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4 Growth Stocks to Buy From the Top-Ranked P&C Insurance Space

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The Zacks Property and Casualty Insurance industry is housed within the top 20% of the 255 Zacks industries. It currently carries Zack Industry Rank #51. The industry players are poised to benefit from better pricing, prudent underwriting, increased exposure, streamlined operations, global presence, and a solid capital position. The industry’s earnings estimate for the current year has been revised upward by 5.9% in a year’s time.

The industry that suffered last year due to the pandemic has already bounced back. The industry has gained 20.3% year to date compared with the Finance sector’s increase of 21.7% and the Zacks S&P 500 composite’s gain of 21.3%. Reopening of the economy, increased vaccinations, and an encouraging economic growth outlook instill confidence in the industry.  

Zacks Investment Research
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The performance of P&C insurers is affected by the occurrence of catastrophe events. Per Colorado State University, the Atlantic has already had five named storms and one hurricane through Aug 4. It estimates 13 additional storms, seven hurricanes, and four major hurricanes.

Catastrophic occurrences weigh on insurers’ underwriting profitability. As per a report from Aon, total economic losses in the first half of 2021 were $93 billion, while total insured losses were $42 billion. It further stated that a minimum of 163 natural disaster events occurred during the period.

Price hikes along with prudent underwriting approaches help P&C insurers stay afloat. Per Marsh, global commercial insurance prices increased 18% in the first quarter and 15% in the second quarter of 2021, which marked the 15th straight quarter of price increase. According to Willis Towers Watson’s 2021 Insurance Marketplace Realities report, except for one, 29 lines of business are expected to witness a price rise this year.

Though P&C insurers’ financials are less sensitive to interest rates than life insurers, a better interest rate environment will cushion investment income.  A low rate weighs on fixed investment income. Thus, insurers are directing their funds into alternative investments like private equity, hedge funds, and real estate to navigate the challenge.

Increased adoption of technologies like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing, and robotic process automation aid in seamless underwriting and claims processing, improving operational efficiency.

Given a solid capital level, mergers and acquisition activities have increased, enabling industry players to gain market share and grow in their niche areas.

Growth Picks

Given the prospects of the industry, let’s look at a few stocks that have the potential to generate better returns. Our proprietary Growth Score makes the daunting task easier.

The Growth Score analyzes the growth prospects for a company. Studies have shown that stocks exhibiting the best growth characteristics consistently outperform the market. Back-tested results have shown that for stocks with a solid Growth Score and a favorable Zacks Rank, the returns are even better.

With the help of the Zacks Stock Screener, we have selected four P&C insurance stocks with an impressive Growth Score of A or B. Each of these stocks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

These stocks have also witnessed positive estimate revisions in the past 30 days, reflecting analysts’ confidence in the companies’ operational efficiency.

Bermuda-based AXIS Capital Holdings Limited (AXS - Free Report) provides a broad range of specialty insurance and reinsurance solutions worldwide.  Its rising premiums have been driving top-line growth over a considerable period of time. Its strong book of businesses has less inherent volatility. The company has brought down PMLs, decreased limits, and exited or reduced its participation in underperforming businesses while pushing for higher rates across the board. At the same time, it is focused on driving growth in its most attractive lines. It exited over $470 million of underperforming lines and invested in more attractive markets.

Aiming for leadership in specialty risks, the company remains focused on growth in Marine Cargo, Cyber, and Renewable Energy, which is likely to provide strong double-digit ROE opportunities.

It boasts one of the highest dividend yields among its peers. Its continued focus on building its Specialty Insurance, Reinsurance plus Accident and Health coupled with improved portfolio mix and effective capital deployment should pave the way for growth.

Santa Ana, CA-based First American Financial Corporations’s (FAF - Free Report) core business lines include title insurance and closing/settlement services; property data and automated title plant records and images; home warranty products; property and casualty insurance; banking, and trust and wealth management services.

First American Financial has been focusing on strategic initiatives to strengthen its product offerings and intensify its focus on its core business. In January 2021, it entered into book transfer agreements to facilitate its exit from the property and casualty insurance business. The company also pursued small title agency buyouts in the regions that it identifies as growth markets.

It looks for opportunities to intensify focus on its core business and redeploy capital to those areas, which fetch higher returns. It also continues to make significant investments in technology across all its major businesses to enhance customer experience through digital solutions.

Increased demand among millennials for first-time home purchases, an improved rate environment, strength in commercial business, and effective capital deployment should drive growth.

Richmond, VA-based Kinsale Capital Group (KNSL - Free Report) offers various insurance and reinsurance products. It operates primarily through two markets – Commercial and Personal. The company typically provides coverage for those risks, which are unique and difficult to find in the standard insurance market.

With an extensive focus on clients with small and medium-sized accounts, which have better pricing and are less prone to competition, it focuses only on the excess and surplus lines (E&S) market in the United States. The company estimates low double-digit rate increases across the book of business. Notably, the E&S market has been performing well due to improved margins and lower loss ratios.   

Kinsale Capital has developed a proprietary technology platform, which is likely to provide it a competitive edge over its competitors as well as add to the scalability of its business.

Its strong established presence across the E&S market of the United States and high retention rates arising from contract renewals have benefited premiums over the past few years. For the long term, it even targets to maintain operating return on equity in the mid-teens range.

New York-based Alleghany Corporation (Y - Free Report) and its subsidiaries engage in property and casualty reinsurance, and insurance businesses in the United States and internationally. Strong underwriting performances by TransRe and RSUI, CapSpecialty, and PacificComp continue to drive top-line growth. Its better pricing will continue to boost premium revenues.

Although the primary sources of revenues and earnings for Alleghany are reinsurance, and insurance operations and investments, the company also generates revenues and earnings from a diverse portfolio of middle-market businesses that are owned and managed through its wholly-owned subsidiary Alleghany Capital in which the company sees tremendous value. The company thus allocates the excess capital to grow Alleghany Capital.