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WRB or ACGL: Which P&C Insurance Stock Should You Buy?

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Property and casualty (P&C) insurers are well placed, given improving pricing, increase in interest rate, exposure growth, prudent underwriting and solid capital position. However, an active catastrophe environment could weigh on the upside.

The P&C insurers continue to witness better pricing, though the magnitude has slowed down. Global commercial insurance prices for the last reported quarter increased 9% per Marsh Global Insurance Market Index but marked a slowdown in pace for the sixth straight quarter.

Per Willis Towers Watson’s 2022 Insurance Marketplace Realities report, rates will continue to rise but by a small margin.  Better pricing ensures improved premiums and prudent claims payment. Per Deloitte insights, global non-life premiums are estimated to grow 3.7% in 2022.

With Fed raising rates four times already this year and indicating more hikes in the future, insurers, being the direct beneficiaries of an improving rate environment, are poised to benefit.

P&C insurers’ profitability is inversely related to catastrophic events. Colorado State University (CSU) expects an active Atlantic hurricane season this year with 18 named storms. These include eight hurricanes and four major hurricanes. This year’s hurricane season could be about 120% of the average season per CSU.

Nonetheless, the insurance industry continues to witness accelerated digitalization and players are investing heavily in technology to improve scale and efficiencies. Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022.

Solid policyholders’ surplus will help the industry absorb losses. Also, given the solid capital level, insurers are actively pursuing strategic mergers and acquisitions and investing in growth initiatives apart from engaging in share buybacks, increasing dividends or paying out special dividends.

The industry has lost 5.2% year to date compared with the Finance sector’s decrease of 14.6% and the Zacks S&P 500 composite’s decline of 17.7%.

Here we focus on two property and casualty insurers, namely W.R. Berkley Corporation (WRB - Free Report) and Arch Capital Group Ltd. (ACGL - Free Report) .  W.R. Berkley is one of the nation’s largest commercial lines property casualty insurance providers. Arch Capital Group offers insurance, reinsurance and mortgage insurance across the world. Both companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Let’s now see how these P&C insurers have fared in terms of some of the key metrics.

Price Performance

W.R. Berkley has rallied 18.3% year to date compared with Arch Capital’s increase rise of 2.8%. In the meantime, Allstate stock has declined 1.5%.  

Return on Equity

W.R. Berkley has a return on equity of 17.3%, which exceeds Arch Capital’s ROE of 14.5% and the industry average of 5.4%.

Valuation

Price-to-book value is the best multiple used for valuing insurers. Compared with W.R. Berkley’s reading of 2.6, Arch Capital’s is cheaper with a reading of 1.5. The P&C insurance industry’s P/B ratio is 1.34.

Dividend Yield

W.R. Berkley’s dividend yield of 0.6% tops the industry’s average of 0.4%. Arch Capital does not pay a dividend.

Debt-to-Equity

Arch Capital’s debt-to-equity ratio of 24.3 is lower than the industry average of 25.3 as well as W.R. Berkley’s reading of 43.5.  

Earnings Surprise History

W.R. Berkley outpaced expectations in each of the four trailing quarters. Arch Capital surpassed estimates in three of the last four reported quarters.

Growth Projection

The Zacks Consensus Estimate for 2022 earnings indicates a 20.6% increase from the year-ago reported figure for W.R. Berkley and 29.6% for Arch Capital.

The consensus estimate for 2023 earnings indicates a 104% increase from the year-ago reported figure for W.R. Berkley and 18.1% for Arch Capital.

The long-term expected earnings growth is pegged at 9% for W.R. Berkley and 10% for Arch Capital.

To Conclude

Our comparative analysis shows that W.R. Berkley has the edge over Arch Capital with respect to most of the parameters.


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W.R. Berkley Corporation (WRB) - free report >>

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