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Disappointing Near-Term Outlook for P&C Insurance Industry

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The Zacks Property and Casualty Insurance (P&C) 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 provided by the companies also include automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, and professional indemnity and surety, among others.

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).

Here are the industry’s three major themes:

  • The U.S. property and casualty insurance industry like any other industry is facing operational challenges due to the pandemic. Unemployment and furlough have adversely impacted new sales in property and casualty insurance space. Claims are also likely to increase. Expense ratios might deteriorate. Also, property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profit. Adding to the woes, a low interest rate and equity market fluctuations might weigh on investment results. In April 2020, AM Best revised its outlook on auto, commercial lines and mortgage insurance to negative. Nonetheless, better pricing and exposure growth (an increase in the number and value of insurable interests) will likely help maintain underwriting profitability. Sturdy policyholders’ surplus will help the industry absorb losses. Per a report by Carrier Management, Fitch Ratings analysts project an overall combined ratio of 97 in 2020, a slight improvement from 98 in 2019.   
  • 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.
  • 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 Bleak 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 Property and Casualty Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #206, which places it in the bottom 19% 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 a result of negative earnings outlook for the constituent companies in aggregate. In a year’s time, the industry’s earnings estimates for the current year have gone down by 17.5%.

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 Outperforms Sector But Lags S&P 500

The Property and Casualty Insurance industry has underperformed the Zacks S&P 500 composite but outperformed its own sector over the past year. The stocks in this industry have collectively lost 11% in the past year compared with the Finance sector’s decrease of 12.5%. Meanwhile, the Zacks S&P 500 composite has risen 10%.

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 1.23X compared with the S&P 500’s 4.21X and the sector’s 2.31X.

Over the past five years, the industry has traded as high as 1.67X, as low as 0.93X and at the median of 1.46X.

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

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

Bottom Line

Prudent underwriting practices, competitive pricing and a compelling product portfolio should continue to drive P&C insurers’ bottom line. Moreover, a sturdy capital level should place insurers well to pursue mergers and acquisitions, invest in technologies and return capital to shareholders.

Nonetheless, exposure to unforeseen catastrophe events and unpredictable losses remain concerns for P&C insurers.

Now we present a few stocks from the industry 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.

New York-based National General Holdings Corp. (NGHC - Free Report) , a specialty personal lines insurance holding company, provides various insurance products and services in the United States, Bermuda, Luxembourg, and Sweden. The Zacks Consensus Estimate for 2020 has moved up 9.6% while the same for 2021 has moved up 2.2% in the past 60 days. It currently sports a Zacks Rank #1.

Price and Consensus: NGHC

Richmond, VA based Kinsale Capital Group Inc. (KNSL - Free Report) provides casualty and property insurance products in the United States. This Zacks Ranked #2 insurer has seen its 2020 consensus estimate move 3.2% north in the past 60 days.

Price and Consensus: KNSL

La Jolla, CA based Palomar Holdings, Inc. (PLMR - Free Report) has seen its 2020 consensus estimate move 5% higher in the past 60 days. This Zacks Ranked #2 company provides specialty property insurance.

Price and Consensus: PLMR

The Allstate Corporation
(ALL - Free Report) is the third-largest property-casualty (P&C) insurer and the largest publicly-held personal lines carrier in the United States. This Northbrook, IL based insurer carries a Zacks Rank #2. The Zacks Consensus Estimate for 2020 has moved up 2.3% while the same for 2021 has moved up 1.6% in the past 30 days. The expected long-term earnings growth rate is 7.5%, better than the industry average of 7.2%.

Price and Consensus: ALL

St. Petersburg, FL based United Insurance Holdings Corp. (UIHC - Free Report) operates as a property and casualty insurance holding company that sources, writes, and services residential personal and commercial property, and casualty insurance policies in the United States. The Zacks Consensus Estimate for this Zacks Rank #2 insurer’s 2020 earnings is pegged at 75 cents, implying 169.4% year-over-year increase.

Price and Consensus: UIHC

Marietta, PA based Donegal Group Inc. (DGICA - Free Report) , an insurance holding company, provides personal and commercial lines of property and casualty insurance to businesses and individuals in the Mid-Atlantic, Midwestern, New England, and southern states. It carries a Zacks Rank #2. The Zacks Consensus Estimate for 2020 has moved up 13.6% in the past 60 days.

Price and Consensus: DGICA

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