Economic uncertainty worsened in the first half of 2022 due to the Russia-Ukraine conflict, a tight monetary policy undertaken by the Federal Reserve and high inflation. In the past year, the S&P 500 index has declined 20.4%. Volatility is expected to continue in the remainder of 2022.

Amid this, insurance players like CNA Financial Corporation (CNA Quick QuoteCNA - Free Report) , Manulife Financial Corp (MFC Quick QuoteMFC - Free Report) and Unum Group (UNM Quick QuoteUNM - Free Report) are expected to brave industry headwinds. These have an impressive dividend history and are likely to yield promising returns. Dividends play an important role in limiting portfolio risk as well as market volatility. Regular dividend hikes also indicate profitability of the insurer.

The insurance industry is benefiting from improved pricing, increased technology advancements, exposure growth and global expansion as well as an impressive solvency level. Prudent underwriting standards, lower mortality rates, redesigning and repricing of products and services and an improving rate environment should also add to the upside.

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.

With a rise in the number of aging population, the demand for retirement benefits is increasing. Per a report by IBISWorld, the $909 billion U.S. Life Insurance & Annuities Market is expected to grow 2.5% in 2022. Increased vaccinations and economic growth potential instill confidence.

The insurers remain exposed to catastrophe loss from natural disasters and weather-related events, which induce volatility in their 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.

The interest rate environment has started to improve. The Fed declared the third consecutive 75 basis point increase in the Federal Funds rate. Currently, the interest rate is in the range of 3%-3.25%. Insurers, being direct beneficiaries of an improving rate environment, are poised to gain. To check high levels of inflation, the Fed will continue to rise interest rates, which will improve investment results.
Banking on operational efficiency, which leads to a solid capital position, insurers continue to engage in strategic mergers and acquisitions to diversify their operations into new business lines and geography and deploy capital to enhance shareholder value.

Insurers have increased investment in emerging technologies in a bid to drive efficiency, enhance cybersecurity, upgrade policy administration and claims systems as well as expand automation capabilities across the organization. Deloitte’s Global survey projects insurers’ technology budget to increase 13.7% in 2022.

Best 3 Dividend Stocks to Watch

With the help of the Zacks Stock Screener, we have selected three insurance stocks with a dividend yield of more than 2% and they have grown dividend over the past five years. These stocks also have a payout ratio of less than 60 and carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CNA Financial, with a market capitalization of $10.2 billion, offers commercial P&C insurance products, mainly across the United States. Riding on a compelling product portfolio, better retention, improving pricing, and new business growth, CNA Financial has been witnessing improvement in gross premium written since 2015, with each of the segments delivering improved gross premium written.

Its strong balance sheet and cash flows enable CNA Financial to engage in shareholder-friendly moves like dividend hikes. The company’s quarterly dividend payment has witnessed an eight-year CAGR (2015-20222) of 6.1%. The current dividend yield of 4.2% is better than the industry average of 0.4%. In February 2022, CNA Financial’s board approved a 5% hike in the quarterly dividend. Simultaneously, CNA announced a special dividend of $2 per share, marking the eighth special dividend. CNA increased its dividend six times in the last five years. The property and casualty insurer’s payout ratio is 41, with a five-year annualized dividend growth rate of 5.6%. (Check CNA Financial’s dividend history here).

CNA Financial maintains a conservative capital structure, a leverage ratio of 22.6% and capital above target levels in support of ratings. By virtue of disciplined execution, as reflected in its strong underwriting results, and confidence in future earnings performances, the insurer has hiked its dividend over the past couple of years. CNA remains committed to returning more value to shareholders.

Manulife Financial, with a market capitalization of $29.4 billion, is one of the three dominant life insurers within its domestic market and has rapidly growing operations in the United States and several Asian countries. The insurer’s strong Asia business and expanding wealth and asset management business poise it well for growth.

MFC's current dividend yield of 6.7% betters the industry average of 4.2%. Manulife has a strong track record of delivering progressive dividend increases. The life insurer’s payout ratio is 41, with a five-year annualized dividend growth rate of 9.6%. Manulife Financial increased its dividend 14 times in the last five years. (Check Manulife Financial’s dividend history here)

A solid balance sheet, along with strong operational performance and the life insurer’s outlook for growth in the future, has enabled it to hike its dividend payout. In November 2021, MFC increased total dividend by 18%. It targets a 35-45% dividend payout over the medium term. Its Asia business is the major contributor to its earnings. New business growth in Asia has been aiding the operational results. MFC remains focused on ramping up growth in its highest potential businesses, and thus estimates these businesses to generate about 67% of total company core earnings by 2022.

Unum Group, with a market capitalization of $8.1 billion, is ranked as the leading disability income writer and the second-largest writer of voluntary business in the United States. By virtue of sustained solid operational performance, favorable benefits experience as well as solid top-line growth in the core businesses, UNM witnessed favorable operating results across the majority of its insurance entities. Unum’s conservative pricing and reservation practices have contributed to its overall profitability.

UNM’s quarterly dividend payment witnessed an eight-year CAGR (2015-2022) of 9.5%. The board approved a quarterly dividend hike of 10% in May 2022, marking the 13th dividend hike in the last 12 years. The current dividend yield of 3.2%, is better than the industry average of 2.7%. UNM increased its dividend four times in the last five years. The insurer’s payout ratio is 23, with a five-year annualized dividend growth rate of 6.2%. (Check Unum Group’s dividend history here).

Unum Group boasts a solid capital position. Sustained solid operating results have been fueling a solid level of statutory earnings and capital, cushioning financial flexibility. Strong statutory earnings might provide an impetus to its dividend capacity. Unum Group has consistently enhanced shareholders’ value through dividend hikes. Its continuous efforts to reduce share count are expected to bolster earnings going forward. For the remainder of 2022, the insurer projects an increase in after-tax adjusted operating income per share of 40% to 45% year over year, up from an increase of 15% to 20% guided earlier. The improved expectation reflects the insurer's strong first-half performance.  UNM estimates 45-55% growth in adjusted operating EPS by 2024.