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AXS or RLI: Which P&C Insurance Stock is Better Placed?
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Better pricing, an improving rate environment, exposure growth, prudent underwriting and solid capital position well poise the property and casualty insurers amid a volatile market. However, an active catastrophe environment could weigh on the upside.
Global commercial insurance prices rose for 19 straight quarters though the magnitude has slowed down over the last six quarters, per Marsh Global Insurance Market Index.
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.
The insurance industry is rate sensitive. An improving rate is a boon for long-tail P&C insurers. Also, investment income is an important component of insurers’ top line. The Fed has already made four rate hikes this year. Thus, insurers are poised to benefit.
P&C insurers’ profitability is likely to be weighed down by 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. 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.
While a solid policyholders’ surplus will help the industry absorb losses, a sturdy capital level continues to aid insurers in pursuing strategic mergers and acquisitions, investing in growth initiatives, engaging in share buybacks, increasing dividends or paying out special dividends.
The industry has lost 4.6% year to date compared with the Finance sector’s decrease of 15.1% and the Zacks S&P 500 composite’s decline of 17.1%.
Image Source: Zacks Investment Research
Here we focus on two property and casualty insurers, namely AXIS Capital Holdings Limited (AXS - Free Report) and RLI Corp. (RLI - Free Report) . AXIS Capital, with a market capitalization of $4.6 billion, provides a broad range of specialty insurance and reinsurance solutions. RLI, with a market capitalization of $5 billion, is a specialty property-casualty underwriter that caters primarily to niche markets. Both companies carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s now see how these P&C insurers have fared in terms of some of the key metrics.
Price Performance
AXIS Capital has gained 0.7% year to date against RLI’s decline of 0.3% and the industry’s decrease of 4.5%.
Return on Equity (ROE)
RLI has a return on equity of 18.9%, which exceeds AXIS Capital’s ROE of 11.8% and the industry average of 5.4%.
Dividend Yield
AXIS Capital’s dividend yield of 3.4% tops the industry average of 0.4% as well as RLI’s reading of 0.9%
Debt-to-Equity
RLI’s debt-to-equity ratio of 19.1 is lower than the industry average of 25.3 as well as AXIS Capital’s reading of 31.9.
Earnings Surprise History
Though both AXIS Capital and RLI have outpaced expectations in each of the four trailing quarters, AXS has an edge with an average surprise of 48.1%. RLI delivered an average surprise of 45.1%
Growth Projection
The Zacks Consensus Estimate for 2022 earnings indicates a 25.2% increase from the year-ago reported figure for AXS and 25.3% for RLI.
The consensus estimate for 2023 earnings indicates a 9.7% increase from the year-ago reported figure for AXS but a decline of 11.3% for RLI.
The long-term expected earnings growth is pegged at 5% for AXIS Capital, with a Growth Score of B.
RLI too has a Growth Score of B.
However, AXS has an edge over RLI.
Style Score
AXS has a VGM Score of A, while RLI has a VGM Score of B.
To Conclude
Our comparative analysis shows that AXIS Capital has the edge over RLI with respect to price performance, dividend yield, earnings surprise history, growth projection, style score. RLI outpaces AXS on parameters like ROE and leverage.
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AXS or RLI: Which P&C Insurance Stock is Better Placed?
Better pricing, an improving rate environment, exposure growth, prudent underwriting and solid capital position well poise the property and casualty insurers amid a volatile market. However, an active catastrophe environment could weigh on the upside.
Global commercial insurance prices rose for 19 straight quarters though the magnitude has slowed down over the last six quarters, per Marsh Global Insurance Market Index.
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.
The insurance industry is rate sensitive. An improving rate is a boon for long-tail P&C insurers. Also, investment income is an important component of insurers’ top line. The Fed has already made four rate hikes this year. Thus, insurers are poised to benefit.
P&C insurers’ profitability is likely to be weighed down by 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. 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.
While a solid policyholders’ surplus will help the industry absorb losses, a sturdy capital level continues to aid insurers in pursuing strategic mergers and acquisitions, investing in growth initiatives, engaging in share buybacks, increasing dividends or paying out special dividends.
The industry has lost 4.6% year to date compared with the Finance sector’s decrease of 15.1% and the Zacks S&P 500 composite’s decline of 17.1%.
Image Source: Zacks Investment Research
Here we focus on two property and casualty insurers, namely AXIS Capital Holdings Limited (AXS - Free Report) and RLI Corp. (RLI - Free Report) . AXIS Capital, with a market capitalization of $4.6 billion, provides a broad range of specialty insurance and reinsurance solutions. RLI, with a market capitalization of $5 billion, is a specialty property-casualty underwriter that caters primarily to niche markets. Both companies carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s now see how these P&C insurers have fared in terms of some of the key metrics.
Price Performance
AXIS Capital has gained 0.7% year to date against RLI’s decline of 0.3% and the industry’s decrease of 4.5%.
Return on Equity (ROE)
RLI has a return on equity of 18.9%, which exceeds AXIS Capital’s ROE of 11.8% and the industry average of 5.4%.
Dividend Yield
AXIS Capital’s dividend yield of 3.4% tops the industry average of 0.4% as well as RLI’s reading of 0.9%
Debt-to-Equity
RLI’s debt-to-equity ratio of 19.1 is lower than the industry average of 25.3 as well as AXIS Capital’s reading of 31.9.
Earnings Surprise History
Though both AXIS Capital and RLI have outpaced expectations in each of the four trailing quarters, AXS has an edge with an average surprise of 48.1%. RLI delivered an average surprise of 45.1%
Growth Projection
The Zacks Consensus Estimate for 2022 earnings indicates a 25.2% increase from the year-ago reported figure for AXS and 25.3% for RLI.
The consensus estimate for 2023 earnings indicates a 9.7% increase from the year-ago reported figure for AXS but a decline of 11.3% for RLI.
The long-term expected earnings growth is pegged at 5% for AXIS Capital, with a Growth Score of B.
RLI too has a Growth Score of B.
However, AXS has an edge over RLI.
Style Score
AXS has a VGM Score of A, while RLI has a VGM Score of B.
To Conclude
Our comparative analysis shows that AXIS Capital has the edge over RLI with respect to price performance, dividend yield, earnings surprise history, growth projection, style score. RLI outpaces AXS on parameters like ROE and leverage.