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RLI or KNSL: Which P&C Insurance Stock is Worth Investing?
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The Zacks Property and Casualty Insurance industry has been doing well, thanks to better pricing, prudent underwriting, increased adoption of technology, increased exposure, and impressive solvency level. Streamlining operations, diversifying business, favorable reserve development and expanding global presence have been tailwinds for the industry players.
The industry has rallied 18.4% in the past year compared with the Zacks S&P 500 composite’s rise of 9% and the Finance sector’s 5.5% growth.
Image Source: Zacks Investment Research
Against this backdrop, let’s take a look at two leading P&C insurer companies, namely RLI Corp. (RLI - Free Report) and Kinsale Capital Group, Inc. (KNSL - Free Report) , and find out which stock is more profitable to add to your portfolio for better returns.
RLI, with a market capitalization of $4.9 billion, is an insurance holding company that underwrites property and casualty insurance in the United States and internationally. Kinsale Capital, with a market capitalization of $5.3 billion, is a property and casualty insurance company that focuses exclusively on the excess and surplus lines (E&S) market in the United States. 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.
Per the Swiss Re Institute, global non-life premiums are expected to increase 3.7% in 2022 and 3.3% in 2023. It also expects global insurance premiums to exceed $7 trillion by mid-2022. Increasing risk awareness and above-average natural driving improved pricing, are likely to support the premium growth. Per Willis Towers Watson’s 2022 Insurance Marketplace Realities report, the commercial insurance market is likely to witness a shift toward normalcy in 2022, as the rate increases for commercial lines of insurance are declining to single digits and even flat renewals.
Fitch predicts a double-digit rate hike for property catastrophe insurance in 2022. Fitch also expects 2022 to be the fifth successive year of price rises, even though growth is expected to be slower than 2021.
Price hikes, operational strength, higher retention, strong renewal, the appointment of retail agents and higher new business premiums should help write higher premiums.
The property and casualty insurance industry remains exposed to catastrophe loss stemming from natural disasters and weather-related events, inducing volatility in its underwriting results. Per Swiss Re, natural catastrophes resulted in a total global economic loss of $270 billion and insured loss of $111 billion in 2021. The Colorado State University expects above-normal activity during the 2022 hurricane season and there will be a total of 19 named storms during the Atlantic hurricane season. Riding on exposure growth, improved pricing, prudent underwriting, favorable reserve development and a sturdy capital position, the insurance industry will be able to absorb catastrophe losses.
Banking on solid capital position, property and casualty industry players are pursuing strategic mergers and acquisitions, which are likely to expand their geographic reach, increase the scale and add new technology capabilities. M&A activities are also likely to strengthen portfolios, diversify operations and enable the companies to penetrate into more profitable market segments. Per Deloitte Insights, M&A activity across the insurance industry increased in 2021. Deloitte’s global outlook survey projects more merger and acquisition strategies in 2022.
The insurers have increased investment in emerging technologies in a bid to drive efficiency, enhance cybersecurity, upgrade policy administration and claims systems as well as expand automation capabilities across the organization. The adoption of technologies such as robotic process automation, Chatbot and RoboAdvisory, artificial intelligence and data analytics, insurtech solutions, telematics and cloud computing is gaining steam. Deloitte’s Global survey expects insurers’ technology budget to increase 13.7% in 2022.
In the latest FOMC meeting, Fed approved its first interest rate increase by 25 basis points to a range of 0.25-0.5%, its first interest rate increase since 2018. Fed also indicated three interest rate hikes in 2023. The insurers are poised to benefit from the recent rate increase, as they are beneficiaries of a rising rate environment. A larger invested base, directing funds to alternative investments like private equity, hedge funds, and real estate, is expected to boost investment income in the future.
Now let’s take a look at two leading players in the industry: RLI & KNSL.
Price Performance
Kinsale Capital has rallied 36.9% in the past year versus the industry’s increase of 18.4% and RLI’s 4.3% decline.
Image Source: Zacks Investment Research
Return on Equity (ROE)
Kinsale Capital, with a return on equity of 20.5%, exceeds RLI’s ROE of 14.5% and the industry average of 5.9%.
Image Source: Zacks Investment Research
Valuation
The price-to-book value is the best multiple used for valuing insurers. Compared with Kinsale Capital’s reading of 7.59, RLI is cheaper, with a reading of 4.06. The P&C insurance industry’s P/B ratio is 1.42.
Image Source: Zacks Investment Research
Dividend Yield
RLI’s dividend yield of 0.9% is better than Kinsale Capital’s 0.2%. Thus, RLI is in an advantageous position over Kinsale Capital on this front.
Image Source: Zacks Investment Research
Debt to Equity
Kinsale Capital’s debt-to-equity ratio of 6.1 is lower than the industry average of 22.5 and Markel’s reading of 16.2.
Earnings Surprise History
RLI has a solid record of beating earnings estimates in the last six quarters. Kinsale Capital has a record of beating earnings estimates in five of the last six quarters. Hence, RLI has an edge in this regard over Kinsale Capital.
Growth Projection
The Zacks Consensus Estimate for 2022 earnings indicates 15.3% growth from the year-ago reported figure for Kinsale Capital and the same for RLI implies a decline of 1.8%.
Combined Ratio
Kinsale Capital’s combined ratio was 77.1% in 2021, whereas that of RLI was 86.8% in the said time frame. Thus, the combined ratio of Kinsale Capital is better than that of RLI.
Estimate Movement
For 2022, the Zacks Consensus Estimate for RLI has moved 1.3% north to $3.80 in the past 60 days and the same for Kinsale Capital has been revised 5.9% upward to $6.62. Therefore, Kinsale Capital is in an advantageous position over RLI on this front.
To Conclude
Our comparative analysis shows that Kinsale Capital has an edge over RLI with respect to price, return on equity, leverage, growth projection, estimate movement and combined ratio, while RLI scores higher in terms of dividend yield, valuation and earnings surprise history.
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RLI or KNSL: Which P&C Insurance Stock is Worth Investing?
The Zacks Property and Casualty Insurance industry has been doing well, thanks to better pricing, prudent underwriting, increased adoption of technology, increased exposure, and impressive solvency level. Streamlining operations, diversifying business, favorable reserve development and expanding global presence have been tailwinds for the industry players.
The industry has rallied 18.4% in the past year compared with the Zacks S&P 500 composite’s rise of 9% and the Finance sector’s 5.5% growth.
Image Source: Zacks Investment Research
Against this backdrop, let’s take a look at two leading P&C insurer companies, namely RLI Corp. (RLI - Free Report) and Kinsale Capital Group, Inc. (KNSL - Free Report) , and find out which stock is more profitable to add to your portfolio for better returns.
RLI, with a market capitalization of $4.9 billion, is an insurance holding company that underwrites property and casualty insurance in the United States and internationally. Kinsale Capital, with a market capitalization of $5.3 billion, is a property and casualty insurance company that focuses exclusively on the excess and surplus lines (E&S) market in the United States. 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.
Per the Swiss Re Institute, global non-life premiums are expected to increase 3.7% in 2022 and 3.3% in 2023. It also expects global insurance premiums to exceed $7 trillion by mid-2022. Increasing risk awareness and above-average natural driving improved pricing, are likely to support the premium growth.
Per Willis Towers Watson’s 2022 Insurance Marketplace Realities report, the commercial insurance market is likely to witness a shift toward normalcy in 2022, as the rate increases for commercial lines of insurance are declining to single digits and even flat renewals.
Fitch predicts a double-digit rate hike for property catastrophe insurance in 2022. Fitch also expects 2022 to be the fifth successive year of price rises, even though growth is expected to be slower than 2021.
Price hikes, operational strength, higher retention, strong renewal, the appointment of retail agents and higher new business premiums should help write higher premiums.
The property and casualty insurance industry remains exposed to catastrophe loss stemming from natural disasters and weather-related events, inducing volatility in its underwriting results. Per Swiss Re, natural catastrophes resulted in a total global economic loss of $270 billion and insured loss of $111 billion in 2021. The Colorado State University expects above-normal activity during the 2022 hurricane season and there will be a total of 19 named storms during the Atlantic hurricane season. Riding on exposure growth, improved pricing, prudent underwriting, favorable reserve development and a sturdy capital position, the insurance industry will be able to absorb catastrophe losses.
Banking on solid capital position, property and casualty industry players are pursuing strategic mergers and acquisitions, which are likely to expand their geographic reach, increase the scale and add new technology capabilities. M&A activities are also likely to strengthen portfolios, diversify operations and enable the companies to penetrate into more profitable market segments. Per Deloitte Insights, M&A activity across the insurance industry increased in 2021. Deloitte’s global outlook survey projects more merger and acquisition strategies in 2022.
The insurers have increased investment in emerging technologies in a bid to drive efficiency, enhance cybersecurity, upgrade policy administration and claims systems as well as expand automation capabilities across the organization. The adoption of technologies such as robotic process automation, Chatbot and RoboAdvisory, artificial intelligence and data analytics, insurtech solutions, telematics and cloud computing is gaining steam. Deloitte’s Global survey expects insurers’ technology budget to increase 13.7% in 2022.
In the latest FOMC meeting, Fed approved its first interest rate increase by 25 basis points to a range of 0.25-0.5%, its first interest rate increase since 2018. Fed also indicated three interest rate hikes in 2023. The insurers are poised to benefit from the recent rate increase, as they are beneficiaries of a rising rate environment. A larger invested base, directing funds to alternative investments like private equity, hedge funds, and real estate, is expected to boost investment income in the future.
Now let’s take a look at two leading players in the industry: RLI & KNSL.
Price Performance
Kinsale Capital has rallied 36.9% in the past year versus the industry’s increase of 18.4% and RLI’s 4.3% decline.
Image Source: Zacks Investment Research
Return on Equity (ROE)
Kinsale Capital, with a return on equity of 20.5%, exceeds RLI’s ROE of 14.5% and the industry average of 5.9%.
Image Source: Zacks Investment Research
Valuation
The price-to-book value is the best multiple used for valuing insurers. Compared with Kinsale Capital’s reading of 7.59, RLI is cheaper, with a reading of 4.06. The P&C insurance industry’s P/B ratio is 1.42.
Image Source: Zacks Investment Research
Dividend Yield
RLI’s dividend yield of 0.9% is better than Kinsale Capital’s 0.2%. Thus, RLI is in an advantageous position over Kinsale Capital on this front.
Image Source: Zacks Investment Research
Debt to Equity
Kinsale Capital’s debt-to-equity ratio of 6.1 is lower than the industry average of 22.5 and Markel’s reading of 16.2.
Earnings Surprise History
RLI has a solid record of beating earnings estimates in the last six quarters. Kinsale Capital has a record of beating earnings estimates in five of the last six quarters.
Hence, RLI has an edge in this regard over Kinsale Capital.
Growth Projection
The Zacks Consensus Estimate for 2022 earnings indicates 15.3% growth from the year-ago reported figure for Kinsale Capital and the same for RLI implies a decline of 1.8%.
Combined Ratio
Kinsale Capital’s combined ratio was 77.1% in 2021, whereas that of RLI was 86.8% in the said time frame. Thus, the combined ratio of Kinsale Capital is better than that of RLI.
Estimate Movement
For 2022, the Zacks Consensus Estimate for RLI has moved 1.3% north to $3.80 in the past 60 days and the same for Kinsale Capital has been revised 5.9% upward to $6.62. Therefore, Kinsale Capital is in an advantageous position over RLI on this front.
To Conclude
Our comparative analysis shows that Kinsale Capital has an edge over RLI with respect to price, return on equity, leverage, growth projection, estimate movement and combined ratio, while RLI scores higher in terms of dividend yield, valuation and earnings surprise history.