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4 Growth Stocks in Insurance Industry Poised to Surge in 2018
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The U.S Insurance Industry battled a plethora challenges in the form of a tumultuous 2017 — a year plagued with weather-related events, regulatory upheavals as well as political turmoil. However, the U.S. insurers have entered 2018 with renewed confidence and are anticipating improved performance as the year rolls on.
Although there will be challenges to counter in 2018, the insurers remain focused on achieving two important objectives — growing top-line sales while bolstering bottom-line profitability.
With a rapidly-changing regulatory climate, unpredictable nature of the occurrence of natural calamities and a volatile operating environment, we expect some of the insurers to face these challenges head on and remain optimistic about the operational performance of such insurance companies in 2018.
We will discuss some driving factors that should help insurance companies to perform better this year, raising optimism and allaying apprehensions among investors.
Potential Impact of Rising Interest Rates
The insurance industry as a whole has been positively impacted by rising interest rates. With the Fed delivering with its promise of hiking interest rates thrice in 2017, the insurers remain hopeful for the same number of rate increases in 2018 and two more in 2019. The anticipation of the first rate hike in March as indicated by the Federal Reserve in Jan 31 meeting has restored hope. Currently, the interest rate ranges between 1.25% and 1.50%, which is expected to boost the insurance industry’s prospects.
If we view the life insurance industry separately, we can identify its connection with interest rates, given the high sensitivity of the players’ business models to interest rates. Consequently, the life insurers will get a relief from the operating pressures resulting from tight credit spreads that the low-rate environment has exerted for a considerable period of time. But the insurers will not see a significant benefit due to the substantial reduction of their interest-sensitive product lines in the low-rate era. Nonetheless, rising interest rates as well as increase in bond yields will provide required relief to insurers to maintain margins.
Meanwhile, property and casualty (P&C) insurance industry holds a significant amount of bonds that would decrease in value with interest rates rising steadily going forward. This will lead to capital volatility in the industry.
However, the rising rate environment would keep easing the pressure on P&C insurers’ investment income, and thus their earnings. Moreover, a higher rate environment would make the pricing environment more competitive, inducing growth in carriers.
Overall, a progressing rate environment will ultimately benefit the insurance industry, with regard to their investment income (which forms a major portion of their revenues), thereby accelerating the insurance companies’ overall growth in the future.
Better Underwriting Results – A Possibility?
The insurance industry was hit badly by the unprecedented hurricane activity and earthquakes in 2017, which hurt the underwriting performance to a great extent. Per a report by Fitch Ratings, the insurance industry is expected to return to substantial underwriting profitability in 2018 at a slow pace. Moreover, combined ratios are likely to improve and might come close to break-even.
The capital strength displayed by the insurers will help them to counter near-term volatility and the effects of adverse events.
Other Factors Resulting in Favorable Performance
There are a few other factors that are likely to impact the insurance industry positively this year. The unemployment rate is projected to stay below 4% in 2018 and the gross domestic product is expected to grow 2.5% for the same period — both of which are considered good for the economy.
This apart, a recovering housing market is anticipated to enhance insurable exposures and premiums written.
Further, the recent tax cut, which reduced the tax rate to 21% from 35%, is expected to benefit the insurance industry to a large extent. A lower tax rate would aid the companies’ bottom-line, boosting margins directly. Additionally, the tax cut is anticipated to make U.S. insurers more competitive globally.
Key Picks
Despite some of the challenges raising concerns for insurers this year, positives like rising interest rate environment, better underwriting results and gradually improving economy will help the following stocks perform well and yield profits through an underlying strength and business modification.
We have zeroed in on four stocks that have outperformed despite all odds based on price performance, positive estimate revisions, favorable Zacks Rank and Growth Score of A or B. Our research shows that stocks with Growth Scores of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best investment opportunities.
Birmingham, AL-based Infinity Property and Casualty Corporation provides personal auto insurance products in the United States. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 0.8% upward to $5.95 over the last 60 days. This is evident from the company’s Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock has a Growth Score of B and gained 11.4% compared with the industry’s growth of 4%, year to date.
Worcester, MA-based The Hanover Insurance Group, Inc. (THG - Free Report) offers various property and casualty insurance products and services in the United States and internationally. The stock has witnessed the Zacks Consensus Estimate for current-year earnings being revised 19.6% upward to $8.55 over the last 60 days. This is reflected through the company’s Zacks Rank of 2.
The stock has a Growth Score of A and has gained 9.7% compared with the industry’s adavnce of 4%, year to date.
West Des Moines, IA-based American Equity Investment Life Holding Company (AEL - Free Report) develops and sells fixed index and fixed rate annuity products in the United States. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 11.5% upward to $3.40 over the last 60 days. This is reflected through the company’s Zacks Rank of 2.
The stock has a Growth Score of B and has climbed 2.7% compared with the industry’s decline of 5.4%, year to date.
Rolling Meadows, IL-based Arthur J. Gallagher & Co. (AJG - Free Report) provides insurance brokerage, consulting, and third party claims settlement and administration services to entities in the United States and internationally. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 6.2% upward to $3.58 over the last 60 days. This is reflected through the company’s Zacks Rank of 2.
The stock has a Growth Score of B and has gained 11.7% compared with the industry’s growth of 7.1%, year to date.
Can Hackers Put Money INTO Your Portfolio?
Earlier this month, credit bureau Equifax announced a massive data breach affecting 2 out of every 3 Americans. The cybersecurity industry is expanding quickly in response to this and similar events. But some stocks are better investments than others.
Zacks has just released Cybersecurity! An Investor’s Guide to help Zacks.com readers make the most of the $170 billion per year investment opportunity created by hackers and other threats. It reveals 4 stocks worth looking into right away.
Image: Bigstock
4 Growth Stocks in Insurance Industry Poised to Surge in 2018
The U.S Insurance Industry battled a plethora challenges in the form of a tumultuous 2017 — a year plagued with weather-related events, regulatory upheavals as well as political turmoil. However, the U.S. insurers have entered 2018 with renewed confidence and are anticipating improved performance as the year rolls on.
Although there will be challenges to counter in 2018, the insurers remain focused on achieving two important objectives — growing top-line sales while bolstering bottom-line profitability.
With a rapidly-changing regulatory climate, unpredictable nature of the occurrence of natural calamities and a volatile operating environment, we expect some of the insurers to face these challenges head on and remain optimistic about the operational performance of such insurance companies in 2018.
We will discuss some driving factors that should help insurance companies to perform better this year, raising optimism and allaying apprehensions among investors.
Potential Impact of Rising Interest Rates
The insurance industry as a whole has been positively impacted by rising interest rates. With the Fed delivering with its promise of hiking interest rates thrice in 2017, the insurers remain hopeful for the same number of rate increases in 2018 and two more in 2019. The anticipation of the first rate hike in March as indicated by the Federal Reserve in Jan 31 meeting has restored hope. Currently, the interest rate ranges between 1.25% and 1.50%, which is expected to boost the insurance industry’s prospects.
If we view the life insurance industry separately, we can identify its connection with interest rates, given the high sensitivity of the players’ business models to interest rates. Consequently, the life insurers will get a relief from the operating pressures resulting from tight credit spreads that the low-rate environment has exerted for a considerable period of time. But the insurers will not see a significant benefit due to the substantial reduction of their interest-sensitive product lines in the low-rate era. Nonetheless, rising interest rates as well as increase in bond yields will provide required relief to insurers to maintain margins.
Meanwhile, property and casualty (P&C) insurance industry holds a significant amount of bonds that would decrease in value with interest rates rising steadily going forward. This will lead to capital volatility in the industry.
However, the rising rate environment would keep easing the pressure on P&C insurers’ investment income, and thus their earnings. Moreover, a higher rate environment would make the pricing environment more competitive, inducing growth in carriers.
Overall, a progressing rate environment will ultimately benefit the insurance industry, with regard to their investment income (which forms a major portion of their revenues), thereby accelerating the insurance companies’ overall growth in the future.
Better Underwriting Results – A Possibility?
The insurance industry was hit badly by the unprecedented hurricane activity and earthquakes in 2017, which hurt the underwriting performance to a great extent. Per a report by Fitch Ratings, the insurance industry is expected to return to substantial underwriting profitability in 2018 at a slow pace. Moreover, combined ratios are likely to improve and might come close to break-even.
The capital strength displayed by the insurers will help them to counter near-term volatility and the effects of adverse events.
Other Factors Resulting in Favorable Performance
There are a few other factors that are likely to impact the insurance industry positively this year. The unemployment rate is projected to stay below 4% in 2018 and the gross domestic product is expected to grow 2.5% for the same period — both of which are considered good for the economy.
This apart, a recovering housing market is anticipated to enhance insurable exposures and premiums written.
Further, the recent tax cut, which reduced the tax rate to 21% from 35%, is expected to benefit the insurance industry to a large extent. A lower tax rate would aid the companies’ bottom-line, boosting margins directly. Additionally, the tax cut is anticipated to make U.S. insurers more competitive globally.
Key Picks
Despite some of the challenges raising concerns for insurers this year, positives like rising interest rate environment, better underwriting results and gradually improving economy will help the following stocks perform well and yield profits through an underlying strength and business modification.
We have zeroed in on four stocks that have outperformed despite all odds based on price performance, positive estimate revisions, favorable Zacks Rank and Growth Score of A or B. Our research shows that stocks with Growth Scores of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best investment opportunities.
Birmingham, AL-based Infinity Property and Casualty Corporation provides personal auto insurance products in the United States. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 0.8% upward to $5.95 over the last 60 days. This is evident from the company’s Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock has a Growth Score of B and gained 11.4% compared with the industry’s growth of 4%, year to date.
Worcester, MA-based The Hanover Insurance Group, Inc. (THG - Free Report) offers various property and casualty insurance products and services in the United States and internationally. The stock has witnessed the Zacks Consensus Estimate for current-year earnings being revised 19.6% upward to $8.55 over the last 60 days. This is reflected through the company’s Zacks Rank of 2.
The stock has a Growth Score of A and has gained 9.7% compared with the industry’s adavnce of 4%, year to date.
West Des Moines, IA-based American Equity Investment Life Holding Company (AEL - Free Report) develops and sells fixed index and fixed rate annuity products in the United States. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 11.5% upward to $3.40 over the last 60 days. This is reflected through the company’s Zacks Rank of 2.
The stock has a Growth Score of B and has climbed 2.7% compared with the industry’s decline of 5.4%, year to date.
Rolling Meadows, IL-based Arthur J. Gallagher & Co. (AJG - Free Report) provides insurance brokerage, consulting, and third party claims settlement and administration services to entities in the United States and internationally. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 6.2% upward to $3.58 over the last 60 days. This is reflected through the company’s Zacks Rank of 2.
The stock has a Growth Score of B and has gained 11.7% compared with the industry’s growth of 7.1%, year to date.
Can Hackers Put Money INTO Your Portfolio?
Earlier this month, credit bureau Equifax announced a massive data breach affecting 2 out of every 3 Americans. The cybersecurity industry is expanding quickly in response to this and similar events. But some stocks are better investments than others.
Zacks has just released Cybersecurity! An Investor’s Guide to help Zacks.com readers make the most of the $170 billion per year investment opportunity created by hackers and other threats. It reveals 4 stocks worth looking into right away.
Download the new report now>>