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Multiline Insurance Industry Gains 20% YTD: Stocks in Focus

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The Zacks Multiline Insurance  industry has outperformed the broader market year to date, riding on its core strengths. While the insurance industry has rallied 20.1%, the Zacks S&P 500 composite and the Zacks Finance sector have increased 12.5% and 19.6%, respectively.

Though pandemic-led challenges weigh on the performance of industry players, product diversification, improved pricing, prudent underwriting, increased exposure, adoption of technology and solid capital position should continue to drive the industry. Diversification of business, addition of capabilities, and expansion of global presence alongside the growth in niches should add to the upside. Notably, the industry’s earnings estimate for the current year has been revised upward by 20.3% in the past four weeks.

In its March FOMC meeting, the central bank was upbeat about its economic projections. The U.S. economy is projected to grow 6.5% in 2021, up from the December projection of 4.2%. Unemployment rate is expected to improve to 4.5% from 5% projected in December 2020. In its April FOMC meeting, the Federal Reserve pointed out that ”Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened.’’

Though a low interest rate environment weighs on investment results, improvement in surplus, and reopening of economic activities should lead to a better M&A environment this year as funding purchases become more affordable.

As evident from the name, these insurers provide a single insurance coverage, combining automobile, homeowner, long-term care, life and health insurance into one policy for individuals and businesses. Thus, they stand  to benefit from  a diversified portfolio, which lowers concentration risk.

Moreover, reinsurance arrangements and favorable reserve provide additional support.

Insurers are increasingly adopting technologies like artificial intelligence, robotic process automation, cognitive intelligence, advanced analytics, telematics, blockchain and cloud computing. This helps in managing costs and margin expansion.

The Zacks Multiline Insurance industry is currently undervalued compared with the Zacks S&P 500 composite as well as the Zacks Finance sector. The price-to-book (P/B) ratio, the best multiple for valuing insurers because of their unpredictable financial results, is 0.86, less than the Zacks S&P 500 composite’s P/B of 6.97 and the sector’s P/B of 3.32. Such below-market positioning hints at room for upside in the coming quarters.

Stocks in Focus

With the help of the Zacks Stock Screener, we have selected four insurance stocks that are well poised for growth riding on operational strength. These stocks have outperformed the industry year to date and witnessed upward estimate revisions in the past four weeks. Each of the stocks carries a Zacks Rank #3 (Hold).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American International Group (AIG - Free Report) 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 are expected to drive growth. The Zacks Consensus Estimate for 2021 indicates year-over-increase of 78.2% and has moved 1.1% north in the past four weeks. The expected long-term earnings growth rate is 10%.

Cigna Corporation (CI - Free Report) 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 has moved 0.6% north in the past four weeks and indicates 10.7% year-over-year increase. The expected long-term earnings growth rate is 11.5%. It carries a favorable VGM Score of B.

MetLife (MET - Free Report) is an insurance-based global financial services company providing protection and investment products to a range of individual and institutional customers. Its focus on businesses with growth potential and strategies to control cost and increase efficiency bode well for growth. The Zacks Consensus Estimate for 2021 indicates year-over-increase of 15.8% and has moved up 13.2% in the past four weeks. The expected long-term earnings growth rate is pegged at 4.8%. It carries an impressive VGM Score of A.

Prudential Financial (PRU - Free Report) 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. 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 year-over-increase of 28.5% and has moved up 10.9% in the past four weeks. The expected long-term earnings growth rate stands at 10.6%. It carries an impressive VGM Score of A.


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