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 just one 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, among others. They also provide risk management services.
Multiline insurers stand to gain from disseminating the risk among different coverages.
Here are the three major industry themes:
- These insurers are one of the major beneficiaries of an improving rate environment as higher rates allow them to invest the premiums at a higher rate and generate better investment income. However, the central bank may not raise rates in 2019 and even consider slashing rates against its earlier expectation of two raises due to slowing economic growth and sluggish inflation. Since higher interest rates help the industry, absence of a rate hike could weigh on investment income and reinvestment rate.
- Multiline insurers’ profits are vulnerable to catastrophes because of the presence of property coverage in their bundle. Nonetheless, increase in premium pricing should drive revenue improvement. In the first quarter of 2019, in personal lines insurance, homeowners, automobile and personal articles saw rate increase of 2%, 2.5% and 1%, respectively. In Commercial, most of the lines saw premium rate increase of 2%, while Commercial Auto saw a 7% rate increase. In the rest of 2019, most of the commercial insurance lines should witness rate increase. However, pricing for workers compensation and international liability continue to remain weak.
- Increasing adoption of technologies like artificial intelligence, robotic process automation, cognitive intelligence or blockchain and cloud computing should help insurers control costs. A solid capital level continues to support growth strategies, mergers and acquisitions, and capital deployment. Also, low unemployment level, improving wages and growing GDP bode well for the industry.
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 bright prospects in the near term. The Zacks Multiline Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #12, which places it in the top 5% 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 the result of positive earnings outlook for the constituent companies in aggregate. In a year’s time, the industry’s EPS estimates for the current year have gone up 2.5%.
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 Outperforms Sector But Lags S&P 500
The Multiline Insurance industry has outperformed its own sector but underperformed the Zacks S&P 500 composite over the past year. The stocks in this industry have collectively declined 3.4% in the past year while the Finance sector declined 4.9%. The Zacks S&P 500 composite has lost 1% in the said time frame.
One-Year Price Performance
On the basis of trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.4X compared with the S&P 500’s 3.79X and the sector’s 2.47X.
Over the past five years, the industry has traded as high as 1.82X, as low as 1.33X and at the median of 1.63X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
Adoption of technology, product development, prudent underwriting practices, competitive pricing and a compelling product portfolio should keep supporting business growth for multiline insurers. Also, a sturdy capital level should support effective capital deployment like investing in growth opportunities and returning capital to shareholders.
Investors may consider buying the following stocks that carry a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
American International Group, Inc. (AIG - Free Report) : This provider of insurance products for commercial, institutional, and individual customers in North America and internationally is headquartered in New York. The Zacks Consensus Estimate for 2019 earnings per share (EPS) has moved 12.7% north over the past 30 days. As a result, the stock currently sports a Zacks Rank #1.
Price and Consensus: AIG
MGIC Investment Corporation (MTG - Free Report) : This Milwaukee, WI-based provider of private mortgage insurance and ancillary services to lenders and government sponsored entities in the United States company sports a Zacks Rank of 1. The Zacks Consensus Estimate for 2019 EPS has moved up 12.7% over the past 30 days.
Price and Consensus: MTG
Prudential plc (PUK - Free Report) : Based in London, the United Kingdom, this Zacks Rank #1 provider of a range of retail financial products and services, and asset management services in Asia, the United States, the United Kingdom, Europe and Africa has seen its consensus estimate for 2019 move 3.4% north in the past 60 days.
Price and Consensus: PUK
The Hartford Financial Services Group, Inc. (HIG - Free Report) : Hartford Financial engages in providing insurance and financial services to individual and business customers in the United States. The Zacks Consensus Estimate for 2019 EPS of this Hartford, CT-based company has moved up 2.6% over the past 60 days. The stock currently carries a Zacks Rank #2. It surpassed estimates in each of the trailing four quarters.
Price and Consensus: HIG
Loews Corporation (L - Free Report) : Headquartered in New York, this Zacks Rank #2 company provides commercial property and casualty insurance in the United States and internationally through its subsidiaries. The consensus estimate for 2019 has moved 6.3% north in the past 60 days. The Zacks Consensus Estimate for 2019 indicates an increase of nearly 20% year over year.
Price and Consensus: L
Kemper Corporation (KMPR - Free Report) : This Zacks Rank #2 provider of property and casualty, and life and health insurance to individuals and businesses is based in Chicago, IL. The Zacks Consensus Estimate for 2019 EPS has moved 3.6% north over the past 60 days and indicates an increase of 31% year over year.
Price and Consensus: KMPR