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Add These 5 Insurance Stocks to Boost Your Portfolio in 2H22
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The insurance industry continues to benefit from better pricing, prudent underwriting, increased exposure, improving rate environment and a solid capital position despite an active catastrophic environment. The insurance industry is an important contributor to the country’s GDP. Given the ongoing economic expansion. insurers are poised for growth.
Amid a favorable macro backdrop, Axis Capital Holdings Limited (AXS - Free Report) , American Financial Group Inc. (AFG - Free Report) , Argo Group International Holdings, Ltd , Brighthouse Financial Inc. (BHF - Free Report) and Unum Group (UNM - Free Report) are poised for a solid performance banking on operational excellence.
Factors Likely to Impact Insurers in 2H
Cat Environment
The second half of the year traditionally bears the brunt of hurricanes. Per Colorado State University (CSU), 2022 is likely to witness an active hurricane season that may have 19 named storms, including nine hurricanes and four major hurricanes. This year’s hurricane season could be about 130% of the average season per CSU.
The last year too had witnessed an above-average hurricane season. Per a report published by Swiss Re Institute, global insured catastrophe losses incurred in 2021 were $112 billion, which made it the fourth-costliest year. Natural catastrophes accounted for $105 billion of global insured losses, an increase of 17% from the 2020 level, per the report. The industry incurred a $3.8 billion net underwriting loss against a $5.2 billion underwriting gain in 2020, as the magnitude of increase in premiums earned was lower than the magnitude of increase in loss and loss adjustment expenses per a report from Verisk and the American Property Casualty Insurance Association. The combined ratio deteriorated 100 basis points to 99.6 in 2021.
Per American Property Casualty Insurance Association and Verisk, private U.S. property/casualty insurers’ profitability (measured by an annualized rate of return on average policyholders’ surplus) was 6.4% in 2021, down from 6.9% in 2020.
Nonetheless, insurers’ prudent underwriting, improved pricing, favorable reserve development and sturdy capital level should help them withstand the impact.
Pricing Continues to Improve
Catastrophic occurrences weigh on insurers’ underwriting profitability. Nonetheless, price hikes by industry players should help them stay afloat. Insurers continue to witness improved pricing, though at a lower magnitude. Per Marsh, global commercial insurance prices in the first quarter of 2022 increased 11%, marking the 18th straight quarter of price increase. Per the report, property rates increased 7%, casualty pricing rose 7%, U.S. financial and professional lines pricing increased 26%, and cyber insurance pricing rose 26%. 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. Per Deloitte insights, global non-life premiums are estimated to grow 3.7% in 2022 while life insurance premium is expected to increase 4%.
Interest Rate Increases
Given an improving rate environment, insurers are poised to benefit as they are direct beneficiaries of rising rates. The Federal Reserve has raised twice this year so far — in March and May — with more to come. The interest rate currently stands at 0.75%-1%.
An improving rate environment will majorly benefit long-tail property and casualty Insurance providers and life insurers (whose earnings are typically derived from the spread between their investment returns and what they credit as interest on insurance policies and products).
Adoption of Technology
Accelerated digitalization has been taking place with greater use of technology like blockchain, AI, advanced analytics, telematics, cloud computing and robotic process automation in daily operations. These are likely to help insurers in seamless underwriting and claims processing, which in turn will aid cost control and thus margin expansion.
Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022
Effective Capital Deployment
With a solid capital level, insurers are engaging in strategic consolidations to expand operations, grow niches and invest in growth opportunities. The insurers are also approving dividend hikes, special dividends and share buybacks to enhance shareholders’ value.
Stocks to Add to Your Portfolio
With the help of the Zacks Stock Screener, we have shortlisted five insurance stocks with a favorable Zacks Rank, supported by upward estimate revisions, and an impressive Value Score of A or B. Value Score helps identify companies that are undervalued. The deviation from their fair value is what creates an exceptional upside opportunity. Also, back-tested results have shown that stocks with a favorable Style Score of A or B coupled with a solid Zacks Rank are the best investment bets.
Axis Capital Holdings is a leading specialty insurer and a global reinsurer, aiming leadership in specialty risks. The company’s focus on building Specialty Insurance, Reinsurance as well as Accident and Health insurance portfolio, its strong market presence, better pricing, margin expansion and effective capital deployment should drive growth. This Zacks Rank #2 (Buy) insurer remains focused on business lines that are likely to provide solid double-digit ROE opportunities.
AXS boasts one of the highest dividend yields among its peers and has made 18 consecutive dividend raises.
Estimates for AXS’ 2022 bottom line have risen 1.5% over the past 30 days and suggest a 22.4% increase from the year-ago reported number. Axis Capital has an impressive VGM Score of A. The expected long-term growth rate is pegged at 5%.
American Financial Group is a niche player in the property and casualty insurance and annuity markets with a focus on specialized commercial products for businesses. New business opportunities, growth in the surplus lines and excess liability businesses, rate increases, and higher retention in the renewal business across Property and Transportation, Specialty Casualty, and Specialty Financial lines of business poise this Zacks Rank #1 insurer well for growth.
AFG has a solid track record of increasing dividends for 17 straight years and has paid out 18 special dividends in 11 years.
Estimates for AFG’ 2022 bottom line have risen 9.8% over the past 60 days.
Argo Group is a U.S.-focused specialty insurer poised to gain from highly profitable businesses, growth initiatives, expense initiative programs and digitalization.
Argo Group, carrying Zacks Rank #2, anticipates generating an operating return on common equity between 9% and 11% in 2022.
Estimates for ARGO’ 2022 bottom line have risen 0.2% over the past 60 days and suggest a 255.5% increase from the year-ago reported number. Argo has an impressive VGM Score of A.
Brighthouse Financial is one of the largest providers of annuity and life insurance products in the United States and is well poised to benefit from the growing individual insurance market, given an expansive and compelling suite of life and annuity products plus a strong market presence. This Zacks Rank #2 insurer remains focused on ramping up new sales of life insurance products and expanding its distribution network, aiming to become a premier player in the industry.
The Zacks Consensus Estimate for Brighthouse Financial’s 2022 earnings has moved up 4.3% in the past seven days.
Unum Group provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. The continued rollout of dental products and geographic expansion has been paying off as the acquired dental insurance businesses are growing in the United States and the United Kingdom.
Unum, carrying Zacks Rank #2, has a track of raising dividends 13 times in the last 12 years.
Estimates for UNM’s 2022 bottom line have risen 1.5% over the past seven days and suggest a 17% increase from the year-ago reported number. Unum Group has an impressive VGM Score of A. The expected long-term growth rate is pegged at 11.9%, better than the industry average of 8.4%.
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Add These 5 Insurance Stocks to Boost Your Portfolio in 2H22
The insurance industry continues to benefit from better pricing, prudent underwriting, increased exposure, improving rate environment and a solid capital position despite an active catastrophic environment. The insurance industry is an important contributor to the country’s GDP. Given the ongoing economic expansion. insurers are poised for growth.
Amid a favorable macro backdrop, Axis Capital Holdings Limited (AXS - Free Report) , American Financial Group Inc. (AFG - Free Report) , Argo Group International Holdings, Ltd , Brighthouse Financial Inc. (BHF - Free Report) and Unum Group (UNM - Free Report) are poised for a solid performance banking on operational excellence.
Factors Likely to Impact Insurers in 2H
Cat Environment
The second half of the year traditionally bears the brunt of hurricanes. Per Colorado State University (CSU), 2022 is likely to witness an active hurricane season that may have 19 named storms, including nine hurricanes and four major hurricanes. This year’s hurricane season could be about 130% of the average season per CSU.
The last year too had witnessed an above-average hurricane season. Per a report published by Swiss Re Institute, global insured catastrophe losses incurred in 2021 were $112 billion, which made it the fourth-costliest year. Natural catastrophes accounted for $105 billion of global insured losses, an increase of 17% from the 2020 level, per the report. The industry incurred a $3.8 billion net underwriting loss against a $5.2 billion underwriting gain in 2020, as the magnitude of increase in premiums earned was lower than the magnitude of increase in loss and loss adjustment expenses per a report from Verisk and the American Property Casualty Insurance Association. The combined ratio deteriorated 100 basis points to 99.6 in 2021.
Per American Property Casualty Insurance Association and Verisk, private U.S. property/casualty insurers’ profitability (measured by an annualized rate of return on average policyholders’ surplus) was 6.4% in 2021, down from 6.9% in 2020.
Nonetheless, insurers’ prudent underwriting, improved pricing, favorable reserve development and sturdy capital level should help them withstand the impact.
Pricing Continues to Improve
Catastrophic occurrences weigh on insurers’ underwriting profitability. Nonetheless, price hikes by industry players should help them stay afloat. Insurers continue to witness improved pricing, though at a lower magnitude. Per Marsh, global commercial insurance prices in the first quarter of 2022 increased 11%, marking the 18th straight quarter of price increase. Per the report, property rates increased 7%, casualty pricing rose 7%, U.S. financial and professional lines pricing increased 26%, and cyber insurance pricing rose 26%. 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. Per Deloitte insights, global non-life premiums are estimated to grow 3.7% in 2022 while life insurance premium is expected to increase 4%.
Interest Rate Increases
Given an improving rate environment, insurers are poised to benefit as they are direct beneficiaries of rising rates. The Federal Reserve has raised twice this year so far — in March and May — with more to come. The interest rate currently stands at 0.75%-1%.
An improving rate environment will majorly benefit long-tail property and casualty Insurance providers and life insurers (whose earnings are typically derived from the spread between their investment returns and what they credit as interest on insurance policies and products).
Adoption of Technology
Accelerated digitalization has been taking place with greater use of technology like blockchain, AI, advanced analytics, telematics, cloud computing and robotic process automation in daily operations. These are likely to help insurers in seamless underwriting and claims processing, which in turn will aid cost control and thus margin expansion.
Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022
Effective Capital Deployment
With a solid capital level, insurers are engaging in strategic consolidations to expand operations, grow niches and invest in growth opportunities. The insurers are also approving dividend hikes, special dividends and share buybacks to enhance shareholders’ value.
Stocks to Add to Your Portfolio
With the help of the Zacks Stock Screener, we have shortlisted five insurance stocks with a favorable Zacks Rank, supported by upward estimate revisions, and an impressive Value Score of A or B. Value Score helps identify companies that are undervalued. The deviation from their fair value is what creates an exceptional upside opportunity. Also, back-tested results have shown that stocks with a favorable Style Score of A or B coupled with a solid Zacks Rank are the best investment bets.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Axis Capital Holdings is a leading specialty insurer and a global reinsurer, aiming leadership in specialty risks. The company’s focus on building Specialty Insurance, Reinsurance as well as Accident and Health insurance portfolio, its strong market presence, better pricing, margin expansion and effective capital deployment should drive growth. This Zacks Rank #2 (Buy) insurer remains focused on business lines that are likely to provide solid double-digit ROE opportunities.
AXS boasts one of the highest dividend yields among its peers and has made 18 consecutive dividend raises.
Estimates for AXS’ 2022 bottom line have risen 1.5% over the past 30 days and suggest a 22.4% increase from the year-ago reported number. Axis Capital has an impressive VGM Score of A. The expected long-term growth rate is pegged at 5%.
American Financial Group is a niche player in the property and casualty insurance and annuity markets with a focus on specialized commercial products for businesses. New business opportunities, growth in the surplus lines and excess liability businesses, rate increases, and higher retention in the renewal business across Property and Transportation, Specialty Casualty, and Specialty Financial lines of business poise this Zacks Rank #1 insurer well for growth.
AFG has a solid track record of increasing dividends for 17 straight years and has paid out 18 special dividends in 11 years.
Estimates for AFG’ 2022 bottom line have risen 9.8% over the past 60 days.
Argo Group is a U.S.-focused specialty insurer poised to gain from highly profitable businesses, growth initiatives, expense initiative programs and digitalization.
Argo Group, carrying Zacks Rank #2, anticipates generating an operating return on common equity between 9% and 11% in 2022.
Estimates for ARGO’ 2022 bottom line have risen 0.2% over the past 60 days and suggest a 255.5% increase from the year-ago reported number. Argo has an impressive VGM Score of A.
Brighthouse Financial is one of the largest providers of annuity and life insurance products in the United States and is well poised to benefit from the growing individual insurance market, given an expansive and compelling suite of life and annuity products plus a strong market presence. This Zacks Rank #2 insurer remains focused on ramping up new sales of life insurance products and expanding its distribution network, aiming to become a premier player in the industry.
The Zacks Consensus Estimate for Brighthouse Financial’s 2022 earnings has moved up 4.3% in the past seven days.
Unum Group provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. The continued rollout of dental products and geographic expansion has been paying off as the acquired dental insurance businesses are growing in the United States and the United Kingdom.
Unum, carrying Zacks Rank #2, has a track of raising dividends 13 times in the last 12 years.
Estimates for UNM’s 2022 bottom line have risen 1.5% over the past seven days and suggest a 17% increase from the year-ago reported number. Unum Group has an impressive VGM Score of A. The expected long-term growth rate is pegged at 11.9%, better than the industry average of 8.4%.