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3 Insurance Stocks Poised for Continued Momentum in 2022

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The insurance industry witnessed a mixed 2021 after a distressful 2020 when the pandemic caused havoc. Though the industry witnessed an above-average hurricane season this year, better pricing and reinsurance programs helped absorb losses. Increased awareness following the pandemic continues to support the life insurance business. However, concerns over the new virus variant linger. The industry has gained 10.4% year to date, compared with the Finance sector’s rise of 21.1% and Zacks S&P 500 composite index’s rally of 25.8%.

Shares of Berkshire Hathaway Inc. (BRK.B - Free Report) , Brown & Brown, Inc. (BRO - Free Report) and W.R. Berkley Corporation (WRB - Free Report) have outperformed the industry and gained more than 20% to date this year. All are poised to continue the bull run through the next year, given their operational excellence.

The economy has been growing at a steady pace as evident from the GDP that increased at an annualized rate of 2.1% in the third quarter. Per September Economic Projections of the Fed, GDP in 2022 is estimated to grow 3.8% while the unemployment rate is expected to be 3.8%. As the insurance industry is an important contributor to the country’s GDP, it is poised for growth given the economic expansion.

Growth Drivers

Improved pricing environment should continue through 2022. Per Willis Towers Watson’s 2022 Insurance Marketplace Realities, rates will continue to rise but by a small margin. The third quarter of 2021 marked the 16th straight quarter of price rise per Marsh.

Better pricing, improved underwriting standards and streamlined operations should continue to fuel premium. Per Deloitte Insights, life insurance premium is estimated to increase 4% while non-life insurance premium is expected to increase 3.7% in 2022.

A possibility of a interest rate increase in 2022 makes insurers well poised to improve investment income as they are direct beneficiaries of a rising rate environment. Insurers invest a portion of the premiums collected. Therefore, a rising rate should help generate higher investment income.

Technologies like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation aid in seamless underwriting and claims processing, thus improving operational efficiency. Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022.

Picks for 2022

Taking into account their operational efficiency and with the help of the Zacks Stock Screener, we have selected three insurance stocks well poised to keep the rally alive in 2022. These stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy) and have seen estimates move north for 2022.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Omaha, NE-based Berkshire Hathaway holding company,owns more than 90 subsidiaries in insurance, railroads, utilities, manufacturing services, retail and homebuilding. BRK.B boasts one of the largest property and casualty insurance companies measured by premium volume.

Continued insurance business growth fuels an increase in float, drives earnings and generates maximum return on equity. With Warren Buffett at its helm, Berkshire has been creating tremendous value for shareholders for more than five decades.

Berkshire should continue to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments.  

With a huge cash hoard, Berkshire Hathaway will successfully continue its acquisition spree. While big acquisitions open up more business opportunities, bolt-on acquisitions enhance the earnings of the existing business.

The Zacks Consensus Estimate for 2022 earnings indicates 6.8% year-over-year growth. It has moved up 0.8% in the past 30 days. The expected long-term earnings growth rate is pegged at 7%.

Shares of Berkshire have rallied 22.3% year to date.

Daytona Beach, Fl based, Brown & Brown markets and sells insurance products and services primarily in the United States, as well as in London, Bermuda, and the Cayman Islands. This Zacks Rank #2 broker boasts five-year total shareholder returns of 205%, much above its peer group and the S&P 500.

Improving new business and continued rate increases for most lines of coverage should help deliver an improved top line, which witnessed a 10-year CAGR of 10% and exceeded the peer average and the S&P 500. Strategic investments to drive organic growth, improve efficiency and margin bode well.

In its efforts to return value to shareholders, Brown and Brown has been increasing dividends for the last 28 years. It has $323.6 million remaining under its share buyback authorization.

The Zacks Consensus Estimate for 2022 earnings implies 4.7% year-over-year growth on 7.6% higher revenues. The consensus estimate has moved up 1.8% in the past 30 days.

Improving commission and fees, strong liquidity and effective capital deployment continue to drive Brown and Brown.

Shares of Brown and Brown have rallied 42.7% year to date.

Greenwich, CT-based, W.R. Berkley Corporation is one of the nation’s largest commercial lines property casualty insurance providers.

Several new startup units in varied business lines, expansion of international business that offers diversification benefits, rate increase, benefits derived from market dislocations, and high retention should drive the Insurance business.

W.R. Berkley’s premium growth in the international unit is mainly supported by the emerging markets of the United Kingdom, Continental Europe, South America, Canada, Scandinavia, Asia and Australia.

Banking on its stable cash flow, W.R. Berkley has raised dividends 16 times since 2005 and paid 13 special dividends since 2012. WRB targets 15% ROE over the long term.

The Zacks Consensus Estimate for 2022 earnings suggests 4.8% year-over-year growth on 14.6% higher revenues. The consensus estimate has moved up 3.7% in the past 30 days. The expected long-term earnings growth rate is pegged at 7%.

Rate increases, reserving discipline, solid balance sheet and prudent capital management policy should continue to drive W.R. Berkley.

Shares of W.R. Berkley have rallied 20.3% year to date.



 


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W.R. Berkley Corporation (WRB) - free report >>

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