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6 Multiline Insurers to Watch Out for Amid Operational Challenges

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Product diversification helps Zacks Multiline Insurance industry players weather the impact of a sustained low interest rate environment. Better pricing, prudent underwriting and exposure growth should benefit Cigna (CI - Free Report) , Old Republic International (ORI - Free Report) , CNO Financial (CNO - Free Report) , MetLife (MET - Free Report) , Horace Mann Educators (HMN - Free Report) and MGIC Investment (MTG - Free Report) .

Increasing adoption of technology will help in smooth functioning of the industry. However, pandemic-related uncertainties weigh on merger and acquisition (M&A) activities and industry surplus.
 

About the Industry

The Zacks Multiline Insurance industry comprises companies that provide a single insurance coverage, bundling automobile, homeowner, long-term care, life and health insurance to individuals and businesses. The insured pays a single premium and is covered for many things through a single contract.

These companies cover commercial and personal properties, automobiles, marine, livestock, aviation, personal accident, life including permanent and term insurance, supplemental accident and health insurance, workers’ compensation, annuity products, private mortgage insurance, et al. The industry participants also provide risk management services.
 

4 Trends Shaping the Future of Multiline Insurance Industry

Diversified portfolio lowers concentration risk:  Given the nature of the business, Multiline insurers’ product and service portfolio is diversified, which lowers concentration risk. While auto claims are likely to decline, frequency of claims from essential service industries are bound to rise. Further, a spike in mortality will induce higher claim payments for life insurance coverages. The U.S. multiline-insurance sector should face operational challenges due the pandemic. Slowdown in economic growth might weigh on new sales and insurable exposures.  Nonetheless, better pricing, reinsurance arrangements, product redesigns, prudent underwriting and favorable reserve should help carriers weather this difficult operating environment.

Low interest rate environment: A sustained low interest rate and equity market fluctuations weigh on investment results. Notably, investment yield should be less on account of low rate. The sustained low interest rate environment prompted life insurance providers to make product modifications by moving away from fixed annuity products with guarantee returns to variable annuity products and products with market related returns. A low rate is a headwind for long-tail Property and Casualty insurers. A rate recovery is unlikely until 2023.

Merger and acquisitions: Consolidation in the multi-line insurance industry would continue as players look to diversify their operations into new business lines and geography. Buying businesses in the same lines will be driven by the players’ need to gain a fair market share and grow in their niche areas. Also, a low interest rate environment makes mergers and acquisitions possible since funding purchases become more affordable. Per a recent Willis Towers Watson report, the global M&A market recorded its first positive performance in three years for completed deals. However, deal volume has declined considerably due to the uncertainty surrounding the pandemic. Industry surplus too has dropped.

Increased adoption of technology: The industry is noticing greater use of technology like blockchain, AI, advanced analytics, telematics, cloud computing and robotic process automation to expedite business operations and save costs.  Many life insurers have started selling policies online that appeal to the tech-savvy population. At the same time, the use of real-time data is making premium calculation easier and reducing risk. The P&C industry, in particular, also witnessed the emergence of insurtech — technology-led insurers — sparking competition for incumbent players. Moreover, adoption of technology has helped in seamless underwriting and claims processing amid the pandemic, which necessitated social distancing and remote working.


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 weak prospects in the near term. The Zacks Multiline Insurance industry, housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #171, which places it in the bottom 31% of 255 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 the result of a negative earnings outlook for the constituent companies in aggregate. In a year, the industry’s earnings estimates for the current year have been revised downward by 22.1%.    

Before we present a few multiline insurance 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 Lags Sector and S&P 500

The Multiline Insurance industry has underperformed both the Zacks S&P 500 composite and its sector over the past year. The stocks in this industry have collectively lost 24.7% in the past year compared with the Finance sector’s decline of 15.5%. Notably, the Zacks S&P 500 composite has gained 6.9% in the same time frame.


One-Year Price Performance

Current Valuation

On the basis of its trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.14X compared with the S&P 500’s 5.42X and the sector’s 2.45X.

Over the past five years, the industry has traded as high as 1.98X, as low as 0.85X and at the median of 1.48X.


Price-to-Book (P/B) Ratio (TTM)

Price-to-Book (P/B) Ratio (TTM)

6 Multiline Insurance Stocks to Keep an Eye on

We are presenting three Zacks Rank #2 (Buy) stocks from the Multiline Insurance industry. We are also presenting three stocks with a Zacks Rank #3 (Hold) from the same industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cigna: Based in Bloomfield, CT based company provides insurance and related products and services.  Acquisition of Express Scripts, strong international operations and growing medical membership auger well for growth for this Zacks Rank #2 company. The Zacks Consensus Estimate for 2020 and 2021 indicates a year-over-increase of 8.6% and 10.4% respectively from its prior-year reported numbers. The expected long-term earnings growth is 11.1%, better than the industry average of 6.6%.


Price and Consensus: CI    

Old Republic International Corporation: This Chicago, IL based company engages in the insurance underwriting and related services business primarily in the United States and Canada. Boasting the third-largest title insurer in the country, strength of its General Insurance as well as Title Insurance segment poises it well for growth.  The Zacks Consensus Estimate for 2020 and 2021 of this Zacks Rank #2 company has moved up 11.8% and 6.5%, respectively, in the last seven days.


Price and Consensus: ORI

 

CNO Financial Inc.: This Carmel, IN based Zacks Rank #2 company develops, markets, and administers health insurance, annuity, individual life insurance, and other insurance products for senior and middle-income markets in the United States. The Zacks Consensus Estimate for 2021 and 2021 of this Zacks Rank #2 company has moved up 5.1% and 1.9%, respectively, in the past 30 days. Moreover, the consensus estimate for 2020 and 2021 earnings per share suggests an improvement of 13.9% and 3.3% from the respective prior-year reported numbers. The stock has gained 6.9% in the past year.


Price and Consensus: CNO

 

MetLife: This New York, NY-based insurance-based global financial services company provides protection and investment products to a range of individual and institutional customers. Its focus on businesses with growth potential and strategies to control cost and increase efficiency bodes well for growth. The Zacks Consensus Estimate for 2020 and 2021 of this Zacks Rank #3 company has moved up 1.6% and 0.5%, respectively, in the last 30 days. The expected long-term earnings growth is 4.1%. The stock has lost 20.4% in the past year.


Price and Consensus: MET

 

Horace Mann Educators Corporation: This Springfield, IL-based multiline insurer carries a Zacks Rank #3 and is well-poised for growth, riding on transformational actions and profitability initiatives, niche market focus and a sturdy financial position. The Zacks Consensus Estimate for 2020 earnings per share suggests 36.4% rise from the prior-year reported number. The stock has lost 22.6% in the past year.


Price and Consensus: HMN

 

MGIC Investment Corporation: This Milwaukee, WI-based company provides private mortgage insurance, other mortgage credit risk management solutions, and ancillary services to lenders and government sponsored entities in the United States, Puerto Rico, and Guam. Higher premium, a decline in claim payments and decreasing delinquencies an improving housing market, outstanding credit quality and new business will continue to induce growth at the Zacks Rank #3 company. The Zacks Consensus Estimate for 2020 indicates a year-over-increase of 6.8%. The expected long-term earnings growth rate is 5%. The stock has lost 27.6% in the past year.

 


Price and Consensus: MTG

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