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While frequent natural disasters should accelerate the policy renewal rate, increasing adoption of technology and emergence of insurtech will help in smooth functioning of the industry. Though pandemic-related uncertainties weigh on merger and acquisition (M&A) activities, a low rate environment, improvement in surplus, and reopening of economic activities should set the stage for a better M&A environment this year.
About the Industry
The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property, and casualty insurance products and services. Such insurance coverage helps to safeguard property in case of any natural or man-made disaster. Liability coverages are also provided by some industry players.
Insurance coverages offered by the companies also include automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, and professional indemnity and surety.
Premiums are the primary source of revenues for these insurers. These companies invest a portion of premiums collected to meet their commitments to policyholders. Thus, a low rate environment is a concern for P&C insurers (especially for long-tail insurance providers).
4 Trends Shaping the Future of Property and Casualty Insurance Industry
Improved pricing helps navigate claims payment: Though catastrophes are a concern for insurers due to the high degree of losses incurred, they implement price hikes to ensure uninterrupted claims payment. Per Willis Towers Watson’s 2021 Insurance Marketplace Realities report, except for one, 29 lines of business are expected to witness price rise this year. Better pricing will help insurers address claims payment.
Catastrophe loss weighing on underwriting profitability: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profit. Per the report published by Swiss Re Institute, global insured catastrophe losses incurred in 2020 was $83 billion, which made it the fifth-costliest year. The report further stated that natural catastrophes accounted for $76 billion of global insured losses, an increase of 40% from 2019 level. The private U.S. P&C insurance industry thus witnessed 27.5% decline in net income while net underwriting gains plummeted 94.4% in the first nine months of 2020 per the report from Verisk. Nonetheless, per a report published in Carrier Management, AM Best noted that combined ratio deteriorated only 70 basis points to 98.7 in the first nine months of 2020. Nonetheless, exposure growth, better pricing, prudent underwriting and favorable reserve development will help withstand the blow. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
Merger and acquisitions: Consolidation in the property and casualty industry is likely to continue as players look to diversify their operations into new business lines and geography. Buying businesses in the same lines will also continue as players look to gain market share and grow in their niche areas. Also, non-traditional firms are gradually entering the insurance space and combining insurance with their core products. 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. Per Willis Towers Watson’s Quarterly Deal Performance Monitor and M&A Research Centre at The Business School, the industry witnessed 674 deals for more than $100 million in 2020, much lower than the year-ago tally of 774 deals. However, a low rate environment, improvement in surplus, reopening of economic activities should lead to a better M&A environment this year.
Increased adoption of technology: The industry is witnessing increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation that expedite business operations and save cost. The industry has also witnessed the emergence of insurtech — technology-led insurers — creating competition for incumbent players. The focus of insurtech is mainly on the property and casualty insurance industry. Adoption of technologies has helped in seamless underwriting and claims processing during the pandemic that has led to social distancing norms. As insurtechs use the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains huge market risk.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates attractive prospects in the near term. The Zacks Property and Casualty Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #109, which places it in the top 43% of more than 250 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 top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. The industry’s earnings estimates for the current year have gone up 2.2% in the last eight months.
Before we present a few property and casualty 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 Property and Casualty Insurance industry has underperformed the Zacks S&P 500 composite as well as its own sector over the past year. The stocks in this industry have collectively gained 0.3% in the past year compared with the Finance sector’s increase of 7.6%. and the Zacks S&P 500 composite’s rise of 23.3%.
One-Year Price Performance
Current Valuation
On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.3X compared with the S&P 500’s 6.66X and the sector’s 3.08X.
Over the past five years, the industry has traded as high as 1.69X, as low as 0.95X and at the median of 1.47X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
7 Property and Casualty Insurance Stocks to Keep an Eye on
We are recommending one Zacks Rank #1 (Strong Buy) and two Zacks Rank #2 (Buy) stocks from the P&C Insurance industry. We are also presenting four more stocks with a Zacks Rank #3 (Hold) from the same industry. You can see the complete list of today’s Zacks #1 Rank stocks here.
Markel Corporation: Glen Allen, VA based Markel markets and underwrites specialty insurance products in the United States, the United Kingdom, Canada, and internationally and sports a Zacks Rank #1. The company is poised for growth given its niche focus, improved pricing, effective management of insurance risk and focus on developing and maintaining underwriting as well as pricing guidelines. Estimates for its 2021 bottom line have jumped over the past 30 days by 14.3%, and suggest a 122.4% surge from the year-ago reported number.
Price and Consensus: MKL
Cincinnati Financial: Fairfield, OH- based Cincinnati Financial markets property and casualty insurance. This Zacks Rank #2 company should continue to grow given disciplined expansion of Cincinnati Re, agent-focused business model, and strong performance at Commercial Lines segment. Estimates for its 2021 bottom line have jumped over the past seven days by 3.1%, and suggest a 23.5% increase from the year-ago reported number.
Price and Consensus: CINF
The Travelers Companies: This New York, NY-based Zacks Rank #2 provider of a wide variety of property and casualty insurance and surety product has an expected long-term earnings growth of 6.4%. Estimates for its 2021 bottom line have risen 10.8% over the past 30 days and suggest a 10.6% increase from the year-ago reported number.
Price and Consensus: TRV
Berkshire Hathaway: Omaha, NE-based Berkshire is a holding company, which owns more than 90 subsidiaries in insurance, rail roads, utilities, manufacturing services, retail and home building. The company is expected to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments and strategic acquisitions. It carries a Zacks Rank #3. The expected long-term earnings growth is 7%.
Price and Consensus: BRK.B
The Progressive Corporation: Based in Mayfield Village, OH, it is one of the major auto insurers in the country. It is poised to grow on a robust portfolio, solid policies in force, service to customers opting for a combination of home and auto insurance, leadership in underwriting technology and application of quantitative analytics in pricing and risk selection and solid market positioning. It carries a Zacks Rank #3. Estimates for its 2021 bottom line have jumped over the past seven days by 17.6%. The expected long-term earnings growth is 6.7%.
Price and Consensus: PGR
The Allstate Corporation: Based in Northbrook, IL, it is the third-largest property-casualty insurer and the largest publicly-held personal lines carrier in the United States. It also provides a range of life insurance and investment products. Allstate is poised to grow on the back of its solid property and liability segment. It carries a Zacks Rank #3. Estimates for its 2021 bottom line have climbed 1% over the past 30 days. The expected long-term earnings growth is 7.5%, better than the industry average of 7.3%.
Price and Consensus: ALL
Chubb: Based in Zurich, Switzerland, it is one of the world’s largest providers of P&C insurance and reinsurance has diversified through acquisitions into many specialty lines and also provides specialized insurance products. The company is poised to benefit from its focus on capitalizing on the potential of middle-market businesses, and strategic initiatives, which pave the way for long-term growth. It carries a Zacks Rank #3. The Zacks Consensus Estimate for 2021 indicates a year-over-increase of 59.6%.The expected long-term earnings growth is 10%, better than the industry average of 7.3%.
Price and Consensus: CB
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Image: Bigstock
7 Property and Casualty Insurers to Watch as Pricing Improves
The Zacks Property and Casualty Insurance (P&C) industry is poised to benefit from better pricing, prudent underwriting and exposure growth. Industry players like Berkshire Hathaway (BRK.B - Free Report) , Progressive Corporation (PGR - Free Report) , Allstate Corporation (ALL - Free Report) , Chubb (CB - Free Report) , Markel Corporation (MKL - Free Report) , Cincinnati Financial (CINF - Free Report) and The Travelers Companies (TRV - Free Report) thus look set to grow despite rise in catastrophes.
While frequent natural disasters should accelerate the policy renewal rate, increasing adoption of technology and emergence of insurtech will help in smooth functioning of the industry. Though pandemic-related uncertainties weigh on merger and acquisition (M&A) activities, a low rate environment, improvement in surplus, and reopening of economic activities should set the stage for a better M&A environment this year.
About the Industry
The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property, and casualty insurance products and services. Such insurance coverage helps to safeguard property in case of any natural or man-made disaster. Liability coverages are also provided by some industry players.
Insurance coverages offered by the companies also include automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, and professional indemnity and surety.
Premiums are the primary source of revenues for these insurers. These companies invest a portion of premiums collected to meet their commitments to policyholders. Thus, a low rate environment is a concern for P&C insurers (especially for long-tail insurance providers).
4 Trends Shaping the Future of Property and Casualty Insurance Industry
Improved pricing helps navigate claims payment: Though catastrophes are a concern for insurers due to the high degree of losses incurred, they implement price hikes to ensure uninterrupted claims payment. Per Willis Towers Watson’s 2021 Insurance Marketplace Realities report, except for one, 29 lines of business are expected to witness price rise this year. Better pricing will help insurers address claims payment.
Catastrophe loss weighing on underwriting profitability: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profit. Per the report published by Swiss Re Institute, global insured catastrophe losses incurred in 2020 was $83 billion, which made it the fifth-costliest year. The report further stated that natural catastrophes accounted for $76 billion of global insured losses, an increase of 40% from 2019 level. The private U.S. P&C insurance industry thus witnessed 27.5% decline in net income while net underwriting gains plummeted 94.4% in the first nine months of 2020 per the report from Verisk. Nonetheless, per a report published in Carrier Management, AM Best noted that combined ratio deteriorated only 70 basis points to 98.7 in the first nine months of 2020. Nonetheless, exposure growth, better pricing, prudent underwriting and favorable reserve development will help withstand the blow. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
Merger and acquisitions: Consolidation in the property and casualty industry is likely to continue as players look to diversify their operations into new business lines and geography. Buying businesses in the same lines will also continue as players look to gain market share and grow in their niche areas. Also, non-traditional firms are gradually entering the insurance space and combining insurance with their core products. 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. Per Willis Towers Watson’s Quarterly Deal Performance Monitor and M&A Research Centre at The Business School, the industry witnessed 674 deals for more than $100 million in 2020, much lower than the year-ago tally of 774 deals. However, a low rate environment, improvement in surplus, reopening of economic activities should lead to a better M&A environment this year.
Increased adoption of technology: The industry is witnessing increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation that expedite business operations and save cost. The industry has also witnessed the emergence of insurtech — technology-led insurers — creating competition for incumbent players. The focus of insurtech is mainly on the property and casualty insurance industry. Adoption of technologies has helped in seamless underwriting and claims processing during the pandemic that has led to social distancing norms. As insurtechs use the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains huge market risk.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates attractive prospects in the near term. The Zacks Property and Casualty Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #109, which places it in the top 43% of more than 250 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 top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. The industry’s earnings estimates for the current year have gone up 2.2% in the last eight months.
Before we present a few property and casualty 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 Property and Casualty Insurance industry has underperformed the Zacks S&P 500 composite as well as its own sector over the past year. The stocks in this industry have collectively gained 0.3% in the past year compared with the Finance sector’s increase of 7.6%. and the Zacks S&P 500 composite’s rise of 23.3%.
One-Year Price Performance
Current Valuation
On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.3X compared with the S&P 500’s 6.66X and the sector’s 3.08X.
Over the past five years, the industry has traded as high as 1.69X, as low as 0.95X and at the median of 1.47X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
7 Property and Casualty Insurance Stocks to Keep an Eye on
We are recommending one Zacks Rank #1 (Strong Buy) and two Zacks Rank #2 (Buy) stocks from the P&C Insurance industry. We are also presenting four more stocks with a Zacks Rank #3 (Hold) from the same industry. You can see the complete list of today’s Zacks #1 Rank stocks here.
Markel Corporation: Glen Allen, VA based Markel markets and underwrites specialty insurance products in the United States, the United Kingdom, Canada, and internationally and sports a Zacks Rank #1. The company is poised for growth given its niche focus, improved pricing, effective management of insurance risk and focus on developing and maintaining underwriting as well as pricing guidelines. Estimates for its 2021 bottom line have jumped over the past 30 days by 14.3%, and suggest a 122.4% surge from the year-ago reported number.
Price and Consensus: MKL
Cincinnati Financial: Fairfield, OH- based Cincinnati Financial markets property and casualty insurance. This Zacks Rank #2 company should continue to grow given disciplined expansion of Cincinnati Re, agent-focused business model, and strong performance at Commercial Lines segment. Estimates for its 2021 bottom line have jumped over the past seven days by 3.1%, and suggest a 23.5% increase from the year-ago reported number.
Price and Consensus: CINF
The Travelers Companies: This New York, NY-based Zacks Rank #2 provider of a wide variety of property and casualty insurance and surety product has an expected long-term earnings growth of 6.4%. Estimates for its 2021 bottom line have risen 10.8% over the past 30 days and suggest a 10.6% increase from the year-ago reported number.
Price and Consensus: TRV
Berkshire Hathaway: Omaha, NE-based Berkshire is a holding company, which owns more than 90 subsidiaries in insurance, rail roads, utilities, manufacturing services, retail and home building. The company is expected to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments and strategic acquisitions. It carries a Zacks Rank #3. The expected long-term earnings growth is 7%.
Price and Consensus: BRK.B
The Progressive Corporation: Based in Mayfield Village, OH, it is one of the major auto insurers in the country. It is poised to grow on a robust portfolio, solid policies in force, service to customers opting for a combination of home and auto insurance, leadership in underwriting technology and application of quantitative analytics in pricing and risk selection and solid market positioning. It carries a Zacks Rank #3. Estimates for its 2021 bottom line have jumped over the past seven days by 17.6%. The expected long-term earnings growth is 6.7%.
Price and Consensus: PGR
The Allstate Corporation: Based in Northbrook, IL, it is the third-largest property-casualty insurer and the largest publicly-held personal lines carrier in the United States. It also provides a range of life insurance and investment products. Allstate is poised to grow on the back of its solid property and liability segment. It carries a Zacks Rank #3. Estimates for its 2021 bottom line have climbed 1% over the past 30 days. The expected long-term earnings growth is 7.5%, better than the industry average of 7.3%.
Price and Consensus: ALL
Chubb: Based in Zurich, Switzerland, it is one of the world’s largest providers of P&C insurance and reinsurance has diversified through acquisitions into many specialty lines and also provides specialized insurance products. The company is poised to benefit from its focus on capitalizing on the potential of middle-market businesses, and strategic initiatives, which pave the way for long-term growth. It carries a Zacks Rank #3. The Zacks Consensus Estimate for 2021 indicates a year-over-increase of 59.6%.The expected long-term earnings growth is 10%, better than the industry average of 7.3%.
Price and Consensus: CB
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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