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AXS or SIGI: Which P&C Insurance Stock is Better Placed?
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The Zacks Property and Casualty Insurance industry is likely to benefit from better pricing, prudent underwriting, an improving rate environment and exposure growth. Streamlining operations, diversifying business, favorable reserve development and expanding global presence have been tailwinds for the industry players. However, catastrophe losses might have weighed on P&C insurers.
The industry has lost 7.8% in the past year compared with the Zacks S&P 500 composite’s decline of 14.1% and the Finance sector’s 12.5% decline.
Image Source: Zacks Investment Research
Here we focus on two property and casualty insurers, namely Axis Capital Holdings Limited (AXS - Free Report) and Selective Insurance Group, Inc. (SIGI - Free Report) .
Axis Capital, with a market capitalization of $4.6 billion, provides various specialty insurance and reinsurance products worldwide. Selective Insurance, with a market capitalization of $4.8 billion, provides insurance products and services in the United States. Both companies carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Per the Global Insurance Market Index by Marsh, global commercial insurance prices increased 9% in the second quarter of 2022. This marked the 19th consecutive quarter in which composite pricing rose, continuing the longest run of increases since the inception of the index in 2012. Per Marsh, global property insurance pricing and casualty pricing increased 6% each on average in the second quarter of 2022. Pricing in financial and professional lines had the highest rate of increase across the major insurance product categories at 16%. 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.
Price hikes, operational strength, higher retention, strong renewal and the appointment of retail agents should help write higher premiums.
The P&C insurers remain exposed to catastrophe loss from natural disasters and weather-related events, which induces volatility in its underwriting results. Per Colorado State University (CSU), the 2022 above-average hurricane season 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. Global estimated insured losses from natural catastrophes in the first half of 2022 were $35 billion, 22% above average of the past 10 years ($29 billion), per a report by Swiss Re Institute.
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.
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. With the reopening of the economy, an optimistic growth outlook and a solid capital level of the insurers, 2021 saw 869 deals, up 40% from 620 in 2020. The total deal value surged 165% to $57.5 billion per Deloitte.
The insurers are well poised to benefit from this improved interest rate environment as they are direct beneficiaries of rising rates. The Fed officials raised interest rates by 75 basis points. Currently, the interest rate stands at a range of 2.25%-2.5%. The Fed signaled raising interest rates to 4% next year. A larger invested base and movement of funds to alternative investments like private equity, hedge funds, and real estate are expected to drive investment income. Property and casualty insurance providers, as well as life insurers, are likely to gain from the improving rate environment.
The insurers have increased investment in emerging technologies in a bid to drive efficiency, enhance cybersecurity, upgrade claims systems as well as expand automation capabilities across the organization. The industry is witnessing greater use of technology like blockchain, AI, advanced analytics, telematics, cloud computing, emergence of insurtech and robotic process automation to expedite business operations and save costs. Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022.
Now let’s look at the two leading players in the P&C insurance industry: AXS & SIGI.
Price Performance
Axis Capital has gained 9% in the past year versus the industry’s decrease of 8.6%. Selective Insurance shares have declined 4.3% in the said time frame.
Image Source: Zacks Investment Research
Return on Equity (ROE)
Selective Insurance, with a return on equity (ROE) of 12.6%, exceeds Axis Capital’s ROE of 11.8% and the industry average of 6.4%.
Image Source: Zacks Investment Research
Valuation
The price-to-book value is the best multiple used for valuing insurers. Compared with Selective Insurance’s P/B ratio of 2.01, Axis Capital is cheaper, with a reading of 1.10. The P&C insurance industry’s P/B ratio is 1.35.
Dividend Yield
Axis Capital’s dividend yield of 3.2% betters Selective Insurance’s dividend yield of 1.4%. Thus, Axis Capital has an advantage over Selective Insurance on this front.
Image Source: Zacks Investment Research
Debt-to-Capital
Axis Capital’s debt-to-capital ratio of 24.17 is higher than the industry average of 20.6 and Selective Insurance’s reading of 16.3. Therefore, Selective Insurance has an advantage over Axis Capital on this front.
Growth Projection
The Zacks Consensus Estimate for 2022 earnings indicates 25.2% growth from the year-ago reported figure for Axis Capital, while the same for Selective Insurance indicates a decline of 12.9%.
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. Axis Capital has a VGM Score of A while Selective Insurance has a VGM Score of C. Axis Capital thus is better placed.
Combined Ratio
Axis Capital’s combined ratio was 92.4% in the first half of 2022, whereas that of Selective Insurance was 94.3% in the said time frame. Thus, the combined ratio of Axis Capital betters that of Selective Insurance.
To Conclude
Our comparative analysis shows that Axis Capital is better positioned than Selective Insurance with respect to dividend yield, combined ratio, VGM Score, valuation, price, and growth projection. Meanwhile, Selective Insurance scores higher in terms of leverage and return on equity. With the scale significantly tilted toward Axis Capital, the stock appears to be better poised.
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AXS or SIGI: Which P&C Insurance Stock is Better Placed?
The Zacks Property and Casualty Insurance industry is likely to benefit from better pricing, prudent underwriting, an improving rate environment and exposure growth. Streamlining operations, diversifying business, favorable reserve development and expanding global presence have been tailwinds for the industry players. However, catastrophe losses might have weighed on P&C insurers.
The industry has lost 7.8% in the past year compared with the Zacks S&P 500 composite’s decline of 14.1% and the Finance sector’s 12.5% decline.
Image Source: Zacks Investment Research
Here we focus on two property and casualty insurers, namely Axis Capital Holdings Limited (AXS - Free Report) and Selective Insurance Group, Inc. (SIGI - Free Report) .
Axis Capital, with a market capitalization of $4.6 billion, provides various specialty insurance and reinsurance products worldwide. Selective Insurance, with a market capitalization of $4.8 billion, provides insurance products and services in the United States. Both companies carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Per the Global Insurance Market Index by Marsh, global commercial insurance prices increased 9% in the second quarter of 2022. This marked the 19th consecutive quarter in which composite pricing rose, continuing the longest run of increases since the inception of the index in 2012. Per Marsh, global property insurance pricing and casualty pricing increased 6% each on average in the second quarter of 2022. Pricing in financial and professional lines had the highest rate of increase across the major insurance product categories at 16%. 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.
Price hikes, operational strength, higher retention, strong renewal and the appointment of retail agents should help write higher premiums.
The P&C insurers remain exposed to catastrophe loss from natural disasters and weather-related events, which induces volatility in its underwriting results. Per Colorado State University (CSU), the 2022 above-average hurricane season 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. Global estimated insured losses from natural catastrophes in the first half of 2022 were $35 billion, 22% above average of the past 10 years ($29 billion), per a report by Swiss Re Institute.
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.
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. With the reopening of the economy, an optimistic growth outlook and a solid capital level of the insurers, 2021 saw 869 deals, up 40% from 620 in 2020. The total deal value surged 165% to $57.5 billion per Deloitte.
The insurers are well poised to benefit from this improved interest rate environment as they are direct beneficiaries of rising rates. The Fed officials raised interest rates by 75 basis points. Currently, the interest rate stands at a range of 2.25%-2.5%. The Fed signaled raising interest rates to 4% next year. A larger invested base and movement of funds to alternative investments like private equity, hedge funds, and real estate are expected to drive investment income. Property and casualty insurance providers, as well as life insurers, are likely to gain from the improving rate environment.
The insurers have increased investment in emerging technologies in a bid to drive efficiency, enhance cybersecurity, upgrade claims systems as well as expand automation capabilities across the organization. The industry is witnessing greater use of technology like blockchain, AI, advanced analytics, telematics, cloud computing, emergence of insurtech and robotic process automation to expedite business operations and save costs. Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022.
Now let’s look at the two leading players in the P&C insurance industry: AXS & SIGI.
Price Performance
Axis Capital has gained 9% in the past year versus the industry’s decrease of 8.6%. Selective Insurance shares have declined 4.3% in the said time frame.
Image Source: Zacks Investment Research
Return on Equity (ROE)
Selective Insurance, with a return on equity (ROE) of 12.6%, exceeds Axis Capital’s ROE of 11.8% and the industry average of 6.4%.
Image Source: Zacks Investment Research
Valuation
The price-to-book value is the best multiple used for valuing insurers. Compared with Selective Insurance’s P/B ratio of 2.01, Axis Capital is cheaper, with a reading of 1.10. The P&C insurance industry’s P/B ratio is 1.35.
Dividend Yield
Axis Capital’s dividend yield of 3.2% betters Selective Insurance’s dividend yield of 1.4%. Thus, Axis Capital has an advantage over Selective Insurance on this front.
Image Source: Zacks Investment Research
Debt-to-Capital
Axis Capital’s debt-to-capital ratio of 24.17 is higher than the industry average of 20.6 and Selective Insurance’s reading of 16.3. Therefore, Selective Insurance has an advantage over Axis Capital on this front.
Growth Projection
The Zacks Consensus Estimate for 2022 earnings indicates 25.2% growth from the year-ago reported figure for Axis Capital, while the same for Selective Insurance indicates a decline of 12.9%.
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. Axis Capital has a VGM Score of A while Selective Insurance has a VGM Score of C. Axis Capital thus is better placed.
Combined Ratio
Axis Capital’s combined ratio was 92.4% in the first half of 2022, whereas that of Selective Insurance was 94.3% in the said time frame. Thus, the combined ratio of Axis Capital betters that of Selective Insurance.
To Conclude
Our comparative analysis shows that Axis Capital is better positioned than Selective Insurance with respect to dividend yield, combined ratio, VGM Score, valuation, price, and growth projection. Meanwhile, Selective Insurance scores higher in terms of leverage and return on equity. With the scale significantly tilted toward Axis Capital, the stock appears to be better poised.