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6 Buy-Rated P&C Insurers Poised to Perform Well in 2H21

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After grappling with the COVID-19 pandemic induced uncertainties last year, the U.S. property and casualty (P&C) insurers are gradually coming out of the woods this year.

Improved pricing environment, prudent underwriting results, reinsurance programs in place to tackle high catastrophe losses and technological advancements have positioned the P&C insurers well for growth in the second half of 2021. Gradual reopening of the economy has been paving the way for undertaking mergers and acquisitions (M&A) as well. The aforementioned factors are likely to instill investor confidence in the space despite lingering concerns regarding the coronavirus variants.

Better Pricing Environment

With the global economy rebounding and enhanced vaccination programs, premium volumes of P&C insurers are expected to receive a boost in the latter half of 2021. A better pricing environment plays a crucial role for the insurers, who implement price hikes aimed at seamless claims payment. To a great extent, premiums received by an insurer increase if the economy stays healthy. Per the Global Insurance Market Index, global commercial insurance prices improved 15% in second-quarter 2021 — denoting the 15th straight quarter of rate increase across the market. Per a Aon report, the improved pricing environment is likely to stay for the rest of the year as well.

Frequent Incidence of Catastrophe Losses

Catastrophe losses add to the woes of P&C insurers as they usually put pressure on the underwriting results of companies. However, frequent occurrence of catastrophe losses ramps up the policy renewal rate, which keeps premiums continually flowing to the insurers.

The 2021 Atlantic hurricane season is expected to be an above-average one per the Climate Prediction Center of National Oceanic and Atmospheric Administration (“NOAA”). The latest annual mid-season update issued by NOAA mentions that there can be up to 15 to 21 named storms this time, out of which seven to 10 will be hurricanes. It is worth mentioning that rate increases, solid underwriting results and active catastrophe management strategies in the form of reinsurance programs are expected to help P&C insurers counter the impact during the remainder of the year.

Pursuing M&A Strategy

The P&C insurers have intensified focus on M&A deals, which have diversified their product offerings, boosted business scale and expanded geographical presence. The primary aim behind these deals is to bring about diversification benefits, which is crucial to strengthening one’s market position. The M&A deals were affected by the pandemic-induced volatilities, which put such deals on hold. However, lower interest rates, which are likely to remain low until 2023, when combined with solid capital position and reopening of economic activities are likely to boost the companies’ spending capabilities and aid them in pursuing increased M&A deals. Statement of M&A bankers at Morgan Stanley, “All the elements are there for an active M&A market in 2021”, further reinforces a busy M&A market in the latter half of 2021.

Technology Upgradations

The insurers continue to make substantial investments in technology like blockchain, AI, advanced analytics, telematics, cloud computing and robotic process automation. These advancements are expected to result in cost savings, accelerated claim payments and automation in processes, which are expected to drive margins in the days ahead.

Will the Momentum Stay?

We believe that the future prospects of the P&C insurance industry are bright. The overall bullish scenario makes us optimistic regarding consistent growth in the P&C insurance industry, which should boost prospects of companies with sound business fundamentals. The Zacks Property and Casualty Insurance Industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #57, which places it in the top 23% of more than 250 Zacks industries.

The Zacks Property and Casualty Insurance industry has advanced 22.2% in the past year compared with the Finance sector’s growth of 39.2%. The S&P Index rallied 32.5% in the same time frame.

Zacks Investment Research
Image Source: Zacks Investment Research

Stocks that Warrant a Look

We have six P&C insurance stocks that hold ample growth prospects with the help of Zacks Stock Screener. These stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) presently and an attractive Value Score of A or B. Back tested results have shown that stocks with a solid Value Score and a favorable Zacks Rank, are best investment bets. You can see the complete list of today’s Zacks #1 Rank stocks here.

Everest Re Group, Ltd. (RE - Free Report) is riding on the back of a well-diversified portfolio, persistent double-digit rate increases, robust retention rates, strong presence across property insurance and international insurance markets, and sound performing Canadian platform. These factors should instill investors’ confidence in the stock. The company currently has a Zacks Rank #1 and a Value Score of A. For 2021, the Zacks Consensus Estimate for the company’s revenues and earnings indicates year-over-year improvement of 22.1% and 346.3%, respectively. In a year’s time, the stock has gained 20.9% compared with its industry’s rally of 22.2%.

AXIS Capital Holdings Limited’s (AXS - Free Report) top line has been receiving a boost from higher net premiums earned stemming from the Insurance segment. It has been undertaking efforts to reposition its portfolio and working closely with its partners for bolstering digital capabilities aimed at generating new business growth. The company currently has a Zacks Rank of 2 and a Value Score of B. For 2021, the Zacks Consensus Estimate for the company’s revenues and earnings indicates year-over-year improvement of 12% and 337%, respectively. Shares of the company have gained 3.3% in a year.

First American Financial Corporation’s (FAF - Free Report) revenues have been banking on improved direct premiums and escrow fees, and agent premiums and net investment income. The company has been seeking opportunities to deepen focus on its core business and redeploying capital across those areas, which fetch higher returns. The company currently has a Zacks Rank of 2 and a Value Score of A. For 2021, the Zacks Consensus Estimate for the company’s revenues and earnings indicates year-over-year improvement of 12% and 28.3%, respectively. Shares of the company have climbed 32.3% in a year.

Fidelity National Financial, Inc. (FNF - Free Report) is gaining momentum on the back of leading market share in the residential purchase, refinance and commercial markets, higher refinance volumes, recovery of commercial real estate activity and solid capital position. The company currently has a Zacks Rank of 2 and a Value Score of A. For 2021, the Zacks Consensus Estimate for the company’s revenues and earnings indicates year-over-year improvement of 19.8% and 15%, respectively. Shares of the company have advanced 47.5% in a year.

Selective Insurance Group, Inc.’s (SIGI - Free Report) revenues have been buoyed by higher net premiums written, driven by strong renewal, pure price increases, solid retention rates, and new business generation across outstanding Commercial Lines and Excess and Surplus (E&S) segments. A strong capital position is positive. The company currently has a Zacks Rank of 2 and a Value Score of B. For 2021, the Zacks Consensus Estimate for the company’s revenues and earnings indicates year-over-year improvement of 12.6% and 51.8%, respectively. Shares of the company have appreciated 39.6% in a year.

The Hanover Insurance Group, Inc. (THG - Free Report) is currently riding on tactical management of business mix, focus on growth of the most profitable product lines, stable retention and better pricing environment. The company currently has a Zacks Rank of 2 and a Value Score of B. For 2021, the Zacks Consensus Estimate for the company’s revenues and earnings indicates year-over-year improvement of 5.5% and 4.9%, respectively. Shares of the company have climbed 41.1% in a year.