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Bleak Near-Term Outlook for Multiline Insurance Industry

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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 premiums at a higher rate and generate better investment income. However, the central bank has lowered interest rate twice this year (July and September) and is considering slashing rates once more due to muted inflation pressure and geopolitical tension. 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 premium improvement.  In the third quarter of 2019, per a report published in Business Insurance, four of the six commercial property/casualty insurance lines posted higher premium renewal rates per insurance exchange, Ivans Insurance Solutions. Workers compensation however witnessed soft pricing. According to Ivans Insurance Solutions, commercial property rates increased 4.2%, business owner policies rate rose 4.17% and commercial auto rates increased 4.32%. Umbrella liability and general liability rates witnessed 2.66% and 2.51% rise, respectively. In the rest of 2019, most of the commercial insurance lines should witness rate increase.  However, pricing for workers compensation remains 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 Gloomy Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull 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 #158, which places it in the bottom 38% 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 bottom 50% of the Zacks-ranked industries is the result of negative earnings outlook for the constituent companies in aggregate. Year to date, the industry’s EPS estimate for the current year has declined nearly 3%.

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 underperformed both the Zacks S&P 500 composite as well as its sector over the past year. The stocks in this industry have collectively lost 0.2% in the past year compared with the Finance sector and Zacks S&P 500 composite’s increase of 1.5% and 4.8%, respectively.

One-Year Price Performance



Current Valuation


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 1.51X compared with the S&P 500’s 4.01X and the sector’s 2.63X.

Over the past five years, the industry has traded as high as 1.98X, as low as 0.88X and at the median of 1.46X.

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



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



Bottom Line

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 look at the following stocks that carry a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Radian Group (RDN - Free Report) : This Zacks Rank #1 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 and 2020 earnings per share indicates 9.7% and 3.4% year-over-year increase, respectively. The expected long-term earnings growth rate is pegged at 5%.

Price and Consensus: RDN



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 carries a Zacks Rank of 2. The Zacks Consensus Estimate for 2019 EPS has moved up 0.6% over the past 30 days. The company has a solid history of delivering earnings surprise in the last four quarters, the average beat being 17.39%

Price and Consensus: MTG


Cigna (CI - Free Report) : This Bloomfield, CT based company has a Zacks Rank #2. This  health service organization provides insurance and related products and services in the United States and internationally.  The Zacks Consensus Estimate for 2019 and 2020 earnings per share indicates 18% and 11.5% year-over-year increase, respectively. The expected long term earnings growth rate is 11.7%.

Price and Consensus: CI



The Hartford Financial Services Group (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 and 2020 earnings of this Hartford, CT-based company implies 22.4% and 3.1% year-over-year increase, respectively. The stock currently carries a Zacks Rank #3. 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 #3 company provides commercial property and casualty insurance in the United States and internationally through its subsidiaries. The Zacks Consensus Estimate for 2019 and 2020 indicates an increase of nearly 18% and 1.5% year over year respectively.

Price and Consensus: L



MetLife (MET - Free Report) : This Zacks Rank #3 company engages in the insurance, annuities, employee benefits, and asset management businesses and is based in New York. The Zacks Consensus Estimate for 2019 EPS has moved 0.2% north over the past 60 days and indicates an increase of 5.4% year over year. The stock currently carries a Zacks Rank #3. It surpassed estimates in each of the trailing four quarters.

Price and Consensus: MET



American International Group (AIG - Free Report) : This Zacks Rank #3 provider of insurance products for commercial, institutional, and individual customers in North America and internationally is based in New York. The Zacks Consensus Estimate for 2019 and 2020 earnings per share indicates 338.5% and 0.2% year-over-year increase, respectively.

Price and Consensus: AIG



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