Property and Casualty Insurance industry has done well so far in 2021 and is expected to retain the momentum into the next year as well, given favorable fundamentals. Also, per the 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. The industry has rallied 12.5% year to date compared with Zacks S&P 500 composite’s rise of 27.5% and the Finance sector’s rise of 22%. Image Source: Zacks Investment Research
Here we focus on two property and casualty insurers, namely
Markel Corporation ( MKL Quick Quote MKL - Free Report) and Cincinnati Financial Corporation ( CINF Quick Quote CINF - Free Report) and find out which stock is more appealing to add to portfolio for better return. Markel with a market capitalization of $16.5 billion markets and underwrites specialty insurance products in the United States, the United Kingdom, Canada, and internationally. Cincinnati Financial with a market capitalization of $18.1 billion markets property and casualty insurance. Both the companies carry a Zacks Rank #2 (Buy). You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Before putting them on the weighing scale, let’s discuss some key factors that will likely shape the industry’s performance. Insurers should continue to witness improved pricing. Per Willis Towers Watson’s 2022 Insurance Marketplace Realities, 24 lines of business will witness a rate rise while eight business lines will have mixed/flat rates. The report stated though rates will rise in 2022, the magnitude will be lower. Price hikes, focus on growing niches, and a compelling and diversified suite of products and services should help improve operational efficiencies and drive premiums for insurers. Per Deloitte Insights, non-life insurance premium is expected to increase 3.7% in 2022. Though the 2021 hurricane season was above average, COVID virus variants continue to pose concerns. Insurers’ net income improved 54% in the first half of 2021 as per Verisk and APCIA. Exposure growth, prudent underwriting, favorable reserve development and sturdy capital level should continue to support P&C insurers despite odds. With the possibility of a rate increase next year, insurers are poised to benefit as they are beneficiaries of a rising rate environment. Increased adoption of technology is helping insurers curb expenses and expedite business operations. The P&C insurance industry in particular is witnessing the emergence of insurtech. Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022. A solid capital level should continue to support insurers in pursuing strategic mergers and acquisitions as well as investing in growth initiatives. Industry players are engaging in share buybacks, increasing dividends or paying out special dividends. Let’s now see how Cincinnati Financial and Markel have fared in terms of some of the key metrics. Price Performance
Cincinnati Financial has rallied 31.8% % year to date compared with the industry’s increase of 12.4% and Markel’s gain of 22%.
Image Source: Zacks Investment Research Return on Equity (ROE)
Cincinnati Financial with a return on equity of 8.6% exceeds Markel’s ROE of 6.3% and the industry average of 5.6%.
Image Source: Zacks Investment Research Valuation
Price-to-book value is the best multiple used for valuing insurers. Compared with Cincinnati Financial’s reading of 1.53, Markel is cheaper with a reading of 1.23. The P&C insurance industry’s P/B ratio is 1.34.
Image Source: Zacks Investment Research Dividend Yield
Cincinnati Financial’s dividend yield of 2.2% betters the industry average of 0.4%. Markel does not pay a dividend.
Image Source: Zacks Investment Research Debt-to-Equity
Cincinnati Financial’s debt-to-equity ratio of 7.6 is lower than the industry average of 24.2 as well as Markel’s reading of 30.4.
Image Source: Zacks Investment Research Earnings Surprise History
Cincinnati Financial outpaced expectations in each of the four trailing quarters, delivering an earnings surprise of 40.05%, on average. Markel surpassed estimates in three of the last four reported quarters, with the average surprise being 23.60%.
The Zacks Consensus Estimate for 2022 earnings indicates 28.4% growth from the year-ago reported figure for Markel while that for Cincinnati Financial implies a decline of 5.6%.
VGM Score VGM Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth and most promising momentum. Both MKL and CINF have an impressive VGM Score of A, faring equally on this front. To Conclude
Our comparative analysis shows that Cincinnati Financial has an edge over Markel with respect to price, return on equity, dividend yield, leverage, and earnings surprise history while Markel scores higher in terms of valuation and growth projection.