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Zacks Industry Outlook Highlights Arch Capital, The Hanover Insurance, and The Travelers
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For Immediate Release
Chicago, IL – April 13, 2022 – Today, Zacks Equity Research discusses Arch Capital Group (ACGL - Free Report) , The Hanover Insurance Group (THG - Free Report) , and The Travelers Companies (TRV - Free Report) .
The Zacks Property and Casualty Insurance industry is currently undervalued compared with the Zacks S&P 500 composite as well as the Zacks Finance sector. The price-to-book (P/B) ratio, the best multiple for valuing insurers because of their unpredictable financial results, is 1.4, less than the Zacks S&P 500 composite's P/B of 6.7 and the sector's P/B of 3.3. Such below market positioning hints at room for upside in the coming quarters.
Before their valuation expands, it is wise to add some undervalued stocks with growth potential to one's portfolio.
Driving Factors
The industry is well poised to benefit from improved pricing, prudent underwriting and increased exposure despite a rise in catastrophe losses.
Per Swiss Re, the insurance and reinsurance industry incurred the fourth-highest global insured catastrophe losses of about $112 billion in 2021. 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, per Verisk and the American Property Casualty Insurance Association report. Nevertheless, net income improved 19.6% to $42.1 billion in the nine months of 2021, largely driven by an increase in premium (up 9.4%) and investment gains per the report.
For 2022, Colorado State University expects an above-normal hurricane season. A total of 19 named storms are expected during the Atlantic hurricane season.
Occurrences of frequent natural disasters should accelerate the policy renewal rate. Also, the high degree of losses incurred sets the stage for continued price hikes. 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. Insurers are also increasingly taking reinsurance covers to safeguard their profit.
With the 25 basis-point rise in interest rate by the Fed in the March FOMC meeting, the P&C insurers breathed a sigh of relief. Though P&C insurers' financials are less sensitive to interest rates than life insurers, a better interest rate environment will cushion investment income. Also, an improving rate is a tailwind for long-tail property and casualty insurers.
Accelerated digitalization into artificial intelligence, robotic process automation, cognitive intelligence, advanced analytics, telematics, blockchain and cloud computing should help insurers manage costs. Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022.
Also, the industry is well-capitalized, enabling players to pursue mergers and acquisitions, thus curbing competition in the process. Also, sturdy capital levels help in boosting shareholder value through dividend hikes, special dividends and share buybacks.
Zacks Rank
The 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 industry currently carries a Zacks Industry Rank #69, which places it in the top 27% of 255 Zacks industries.
Also, the industry's earnings estimate for the current year has gone up 2.5% since September 2021, rightly positioning it in the top 50% of the Zacks-ranked industries.
Price Performance
The industry has outperformed both the Zacks S&P 500 composite as well as the Finance sector year to date. While the industry has risen 15.6%, the Zacks S&P 500 composite and the sector have decreased 5.7% and 3.6%, respectively, in the said time frame.
These stocks have also witnessed positive estimate revisions, reflecting analysts' confidence in the companies' operational efficiency.
Arch Capital Group is a leading specialty P&C and mortgage insurer. Strong rate increases, new business opportunities and growth in existing accounts in its Insurance and Reinsurance segment poise the insurer well for growth. The expected long-term earnings growth rate is pegged at 10%.
Shares of ACGL have gained 8.1% year to date. The stock currently has a P/B ratio of 1.44. The Zacks Consensus Estimate for current-year earnings has moved north by 0.2% in the past four weeks' time and indicates a year-over-year increase of 26.3%.
The Hanover Insurance Group has evolved into a balanced, small/middle market-focused commercial and personal lines carrier. THG looks to be the premier P&C franchise in the independent agency channel. The expected long-term earnings growth rate is pegged at 13.8%.
Focus on pricing segmentation and mix management and emphasis on growth in target states, product lines and industry classes in the middle market bode well for growth. The Hanover Insurance Group expects net premium written to witness a five-year CAGR of more than 7% to $7 billion. The bottom line is expected to be between 12% and 13% and book value per share is likely to be between 7% and 8% by 2026.
Hanover Insurance has been hiking dividends for the last 16 years, in addition to paying special dividends. THG's dividend witnessed an 11-year CAGR of 10.5%.
Shares of THG have risen 16.7% year to date. It currently has a P/B ratio of 1.8. The Zacks Consensus Estimate for current-year earnings has moved up by 1.1% in the past four weeks' time and indicates a year-over-year increase of 20.6%.
The Travelers Companies is one of the leading writers of auto and homeowners' insurance plus commercial U.S. property-casualty insurance.
A compelling product portfolio of coverages across nine lines of business should continue to help Travelers maintain high levels of retention, improve pricing and increase new business while achieving a positive renewal premium change bodes well for growth. The expected long-term earnings growth rate is pegged at 3.2%.
Banking on operational excellence and a solid capital position, the insurer has increased its dividend for the last 11 years. Dividends increased at a five-year CAGR of 7.5%
TRV shares have returned 18.4% year to date. It currently has a P/B ratio of 1.55. The Zacks Consensus Estimate for current-year earnings has moved up 0.3% over the past 30 days.
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Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/ 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 Arch Capital, The Hanover Insurance, and The Travelers
For Immediate Release
Chicago, IL – April 13, 2022 – Today, Zacks Equity Research discusses Arch Capital Group (ACGL - Free Report) , The Hanover Insurance Group (THG - Free Report) , and The Travelers Companies (TRV - Free Report) .
Industry: P&C Insurance
Link: https://www.zacks.com/stock/news/1897962/3-value-stocks-from-the-undervalued-pc-insurance-industry
The Zacks Property and Casualty Insurance industry is currently undervalued compared with the Zacks S&P 500 composite as well as the Zacks Finance sector. The price-to-book (P/B) ratio, the best multiple for valuing insurers because of their unpredictable financial results, is 1.4, less than the Zacks S&P 500 composite's P/B of 6.7 and the sector's P/B of 3.3. Such below market positioning hints at room for upside in the coming quarters.
Before their valuation expands, it is wise to add some undervalued stocks with growth potential to one's portfolio.
Driving Factors
The industry is well poised to benefit from improved pricing, prudent underwriting and increased exposure despite a rise in catastrophe losses.
Per Swiss Re, the insurance and reinsurance industry incurred the fourth-highest global insured catastrophe losses of about $112 billion in 2021. 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, per Verisk and the American Property Casualty Insurance Association report. Nevertheless, net income improved 19.6% to $42.1 billion in the nine months of 2021, largely driven by an increase in premium (up 9.4%) and investment gains per the report.
For 2022, Colorado State University expects an above-normal hurricane season. A total of 19 named storms are expected during the Atlantic hurricane season.
Occurrences of frequent natural disasters should accelerate the policy renewal rate. Also, the high degree of losses incurred sets the stage for continued price hikes. 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. Insurers are also increasingly taking reinsurance covers to safeguard their profit.
With the 25 basis-point rise in interest rate by the Fed in the March FOMC meeting, the P&C insurers breathed a sigh of relief. Though P&C insurers' financials are less sensitive to interest rates than life insurers, a better interest rate environment will cushion investment income. Also, an improving rate is a tailwind for long-tail property and casualty insurers.
Accelerated digitalization into artificial intelligence, robotic process automation, cognitive intelligence, advanced analytics, telematics, blockchain and cloud computing should help insurers manage costs. Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022.
Also, the industry is well-capitalized, enabling players to pursue mergers and acquisitions, thus curbing competition in the process. Also, sturdy capital levels help in boosting shareholder value through dividend hikes, special dividends and share buybacks.
Zacks Rank
The 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 industry currently carries a Zacks Industry Rank #69, which places it in the top 27% of 255 Zacks industries.
Also, the industry's earnings estimate for the current year has gone up 2.5% since September 2021, rightly positioning it in the top 50% of the Zacks-ranked industries.
Price Performance
The industry has outperformed both the Zacks S&P 500 composite as well as the Finance sector year to date. While the industry has risen 15.6%, the Zacks S&P 500 composite and the sector have decreased 5.7% and 3.6%, respectively, in the said time frame.
Value Picks
With the help of the Zacks Stock Screener, we have selected three P&C insurance stocks with an impressive Value Score of A and a Zacks Rank #2 (Buy). Back-tested results have shown that stocks with a favorable Value Score coupled with a solid Zacks Rank are the best investment options. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
These stocks have also witnessed positive estimate revisions, reflecting analysts' confidence in the companies' operational efficiency.
Arch Capital Group is a leading specialty P&C and mortgage insurer. Strong rate increases, new business opportunities and growth in existing accounts in its Insurance and Reinsurance segment poise the insurer well for growth. The expected long-term earnings growth rate is pegged at 10%.
Shares of ACGL have gained 8.1% year to date. The stock currently has a P/B ratio of 1.44. The Zacks Consensus Estimate for current-year earnings has moved north by 0.2% in the past four weeks' time and indicates a year-over-year increase of 26.3%.
The Hanover Insurance Group has evolved into a balanced, small/middle market-focused commercial and personal lines carrier. THG looks to be the premier P&C franchise in the independent agency channel. The expected long-term earnings growth rate is pegged at 13.8%.
Focus on pricing segmentation and mix management and emphasis on growth in target states, product lines and industry classes in the middle market bode well for growth. The Hanover Insurance Group expects net premium written to witness a five-year CAGR of more than 7% to $7 billion. The bottom line is expected to be between 12% and 13% and book value per share is likely to be between 7% and 8% by 2026.
Hanover Insurance has been hiking dividends for the last 16 years, in addition to paying special dividends. THG's dividend witnessed an 11-year CAGR of 10.5%.
Shares of THG have risen 16.7% year to date. It currently has a P/B ratio of 1.8. The Zacks Consensus Estimate for current-year earnings has moved up by 1.1% in the past four weeks' time and indicates a year-over-year increase of 20.6%.
The Travelers Companies is one of the leading writers of auto and homeowners' insurance plus commercial U.S. property-casualty insurance.
A compelling product portfolio of coverages across nine lines of business should continue to help Travelers maintain high levels of retention, improve pricing and increase new business while achieving a positive renewal premium change bodes well for growth. The expected long-term earnings growth rate is pegged at 3.2%.
Banking on operational excellence and a solid capital position, the insurer has increased its dividend for the last 11 years. Dividends increased at a five-year CAGR of 7.5%
TRV shares have returned 18.4% year to date. It currently has a P/B ratio of 1.55. The Zacks Consensus Estimate for current-year earnings has moved up 0.3% over the past 30 days.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/ 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.