The hawkish statement coming from Fed Chairwoman Janet Yellen at the recent Jackson Hole symposium raised the odds of a rate hike in the near term. Yellen commented on the strength of the economy and in the labor market.

Not only Yellen, other key Fed officials including her deputy, Vice Chairman Stanley Fisher, also sounded bullish on increasing interest rates.

The major factors that signal economic growth – consumer outlays and the job market – are both shaping up strongly. Recent data on these fronts have put to rest the concern of economic weakness hovering in the first half of the year. Data from Labor Department revealed that July’s nonfarm payroll outperformed the analysts’ expectation by 255,000 job additions, following the upwardly revised 292,000 jobs created in June.

Yellen said, “In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.” This gives a clear signal that the much-awaited rate hike is on its way.

Also Stanley Fischer said that the U.S. central bank was close to hitting its target of 2% inflation and full employment.

Key officials are hinting at a rate hike action in the September meeting. Moreover, if the August jobs’ data reveals 180,000 or more additions, the case for the rate hike will become firmer.

Among others, one of the sectors expected to gain from an interest rate hike is insurance.

Glimmer of Hope for Insurers After Heavy Cat Loss

The Fed’s campaign to boost the economy by keeping interest rates low squeezed profits of insurers. The insurance industry directly stands to gain from high interest rates. Insurers’ top line consists primarily of two components – premium earned from customers and net investment income, which is generated from the float (premium collected which would be used in paying out claims in future), invested by insurance companies. Over the past decade, insurers have witnessed a dent in their top line because of low investment income caused by a decline in investment yield from low interest rates. As the Fed raises the key rate, bonds yields will increase across the board. Insurers can then invest their premium and receive higher yields. More investment income will then be generated, which will boost profits.

In order to fight the low interest rate, companies divested and stopped selling rate sensitive products such as long-term care policies. Some of the companies also divested businesses that were rate sensitive.

Nevertheless, this anticipated rate hike will bring solace to the industry which has suffered high catastrophe loss this year. As per Munich RE, U.S. economic losses caused by natural catastrophes (hail storms in Texas, earthquakes in Japan and Ecuador, floods in Europe and wildfires in Fort McMurray in Canada) in the first half of 2016 were $ 17 billion compared with $12 billion in the same period last year. Of the loss incurred this year, $11 billion was insured compared with $8 billion of insured losses in the first half of 2015. Earnings for a number of players in the industry saw a dent from the high cat loss activity in the first half of 2016. Many of the insurers also have come up with the preliminary estimates for cat loss from for the month of July as well. While the cat losses have drained the bottomline earnings for the sector the rise in interest rate will help top line growth in the form of increased investment income.

3 Stocks to Pick

We have selected four stocks from the insurance space which will emerge as winner and worth investing.  Finding a great value stock can be a tough task. But thanks to our new style score system we have been able to identify a few stocks which have incredible potential in the near term.
Our research shows that stocks with a Value Style Score of ‘A’ or ‘B’ when combined a Zacks Rank #1 (Strong Buy) or #2 (Buy) offers the best investment opportunities in the value investing space.

First American Financial Corporation (FAF Quick QuoteFAF - Free Report) provides Title Insurance and Services, Specialty Insurance, and corporate function. First American Financial has a Zacks Rank #2 and a Value Style Score of ‘A’.
The company has also seen its earnings estimate rise to $2.97 per share from $2.82 over the past 60 days. Its long-term EPS growth rate is 9.25%.

FIRST AMER FINL Price and Consensus

FIRST AMER FINL Price and Consensus | FIRST AMER FINL Quote

Primerica Inc. (PRI Quick QuotePRI - Free Report) distributes financial products to middle income households in the United States and Canada. Primerica has a Zacks Rank #2 and a Value Style Score of ‘A’.
The company has also seen its earnings estimate rise to $4.45 per share from $4.28 over the past 60 days. Its long-term EPS growth rate is 16%.

PRIMERICA INC Price and Consensus

PRIMERICA INC Price and Consensus | PRIMERICA INC Quote

Principal Financial group Inc. (PFG Quick QuotePFG - Free Report) provides retirement, asset management, and insurance products and services to businesses, individuals, and institutional clients worldwide. It has a Zacks Rank #2 and a Value Style Score of ‘A’.
The company has also seen its earnings estimate rise to $4.38 per share from $4.26 over the past 60 days. Its long-term EPS growth rate is 6.4%.