The Zacks Property and Casualty Insurance industry’s performance is affected by catastrophe events, both natural and man-made. Underwriting profitability is inversely related to the number of catastrophe occurrences.

Swiss Re estimated economic losses from natural catastrophes and man-made events in 2023 to be $269 billion, suggesting a rise from the previous 10-year average of $235 billion. Swiss Re expects 2023 insured losses to exceed $100 billion on natural catastrophes. Gallagher Re anticipated total economic losses of $290 billion for the first nine months of 2023, resulting from elevated natural catastrophe losses globally.

The U.S. property and casualty industry recorded a $24.5-billion net underwriting loss in the first half of 2023, per a new AM Best report. The combined ratio is projected to be 104.5 per the credit rating giant in the first half of 2023.

Despite these challenges, the P&C insurance industry has gained 6.9% in the past six months, outperforming the Zacks S&P 500 composite’s growth of 4.5% and the Finance sector’s 4.9% rise.

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High-quality dividend stocks such as CNA Financial Corporation (CNA Quick QuoteCNA - Free Report) , American Financial Group (AFG Quick QuoteAFG - Free Report) , The Travelers Companies, Inc. (TRV Quick QuoteTRV - Free Report) and Axis Capital Holdings Limited (AXS Quick QuoteAXS - Free Report) look poised to not only deliver better results but also reward shareholders simultaneously.

Global commercial insurance prices rose for 24 straight quarters, though the magnitude has slowed down over the past 11 quarters, per Marsh Global Insurance Market Index.

Better pricing ensures improved premiums and prudent claims payment. Analysts at Swiss Re Institute predict premium growth of 7.5% for 2023. Per reports published in Carrier Management, direct premiums written across the P&C business in 2023 are estimated to grow in the double digits. Per a report by Triple-I and Milliman, net written premium growth for 2023 is estimated at 8.3% for the industry.

The insurance industry is rate-sensitive. The interest rate environment has started to improve. The Fed has already made four hikes in 2023, taking the figure to 11 since March 2022. The Fed has held interest rates unchanged at 5.25-5.5% at the December FOMC meeting. An improving rate environment is a boon for insurers, especially long-tail insurers.

A solid capital level supports insurers in pursuing strategic mergers and acquisitions to gain market share, expand in niche areas, and diversify operations into new business lines and geography, as well as increase dividends, pay special dividends and buy back shares.

The industry is undergoing accelerated digitalization. Players are investing heavily in technology to expedite business operations. Increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing, robotic process automation, Chatbot and RoboAdvisory, and insurtech solutions continue to save costs.

How to Pick the Right Dividend Stocks

To choose some of the best dividend stocks from the aforementioned industry, we have run the Zacks Stock Screener to identify stocks with a dividend yield in excess of 2% and a sustainable dividend payout ratio of less than 60%, reflecting enough room for future dividend increases. These stocks also have a five-year historical dividend growth rate of more than 2% and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold).

Our Choices

CNA Financial, with a market capitalization of $11.52 billion, offers commercial P&C insurance products, mainly across the United States. The insurer’s focus on better pricing, increased exposure, higher new businesses, and retentions across its Specialty, Commercial and International segments poise it well for growth. CNA sports a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The insurer’s payout ratio is 38, with a five-year annualized dividend growth rate of 4.35%. Its current dividend yield of 3.9% betters the industry average of 0.3%. The insurer’s quarterly dividend payment has witnessed a 10-year compound annual growth rate or CAGR (2013-2023) of 7.7%. (Check CNA Financial’s dividend history here.)

A strong balance sheet and cash flows enable CNA Financial to engage in shareholder-friendly moves like dividend hikes. In February 2023, the company’s board approved a 5% hike in the quarterly dividend. Simultaneously, CNA announced a special dividend of $1.20 per share, marking nine special dividends. On the back of a disciplined execution, denoted by strong underwriting results and confidence in future earnings performances, the company hiked its dividend over the past couple of years. Thus, CNA remains committed to returning more value to shareholders.

American Financial, with a market capitalization of $9.77 billion, is an insurance holding company that provides specialty property and casualty insurance products in the United States. This Zacks Rank #2 insurer is set to benefit from business opportunities, growth in the surplus lines and excess liability businesses, and higher retentions in the renewal business, which boost premium growth.

The insurer’s payout ratio is 24, with a five-year annualized dividend growth rate of 12.08%. Its current dividend yield of 2.4% betters the industry average of 0.3%. The insurer’s quarterly dividend payment witnessed a nine-year CAGR (2015-2024) of 12.3%. (Check American Financial’s dividend history here)

American Financial has traditionally maintained an adjusted financial leverage of around 20%, with a good cash flow and interest coverage ratio. In February 2023, the company declared a special cash dividend of $4 per share. The aggregate amount of this special dividend will be around $341 million. In November 2023, AFG declared a special cash dividend of $1.50 per share. The aggregate amount of this special dividend will be approximately $126 million. The robust operating profitability at the P&C segment, stellar investment performance and effective capital management support effective shareholder returns. The company expects its operations to continue to generate excess capital in 2024, which is anticipated to provide ample opportunity for additional share repurchases or special dividends in 2024.

Travelers Companies, with a market capitalization of $44.9 billion, is one of the leading writers of auto and homeowners’ insurance plus commercial U.S. property-casualty insurance. TRV currently carries a Zacks Rank #2.

TRV’s current dividend yield of 2% betters the industry average of 0.3%. The insurer’s payout ratio is 42, with a five-year dividend growth rate of 4.95%. The insurer’s quarterly dividend payment witnessed a 10-year CAGR (2013-2023) of 8.1%. (Check Travelers Companies’ dividend history here).

Travelers Companies’ comprehensive portfolio of coverages across nine business lines is likely to help it maintain high levels of retention, improve pricing and increase new businesses, while achieving a positive renewal premium change. TRV maintains a conservative balance sheet. At the end of the third quarter of 2023, statutory capital and surplus were $ 23.2 billion. The company declared an 8% increase in the quarterly cash dividend in the first quarter of 2023, which marked the 19th consecutive year of dividend increases. It aims to generate increased earnings and capital in excess of growth needs, and maintain a balanced approach to rightsizing capital and growing book value per share over time as part of its long-term financial strategy.

Axis Capital, with a market capitalization of $4.66 billion, provides various specialty insurance and reinsurance products worldwide. The P&C insurer remains poised to gain from repositioning the portfolio and markets offering profitable growth, lower volatility, strong market presence, better pricing and margin expansion. AXS has a Zacks Rank #3 at present.

The insurer’s payout ratio is 20, with a five-year annualized dividend growth rate of 2.26%. Its current dividend yield of 3.2% betters the industry average of 0.3%. The insurer’s quarterly dividend payment witnessed a ten-year CAGR (2013-2023) of 5.8%. (Check Axis Capital’s dividend history here.)

AXIS Capital continues to build on its Specialty Insurance, Reinsurance plus Accident and Health portfolio, exit underperforming lines, invest in more attractive markets, and enter new markets, thus improving the portfolio mix and underwriting profitability. The company has been boosting shareholder value through stock buybacks and dividend hikes. It boasts one of the highest dividend yields among its peers. As of Sep 30, 2023, AXIS Capital repurchased shares for $17 million. As of Nov 1, 2023, the company had $100 million of remaining authorization under the board-authorized share repurchase program through Dec 31, 2023. Recently, the board approved a $100-million share buyback approval to be effective through Dec 31, 2024.