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The Zacks Property and Casualty Insurance (P&C) industry is likely to benefit from better pricing, prudent underwriting and exposure growth. Industry players like Chubb Limited, Cincinnati Financial Corp., W.R. Berkley Corp., Everest Re Group Ltd. and Kinsale Capital Group are poised to grow despite a rise in catastrophic activities. Given an active catastrophe environment, the policy renewal rate should accelerate, apart from the rate firming up. This apart, increasing adoption of technology and emergence of insurtech will help in the smooth functioning of the industry players.
Though pandemic-related uncertainties weigh on merger and acquisition (M&A) activities, a low rate environment, improvement in surplus, and reopening of economic activities set the stage for a better M&A environment.
About the Industry
The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property insurance, and casualty insurance products and services. Such insurance helps to safeguard property in case of any natural or man-made disaster. Liability coverages are also provided by some players.
Coverages offered also include automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, and professional indemnity and surety. Premiums are the primary source of revenues. These companies invest a portion of premiums to meet their commitments to policyholders.
Though the rate environment is still near-zero, there are indications that it could rise this year after the Fed completes tapering. All eyes are on the FOMC scheduled on Mar 15-16. However, the tension between Ukraine and Russia remains a dampener.
4 Trends Shaping the Future of Property and Casualty Insurance Industry
Improved pricing to help navigate claims: Catastrophes are a concern for insurers due to the high degree of losses incurred. They implement price hikes to ensure uninterrupted claims payment. Per Willis Towers Watson's 2022 Insurance Marketplace Realities report, rates will continue to rise but by a small margin. Better pricing will help insurers write higher premiums and address claims payment prudently. Per Deloitte insights, global non-life premiums are estimated to grow 3.7% in 2022.
Catastrophe loss induces volatility in underwriting profits: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profit. Per Swiss Re, the insurance and reinsurance industry incurred the fourth-highest global insured catastrophe losses of about $112 billion in 2021. Swiss Re Institute's preliminary sigma estimates insured losses from natural catastrophes of $105 billion.
According to a Verisk and the American Property Casualty Insurance Association report, underwriting loss was $5.6 billion during the first nine months of 2021 with the combined ratio deteriorating 70 basis points to 99.5 due to higher non-cat loss, especially in personal auto. However, exposure growth, better pricing, prudent underwriting and favorable reserve development will help withstand the blow. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
Merger and acquisitions: Consolidation in the property and casualty industry is likely to continue as players look to diversify their operations into new business lines and geography. Buying businesses along the same lines will also continue as players look to gain market share and grow in their niche areas. With the reopening of the economy, optimistic growth outlook and sturdy capital level, the industry is witnessing a number of mergers, acquisitions and consolidations.
Increased adoption of technology: The industry is witnessing increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation that expedite business operations and save cost. The industry has also witnessed the emergence of insurtech — technology-led insurers — creating competition for incumbent players.
The focus of insurtech is mainly on the property and casualty insurance industry. Accelerated digitalization has become the need of the hour and the insurers continue to invest heavily in technology to improve basis points, scale and efficiencies. Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022. As insurtechs use the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains a huge market risk.
Zacks Industry Rank Indicates Bright Prospects
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid prospects in the near term. The Zacks Property and Casualty Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #65, which places it in the top 26% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the top 26% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. The estimates have moved up 2.5% since September 2021 end.
Before we present a few property and casualty stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 and Sector
The Property and Casualty Insurance industry has outperformed both the Zacks S&P 500 composite as well as its sector over the past year. The stocks in this industry have collectively gained 12.4% in the past year compared with the Finance sector's increase of 1.6% and the Zacks S&P 500 composite's rise of 6.1%.
Current Valuation
On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.27X compared with the S&P 500's 6.24X and the sector's 3.14X.
Over the past five years, the industry has traded as high as 1.42X, as low as 1.17X and at the median of 1.31X.
5 Property and Casualty Insurance Stocks to Add to Portfolio
Kinsale Capital Group: This Richmond, VA-based company offers various insurance and reinsurance products across all 50 states of the United States, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands. This Zacks Rank #1 company is poised for long-term growth, given its continued focus on the E&S market, improved revenues, solid underwriting results and effective capital deployment measures.
The Zacks Consensus Estimate for its 2022 and 2023 bottom line has moved 5.9% and 8.2% north, respectively over the past 30 days. The consensus estimate also suggests a respective year-over-year increase of 15.3% and 15% for 2022 and 2023.
Cincinnati Financial: Fairfield, OH-based Cincinnati Financial markets property and casualty insurance. This Zacks Rank #1 company should continue to grow given the disciplined expansion of Cincinnati Re, an agent-focused business model, and strong performance at the Commercial Lines segment.
Estimates for Cincinnati Financial's 2022 and 2023 bottom line have moved 5.7% and 5.5% north, respectively, over the past 30 days.
Everest Re: Hamilton, Bermuda, Everest Re Group, carrying a Zacks Rank 2, writes property and casualty, reinsurance and insurance in the U.S, Bermuda and international markets. Everest Re has a huge market share in the insurance and reinsurance market and is expected to benefit from capital adequacy, financial flexibility, traditional risk management capabilities, improved pricing and focus on building a portfolio with a mix toward product lines with better rate adequacy and higher long-term margins.
Estimates for Everest Re's 2022 and 2023 bottom line have moved 1.8% and 1.2% north, respectively over the past 30 days. The consensus estimate suggests a respective year-over-year increase of 14.7% and 15.4% for 2022 and 2023. The expected long-term earnings growth rate is 10.1%.
W.R. Berkley: Greenwich, CT-based W.R. Berkley is one of the nation's largest commercial lines property-casualty insurance providers benefiting from its insurance business. This Zacks Rank #2 insurer should continue to benefit from its well-performing insurance business. Rate increases, reserving discipline, and growing premiums from international business, mainly supported by the emerging markets of the United Kingdom, Continental Europe, South America, Canada, Scandinavia, Asia and Australia bode well.
Estimates for W.R. Berkley's 2022 and 2023 bottom line have moved 6.3% and 1.5% north, respectively over the past 30 days. The consensus estimate also suggests a respective year-over-year increase of 6.5% and 8.6% for 2022 and 2023. The expected long-term earnings growth rate is 9%.
Chubb: Based in Zurich, Switzerland, Chubb is one of the world's largest providers of P&C insurance and reinsurance. It has diversified through acquisitions into many specialty lines and also provides specialized insurance products. The company is poised to benefit from its focus on capitalizing on the potential of middle-market businesses, and strategic initiatives, which pave the way for long-term growth.
Chubb carries a Zacks Rank #2. Estimates for its 2022 and 2023 bottom line have moved 3% and 1.5% north, respectively over the past 30 days. The consensus estimate also suggests a respective year-over-year increase of 16% and 10.1% for 2022 and 2023. The expected long-term earnings growth rate is 10%.
Just Released: Zacks Top 10 Stocks for 2022
In addition to the investment ideas discussed above, would you like to know about our 10 top buy-and-hold tickers for the entirety of 2022?
Last year's 2021Zacks Top 10 Stocks portfolio returned gains as high as +147.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don't miss your chance to get in on these long-term buys
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Chubb, Cincinnati Financial, W.R. Berkley, Everest Re Group, and Kinsale Capital
For Immediate Release
Chicago, IL – March 15, 2022 – Today, Zacks Equity Research discusses Chubb Limited (CB - Free Report) , Cincinnati Financial Corp. (CINF - Free Report) , W.R. Berkley Corp. (WRB - Free Report) , Everest Re Group Ltd. and Kinsale Capital Group (KNSL - Free Report)
Industry: Property & Casualty Insurance
Link: https://www.zacks.com/commentary/1881685/5-property-casualty-insurers-to-gain-from-better-pricing
The Zacks Property and Casualty Insurance (P&C) industry is likely to benefit from better pricing, prudent underwriting and exposure growth. Industry players like Chubb Limited, Cincinnati Financial Corp., W.R. Berkley Corp., Everest Re Group Ltd. and Kinsale Capital Group are poised to grow despite a rise in catastrophic activities. Given an active catastrophe environment, the policy renewal rate should accelerate, apart from the rate firming up. This apart, increasing adoption of technology and emergence of insurtech will help in the smooth functioning of the industry players.
Though pandemic-related uncertainties weigh on merger and acquisition (M&A) activities, a low rate environment, improvement in surplus, and reopening of economic activities set the stage for a better M&A environment.
About the Industry
The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property insurance, and casualty insurance products and services. Such insurance helps to safeguard property in case of any natural or man-made disaster. Liability coverages are also provided by some players.
Coverages offered also include automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, and professional indemnity and surety. Premiums are the primary source of revenues. These companies invest a portion of premiums to meet their commitments to policyholders.
Though the rate environment is still near-zero, there are indications that it could rise this year after the Fed completes tapering. All eyes are on the FOMC scheduled on Mar 15-16. However, the tension between Ukraine and Russia remains a dampener.
4 Trends Shaping the Future of Property and Casualty Insurance Industry
Improved pricing to help navigate claims: Catastrophes are a concern for insurers due to the high degree of losses incurred. They implement price hikes to ensure uninterrupted claims payment. Per Willis Towers Watson's 2022 Insurance Marketplace Realities report, rates will continue to rise but by a small margin. Better pricing will help insurers write higher premiums and address claims payment prudently. Per Deloitte insights, global non-life premiums are estimated to grow 3.7% in 2022.
Catastrophe loss induces volatility in underwriting profits: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profit. Per Swiss Re, the insurance and reinsurance industry incurred the fourth-highest global insured catastrophe losses of about $112 billion in 2021. Swiss Re Institute's preliminary sigma estimates insured losses from natural catastrophes of $105 billion.
According to a Verisk and the American Property Casualty Insurance Association report, underwriting loss was $5.6 billion during the first nine months of 2021 with the combined ratio deteriorating 70 basis points to 99.5 due to higher non-cat loss, especially in personal auto. However, exposure growth, better pricing, prudent underwriting and favorable reserve development will help withstand the blow. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
Merger and acquisitions: Consolidation in the property and casualty industry is likely to continue as players look to diversify their operations into new business lines and geography. Buying businesses along the same lines will also continue as players look to gain market share and grow in their niche areas. With the reopening of the economy, optimistic growth outlook and sturdy capital level, the industry is witnessing a number of mergers, acquisitions and consolidations.
Increased adoption of technology: The industry is witnessing increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation that expedite business operations and save cost. The industry has also witnessed the emergence of insurtech — technology-led insurers — creating competition for incumbent players.
The focus of insurtech is mainly on the property and casualty insurance industry. Accelerated digitalization has become the need of the hour and the insurers continue to invest heavily in technology to improve basis points, scale and efficiencies. Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022. As insurtechs use the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains a huge market risk.
Zacks Industry Rank Indicates Bright Prospects
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid prospects in the near term. The Zacks Property and Casualty Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #65, which places it in the top 26% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the top 26% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. The estimates have moved up 2.5% since September 2021 end.
Before we present a few property and casualty stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 and Sector
The Property and Casualty Insurance industry has outperformed both the Zacks S&P 500 composite as well as its sector over the past year. The stocks in this industry have collectively gained 12.4% in the past year compared with the Finance sector's increase of 1.6% and the Zacks S&P 500 composite's rise of 6.1%.
Current Valuation
On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.27X compared with the S&P 500's 6.24X and the sector's 3.14X.
Over the past five years, the industry has traded as high as 1.42X, as low as 1.17X and at the median of 1.31X.
5 Property and Casualty Insurance Stocks to Add to Portfolio
We are recommending two Zacks Rank #1 (Strong Buy) stocks and three Zacks Rank #2 (Buy) stocks from the P&C Insurance industry. You can see the complete list of today's Zacks #1 Rank stocks here.
Kinsale Capital Group: This Richmond, VA-based company offers various insurance and reinsurance products across all 50 states of the United States, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands. This Zacks Rank #1 company is poised for long-term growth, given its continued focus on the E&S market, improved revenues, solid underwriting results and effective capital deployment measures.
The Zacks Consensus Estimate for its 2022 and 2023 bottom line has moved 5.9% and 8.2% north, respectively over the past 30 days. The consensus estimate also suggests a respective year-over-year increase of 15.3% and 15% for 2022 and 2023.
Cincinnati Financial: Fairfield, OH-based Cincinnati Financial markets property and casualty insurance. This Zacks Rank #1 company should continue to grow given the disciplined expansion of Cincinnati Re, an agent-focused business model, and strong performance at the Commercial Lines segment.
Estimates for Cincinnati Financial's 2022 and 2023 bottom line have moved 5.7% and 5.5% north, respectively, over the past 30 days.
Everest Re: Hamilton, Bermuda, Everest Re Group, carrying a Zacks Rank 2, writes property and casualty, reinsurance and insurance in the U.S, Bermuda and international markets. Everest Re has a huge market share in the insurance and reinsurance market and is expected to benefit from capital adequacy, financial flexibility, traditional risk management capabilities, improved pricing and focus on building a portfolio with a mix toward product lines with better rate adequacy and higher long-term margins.
Estimates for Everest Re's 2022 and 2023 bottom line have moved 1.8% and 1.2% north, respectively over the past 30 days. The consensus estimate suggests a respective year-over-year increase of 14.7% and 15.4% for 2022 and 2023. The expected long-term earnings growth rate is 10.1%.
W.R. Berkley: Greenwich, CT-based W.R. Berkley is one of the nation's largest commercial lines property-casualty insurance providers benefiting from its insurance business. This Zacks Rank #2 insurer should continue to benefit from its well-performing insurance business. Rate increases, reserving discipline, and growing premiums from international business, mainly supported by the emerging markets of the United Kingdom, Continental Europe, South America, Canada, Scandinavia, Asia and Australia bode well.
Estimates for W.R. Berkley's 2022 and 2023 bottom line have moved 6.3% and 1.5% north, respectively over the past 30 days. The consensus estimate also suggests a respective year-over-year increase of 6.5% and 8.6% for 2022 and 2023. The expected long-term earnings growth rate is 9%.
Chubb: Based in Zurich, Switzerland, Chubb is one of the world's largest providers of P&C insurance and reinsurance. It has diversified through acquisitions into many specialty lines and also provides specialized insurance products. The company is poised to benefit from its focus on capitalizing on the potential of middle-market businesses, and strategic initiatives, which pave the way for long-term growth.
Chubb carries a Zacks Rank #2. Estimates for its 2022 and 2023 bottom line have moved 3% and 1.5% north, respectively over the past 30 days. The consensus estimate also suggests a respective year-over-year increase of 16% and 10.1% for 2022 and 2023. The expected long-term earnings growth rate is 10%.
Just Released: Zacks Top 10 Stocks for 2022
In addition to the investment ideas discussed above, would you like to know about our 10 top buy-and-hold tickers for the entirety of 2022?
Last year's 2021Zacks Top 10 Stocks portfolio returned gains as high as +147.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don't miss your chance to get in on these long-term buys
Access Zacks Top 10 Stocks for 2022 today >>
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.