Back to top

Image: Bigstock

7 Multiline Insurers to Watch As Business Activity Gains Momentum

Read MoreHide Full Article

Product diversification helps Zacks Multiline Insurance industry players to lower concentration risk, ensure uninterrupted revenue generation, and improve retention ratio. Better pricing, prudent underwriting, increased exposure, faster economy recovery on the receding impact of the pandemic and increased vaccinations should benefit MetLife Inc. (MET - Free Report) , American International Group (AIG - Free Report) , Cigna Corporation (CI - Free Report) , The Hartford Financial Services Group (HIG - Free Report) , Prudential Financial (PRU - Free Report) , Assurant (AIZ - Free Report) and Old Republic International Corporation (ORI - Free Report) . Accelerated digitalization will help in the smooth functioning of the industry.

The solid capital level of the multiline insurers will again fuel merger and acquisition (M&A) activities. Though a low-rate environment weighs on investment income and hampers life as well as long tail property and casualty operations, the same makes borrowed funding affordable.


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. Since the companies offer single insurance coverage for multiple products, customer retention improves. An insured stands to benefit from lower premium payment, compared to paying individual premium for insuring varied products.

3 Trends Shaping the Future of the 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. Per a report published in Insurance Journal, S&P Global Ratings notes that though the pandemic cost $8 billion for 16 global multiline insurers in 2020, they delivered net profit of $36 billion, given their diversified operations. Its property and casualty operations faced the fury of active hurricanes, which will weigh on underwriting profits. Aon estimates about $107 billion in insured losses from natural disasters in the first nine months of 2021per a report published in ARTEMIS.  The life insurance business should benefit from increased awareness to the pandemic, and lower mortality rates as the pandemic slowly recedes and vaccination programs increase, resulting in lower claim payments, even though concerns over new virus variants looms large.  Per Deloitte Insights, life insurance premium is estimated to increase 4%. while nonlife insurance premium is expected to increase 3.7% in 2022. Continued improvement in pricing should support premium growth.

Merger and acquisitions:  Consolidation in the multi-line insurance industry would continue as players look to diversify their operations into new business lines and geographies. 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. Although deal volume has declined considerably due to the uncertainty surrounding the pandemic in 2020, a better stage is already set for 2021 with the reopening of the economy, an optimistic growth outlook and solid capital level of the insurers. Per Deloitte Insights, the insurance industry witnessed 197 consolidations in the first half of 2021, almost in line with the full-year 2020 figure.

Increased adoption of technology: Digitalization has taken a leap in the industry with the pandemic hitting hard and companies gathering strength to operate amid pandemic-induced restrictions. The industry is witnessing 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, the adoption of technology has helped in seamless underwriting and claims processing. Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022.

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 #218, which places it in the bottom 14% 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. The industry’s earnings estimates for the current year have been revised downward by 42.3% over a year’s time.    

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 Underperforms 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 gained 6.1% in the past year compared with the Finance sector’s increase of 25.5%. Notably, the Zacks S&P 500 composite has gained 27.6% 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 1.43X compared with the S&P 500’s 7.03X and the sector’s 3.23X.

Over the past five years, the industry has traded as high as 1.96X, as low as 0.84X and at the median of 1.56X.

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

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



 

7 Multiline Insurance Stocks to Keep an Eye on

We are presenting one Zacks Rank #2 (Buy) stocks from the Multiline Insurance industry. We are also presenting six 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.

Old Republic International Corporation: Chicago, IL-based Old Republic International boasts being the third-largest title insurer in the country. Its position among title insurance providers to residential and commercial markets, niche focus, low property catastrophe exposure at its General Insurance segment, and solid capital position it well for growth.

The Zacks Consensus Estimate for 2021 and 2022 earnings of the Zacks Rank #2 ORI has moved up 11.5% and 12.5%, respectively, in the past 30 days. The Zacks Consensus Estimate for 2021 indicates a year-over-increase of 29.5%. The company delivered a four-quarter average earnings surprise of 54.63%.

Price and Consensus: ORI

Prudential: Headquartered in Newark, NJ, this Zacks Rank #2 insurer offers an array of financial products and services including life insurance, annuities, retirement-related services, mutual funds, investment management and real estate services. Prudential continues to benefit from solid asset-based businesses, improved margins in Group Insurance business, and international operations. Its high-performing asset management business and deeper reach in the pension risk transfer market are catalysts for long-term growth.

The Zacks Consensus Estimate for 2021 indicates a year-over-increase of 38.5% from its prior-year reported numbers and also moved up 6.2% in the last 30 days. The expected long-term earnings (three to five years) growth rate of PRU stands at 9.5%. The company delivered a four-quarter average earnings surprise of 34.07%.

Price and Consensus: PRU

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. MetLife’s focus on businesses with growth potential and strategies to control cost and increase efficiency bode well for growth. MET carries a Zacks Rank #3.

The Zacks Consensus Estimate for 2021 indicates year-over-increase of 39.8% from its prior-year reported numbers and has moved up 8.6% in past 30 days. The expected long-term earnings growth rate is pegged at 8%. The company delivered a four-quarter average earnings surprise of 43.13%.

Price and Consensus: MET

American International Group: Headquartered in New York, this Zacks Rank #3 insurer provides insurance products for commercial, institutional, and individual customers in North America and internationally. Strategic business de-risking and acquisitions, cost-control efforts, and accelerated capital deployment will drive growth.

The Zacks Consensus Estimate for 2021 and 2022 indicates a year-over-increase of 86.5% and 15.8%, respectively, from its prior-year reported numbers. The expected long-term earnings growth rate is 10%. AIG delivered a four-quarter average earnings surprise of 8.50%.

Price and Consensus: AIG

Cigna: Bloomfield, CT-based Cigna provides insurance and related products and services.  Acquisition of Express Scripts, strong international operations and growing medical membership auger well for growth.

The Zacks Consensus Estimate for 2021 and 2022 indicates year-over-increase of 10.6% and 8.3%, respectively, from the prior-year reported numbers. The consensus estimate for 2021 earnings of Zacks Rank #2 CI has moved up 0.7% in the last 30 days. The expected long-term earnings growth rate is 11.1%. The company delivered a four-quarter average earnings surprise of 4.53%.

Price and Consensus: CI   

Assurant: Headquartered in New York, Assurant is a global provider of risk management solutions in the housing and lifestyle markets. Strong performing Global Lifestyle business, growing Service business, and solid capital management should drive growth at the company.

The Zacks Consensus Estimate for 2021 and 2022 of this Zacks Rank #3 company indicates 6% and 31% year-over-year growth, respectively. The expected long-term earnings growth rate is pegged at 17.2%, better than the industry average of 11.9%. The consensus estimate for 2021 earnings of Zacks Rank #2 AIZ has moved up 0.8% in the last 30 days.  The company delivered a four-quarter average earnings surprise of 12.06%.

Price and Consensus: AIZ

Hartford Financial: This Hartford, CT-based Zacks Rank #3 company is one of the major multi-line insurance and investment companies in the country, providing investment products, group life and group disability insurance, property and casualty insurance, and mutual funds in the United States. Expanded product offerings, efforts to strengthen the commercial business, underwriting strength in products, capital appreciation and cost-curbing initiatives bode well for growth.

The Zacks Consensus Estimate for 2021 and 2022 of Zacks Rank #3 HIG has moved up 7.4% and 0.7%, respectively, in the past 30 days. The expected long-term earnings growth rate is pegged at 7%. Hartford Financial delivered a four-quarter average earnings surprise of 34.94%.

Price and Consensus: HIG