dividends during the remainder of 2023, based on current performance expectations and consistent with the prior guidance. The board approved a new two-year $300-million share buyback program in January 2023.
It has a decent track of beating earnings estimates in each of the trailing four reported quarters, the average surprise being 30.88%. The company’s return on equity in the trailing 12 months was 17.3%, better than the industry average of 10.5%.
Radian’s P/B ratio is 0.99. RDN shares have rallied 26.3% in the past year.
Image Source: Zacks Investment Research
Everest Group, Ltd. (EG - Free Report) : Headquartered in Hamilton, Bermuda, this multi-line insurer provides reinsurance and insurance products in the United States and internationally. Everest Group remains well poised for growth on the back of initiatives like product diversification, property insurance geographic footprint expansion, international insurance expansion, and new business opportunities. The company made substantial progress in advancing the global Insurance business. The company also grew in specialty lines, including marine and aviation. Its deliberate initiatives to shape the portfolio and manage volatility continued improving the results of the EG Reinsurance segment. Its expected long-term earnings growth rate is pegged at 30.5%, better than the industry average of 12.2%.
Everest Group should benefit from its capital adequacy, financial flexibility, long-term operating performance and traditional risk management capabilities. The company boasts a consistent dividend increase, with the metric witnessing an eight-year (2016-2023) CAGR of 34.9%. The company should make consistent payouts and buybacks, given its disciplined capital management strategy and strong balance.
The company’s return on equity in the trailing 12 months was 14.9%, better than the industry average of 10.5%. EG has a decent record of beating earnings estimates in three of the trailing four reported quarters and missed in one, the average surprise being 17.36%.
Everest Group’s P/B ratio is 1.36. EG shares have rallied 35.2% in the past year.
Image Source: Zacks Investment Research