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4 Insurance Stocks That Have Outperformed S&P 500 YTD
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Economic uncertainty worsened in the first half of 2022 due to the Russia-Ukraine conflict, sluggish economic growth, rising interest rates, and soaring inflation. Improved pricing, increased technology advancements, exposure growth and global expansion as well as an impressive solvency level have been tailwinds for the insurance industry. Prudent underwriting standards, lower mortality rates and an improving rate environment have also added to the upside.
The insurance industry has declined 0.4% year to date compared with the Finance sector’s decrease of 16.5% and the Zacks S&P 500 composite’s decline of 21.1%.
Image Source: Zacks Investment Research
Here are four insurance stocks that have managed to perform well so far this year backed by their strong fundamentals. Arch Capital Group Ltd. (ACGL - Free Report) , The Travelers Companies, Inc. (TRV - Free Report) , Kinsale Capital Group, Inc. (KNSL - Free Report) and American International Group, Inc. (AIG - Free Report) have outperformed the industry, the sector and the S&P 500 composite year to date. These stocks are poised to retain the rally, given solid prospects.
Factors at Play
Per Global Insurance Market Index released by Marsh, global commercial insurance prices increased 6% in the third quarter of 2022. It marked the 20th consecutive quarter of price increases. Per the Swiss Re Institute, the insurance industry is expected to generate premium growth of 2.1% on average over the next two years. A declining level of inflation, solid life insurance demand and market hardening in property and casualty lines should continue to support the growth.
An expanded distribution, operational strength, higher retention, strong renewal, price increases, the appointment of retail agents, and a solid balance sheet have boosted insurers’ momentum. The insurance industry players are well poised for growth on the back of higher new business premiums, growth in the line of business, increase in agency renewal written premiums, improving return on equity and non-cat property losses, and expanding international business.
Diversified portfolio, which, in turn, lowers concentration risk, is also a positive. Increased awareness, driving higher demand for protection products, benefited sales and premiums of life insurance operations. Continued improvement in pricing should support the premium growth of non-life insurance operations. Per a report from the Deloitte Center for Financial Services, global life insurance premium is estimated to increase 1.9% in 2023.
The property and casualty insurance industry remains exposed to severe weather events that make underwriting results and in turn earnings volatile. Per Swiss Re Institute, natural catastrophe activity has resulted in insured losses of $115 billion in so far 2022, which is higher than the 10-year average of $81 billion. Swiss Re estimated Hurricane Ian as the most expensive one with estimated preliminary insured losses of $50 billion to $65 billion. Nevertheless, prudent underwriting, continued increases in pricing, reinsurance programs and favorable reserve development have helped to maintain underwriting profitability.
A near-zero interest rate environment concerns insurers as it weighs on investment income, one of the important components of insurers’ top line. A larger invested base, directing funds to alternative investments like private equity, hedge funds, and real estate, is expected to drive the metric in the future. Seven rate hikes have been implemented by the Fed so far in 2022. In the last monetary policy meeting of 2022, the Fed raised interest rates by 50 bps to the range of 4.25 to 4.5%.
A solid capital position enables insurers to pursue strategic mergers and acquisitions, invest in growth initiatives, engage in share buybacks, and increase dividends or pay out special dividends. Mergers and alliances boost portfolios, diversify operations into new business lines and geography and have enabled them to enter more profitable market segments. Per a report from the Deloitte Center for Financial Services, the insurance industry witnessed 427 completed deals in the first half of 2022, which increased 16% year over year.
The insurance industry players continue to invest in technology like robotic process automation, Chatbot and RoboAdvisory, artificial intelligence and data analytics, insurtech solutions, telematics, cloud computing. These investments have expedited business operations, enhanced internal efficiency and bolstered data and analytics capabilities and saveed costs which in turn will benefit margins.
Solid Picks for Better Returns
With the help of the Zacks Stock Screener, we have selected four insurance stocks that rallied year to date and are poised to retain the momentum next year.
Pembroke, Bermuda, Arch Capital Group is a leading specialty P&C and mortgage insurer and offers insurance, reinsurance and mortgage insurance worldwide. New business opportunities, rate increases, growth in existing accounts and improvement in Australian single-premium mortgage insurance drive premiums. The property and casualty insurer currently holds a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Arch Capital has made significant efforts to boost its inorganic growth through prudent acquisitions. These in turn helped the company expand internationally, added capabilities, enhanced operations and diversified its business.
The P&C insurer has maintained a robust capital position over the years, reflecting its financial flexibility. The company’s robust capital and liquidity position shield it from market volatility, enabling it to retain its financial strength and flexibility required to pursue new opportunities in keeping with its long-term strategy. ACGL has an impressive Value Score B.
The Zacks Consensus Estimate for Arch Capital’s 2023 earnings suggests 38.5% year-over-year growth on 18.2% higher revenues. The consensus estimate has moved up 1.3% in the past 60 days. ACGL’s earnings surpassed estimates in three of the last four quarters and missed in one, the average surprise being 15.37%. The expected long-term earnings growth rate is pegged at 10%. The insurer has a favorable VGM Score of B. Shares of ACGL have rallied 42.5% year to date.
Image Source: Zacks Investment Research
NY- based The Travelers is one of the leading writers of auto and homeowners’ insurance plus commercial U.S. property-casualty insurance.
Travelers’ comprehensive portfolio of coverages across nine lines of business is poised to maintain high levels of retention, improve pricing and increase new business while achieving a positive renewal premium change. TRV maintains a conservative balance sheet among its peers. The property and casualty insurer currently carries a Zacks Rank #2 (Buy).
TRV aims to generate increased earnings and capital, in excess of growth needs, and maintain a balanced approach to rightsizing capital and growing book value per share over time as part of its long-term financial strategy. The expected long-term earnings growth rate is pegged at 5.5%.
TRV has increased dividends for 18 consecutive years with a compound annual growth rate of 9% over that period. Dividends increased at an eight-year (2015 – 2022) CAGR of 5.4% The Travelers has an impressive Value Score A. It currently has a P/B ratio of 2.23.
The Zacks Consensus Estimate for Travelers’ 2023 earnings suggests 11.4% year-over-year growth on 8.7% higher revenues. The consensus estimate has moved up 0.4% in the past 30 days. The Travelers’ earnings surpassed estimates in each of the last four quarters, the average surprise being 25.39%. TRV is well-poised for progress, as is evident from its impressive VGM Score of B. Back- tested results have shown that for stocks with a solid VGM Score and a favorable Zacks Rank, the returns are even better. TRV shares have rallied 21.1% year to date.
Image Source: Zacks Investment Research
Richmond, VA-based Kinsale is a specialty insurance company, which offers various insurance and reinsurance products across all 50 states of the United States, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands. The property and casualty insurer currently sports a Zacks Rank #1.
Kinsale continues to benefit from dislocation within the broader property and casualty insurance industry, rate increases and premium growth. It expects to maintain profitability and growth with its strategy of prudent underwriting, combined with technology-driven low costs and a focus on the E&S market in the long term. Boasting the best combination of high-growth and low-combined ratios among its peers, KNSL targets a combined ratio in the mid-80s range over the long term.
Based on solid cash flow, KNSL has increased dividends since 2017, seeing a five-year CAGR (2016-2022) of 14.6%. For the long term, it targets maintaining an operating return on equity in the mid-teens range.
The Zacks Consensus Estimate for Kinsale’s 2023 earnings suggests 22.4% year-over-year growth on 32.2% higher revenues. The consensus estimate has moved up 0.8% in the past seven days. KNSL’s earnings surpassed estimates in each of the last four quarters, the average surprise being 15.16%. It has a Growth Score of B.
Focus on the excess and supply market, prudent underwriting, lower expense ratio, growth in the investment portfolio and effective capital deployment should continue to drive KNSL. Shares of KNSL have rallied 17.9% year to date.
Image Source: Zacks Investment Research
Headquartered in New York, American International provides insurance products for commercial, institutional, and individual customers in North America and internationally. Strategic business de-risking and acquisitions, cost-control efforts, and accelerated capital deployment will drive American International’s growth. The multi-line insurer currently holds a Zacks Rank # 3.
AIG’s global commercial business witnessed a rate increase and new business growth. The Personal lines insurance business has witnessed a recovery in the travel and warranty business. This is in turn drives the company’s net written premiums and revenue growth. American International has made a significant shift in its capital utilization and expects to use the capital for possible buyouts in the international markets, boosting the company's personal and life lines segments plus investing in the domestic middle market.
Also, its robust cash generation abilities have enabled it to continue capital deployment to boost shareholder value through share buybacks and dividend payouts. AIG is well-poised for progress, as is evident from its impressive VGM Score of B. American International has an impressive Value Score A. It currently has a P/B ratio of 1.16.
The Zacks Consensus Estimate for American International’s 2023 earnings suggests 40.7% year-over-year growth on 7.9% higher revenues. AIG’s earnings surpassed estimates in three of the last four quarters and missed in one, the average surprise being 13.01%. The expected long-term earnings growth rate is pegged at 10%. Shares of AIG have rallied 11.3% year to date.
Image Source: Zacks Investment Research
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4 Insurance Stocks That Have Outperformed S&P 500 YTD
Economic uncertainty worsened in the first half of 2022 due to the Russia-Ukraine conflict, sluggish economic growth, rising interest rates, and soaring inflation. Improved pricing, increased technology advancements, exposure growth and global expansion as well as an impressive solvency level have been tailwinds for the insurance industry. Prudent underwriting standards, lower mortality rates and an improving rate environment have also added to the upside.
The insurance industry has declined 0.4% year to date compared with the Finance sector’s decrease of 16.5% and the Zacks S&P 500 composite’s decline of 21.1%.
Image Source: Zacks Investment Research
Here are four insurance stocks that have managed to perform well so far this year backed by their strong fundamentals. Arch Capital Group Ltd. (ACGL - Free Report) , The Travelers Companies, Inc. (TRV - Free Report) , Kinsale Capital Group, Inc. (KNSL - Free Report) and American International Group, Inc. (AIG - Free Report) have outperformed the industry, the sector and the S&P 500 composite year to date. These stocks are poised to retain the rally, given solid prospects.
Factors at Play
Per Global Insurance Market Index released by Marsh, global commercial insurance prices increased 6% in the third quarter of 2022. It marked the 20th consecutive quarter of price increases. Per the Swiss Re Institute, the insurance industry is expected to generate premium growth of 2.1% on average over the next two years. A declining level of inflation, solid life insurance demand and market hardening in property and casualty lines should continue to support the growth.
An expanded distribution, operational strength, higher retention, strong renewal, price increases, the appointment of retail agents, and a solid balance sheet have boosted insurers’ momentum. The insurance industry players are well poised for growth on the back of higher new business premiums, growth in the line of business, increase in agency renewal written premiums, improving return on equity and non-cat property losses, and expanding international business.
Diversified portfolio, which, in turn, lowers concentration risk, is also a positive. Increased awareness, driving higher demand for protection products, benefited sales and premiums of life insurance operations. Continued improvement in pricing should support the premium growth of non-life insurance operations. Per a report from the Deloitte Center for Financial Services, global life insurance premium is estimated to increase 1.9% in 2023.
The property and casualty insurance industry remains exposed to severe weather events that make underwriting results and in turn earnings volatile. Per Swiss Re Institute, natural catastrophe activity has resulted in insured losses of $115 billion in so far 2022, which is higher than the 10-year average of $81 billion. Swiss Re estimated Hurricane Ian as the most expensive one with estimated preliminary insured losses of $50 billion to $65 billion. Nevertheless, prudent underwriting, continued increases in pricing, reinsurance programs and favorable reserve development have helped to maintain underwriting profitability.
A near-zero interest rate environment concerns insurers as it weighs on investment income, one of the important components of insurers’ top line. A larger invested base, directing funds to alternative investments like private equity, hedge funds, and real estate, is expected to drive the metric in the future. Seven rate hikes have been implemented by the Fed so far in 2022. In the last monetary policy meeting of 2022, the Fed raised interest rates by 50 bps to the range of 4.25 to 4.5%.
A solid capital position enables insurers to pursue strategic mergers and acquisitions, invest in growth initiatives, engage in share buybacks, and increase dividends or pay out special dividends. Mergers and alliances boost portfolios, diversify operations into new business lines and geography and have enabled them to enter more profitable market segments. Per a report from the Deloitte Center for Financial Services, the insurance industry witnessed 427 completed deals in the first half of 2022, which increased 16% year over year.
The insurance industry players continue to invest in technology like robotic process automation, Chatbot and RoboAdvisory, artificial intelligence and data analytics, insurtech solutions, telematics, cloud computing. These investments have expedited business operations, enhanced internal efficiency and bolstered data and analytics capabilities and saveed costs which in turn will benefit margins.
Solid Picks for Better Returns
With the help of the Zacks Stock Screener, we have selected four insurance stocks that rallied year to date and are poised to retain the momentum next year.
Pembroke, Bermuda, Arch Capital Group is a leading specialty P&C and mortgage insurer and offers insurance, reinsurance and mortgage insurance worldwide. New business opportunities, rate increases, growth in existing accounts and improvement in Australian single-premium mortgage insurance drive premiums. The property and casualty insurer currently holds a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Arch Capital has made significant efforts to boost its inorganic growth through prudent acquisitions. These in turn helped the company expand internationally, added capabilities, enhanced operations and diversified its business.
The P&C insurer has maintained a robust capital position over the years, reflecting its financial flexibility. The company’s robust capital and liquidity position shield it from market volatility, enabling it to retain its financial strength and flexibility required to pursue new opportunities in keeping with its long-term strategy. ACGL has an impressive Value Score B.
The Zacks Consensus Estimate for Arch Capital’s 2023 earnings suggests 38.5% year-over-year growth on 18.2% higher revenues. The consensus estimate has moved up 1.3% in the past 60 days. ACGL’s earnings surpassed estimates in three of the last four quarters and missed in one, the average surprise being 15.37%. The expected long-term earnings growth rate is pegged at 10%. The insurer has a favorable VGM Score of B. Shares of ACGL have rallied 42.5% year to date.
Image Source: Zacks Investment Research
NY- based The Travelers is one of the leading writers of auto and homeowners’ insurance plus commercial U.S. property-casualty insurance.
Travelers’ comprehensive portfolio of coverages across nine lines of business is poised to maintain high levels of retention, improve pricing and increase new business while achieving a positive renewal premium change. TRV maintains a conservative balance sheet among its peers. The property and casualty insurer currently carries a Zacks Rank #2 (Buy).
TRV aims to generate increased earnings and capital, in excess of growth needs, and maintain a balanced approach to rightsizing capital and growing book value per share over time as part of its long-term financial strategy. The expected long-term earnings growth rate is pegged at 5.5%.
TRV has increased dividends for 18 consecutive years with a compound annual growth rate of 9% over that period. Dividends increased at an eight-year (2015 – 2022) CAGR of 5.4% The Travelers has an impressive Value Score A. It currently has a P/B ratio of 2.23.
The Zacks Consensus Estimate for Travelers’ 2023 earnings suggests 11.4% year-over-year growth on 8.7% higher revenues. The consensus estimate has moved up 0.4% in the past 30 days. The Travelers’ earnings surpassed estimates in each of the last four quarters, the average surprise being 25.39%. TRV is well-poised for progress, as is evident from its impressive VGM Score of B. Back- tested results have shown that for stocks with a solid VGM Score and a favorable Zacks Rank, the returns are even better. TRV shares have rallied 21.1% year to date.
Image Source: Zacks Investment Research
Richmond, VA-based Kinsale is a specialty insurance company, which offers various insurance and reinsurance products across all 50 states of the United States, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands. The property and casualty insurer currently sports a Zacks Rank #1.
Kinsale continues to benefit from dislocation within the broader property and casualty insurance industry, rate increases and premium growth. It expects to maintain profitability and growth with its strategy of prudent underwriting, combined with technology-driven low costs and a focus on the E&S market in the long term.
Boasting the best combination of high-growth and low-combined ratios among its peers, KNSL targets a combined ratio in the mid-80s range over the long term.
Based on solid cash flow, KNSL has increased dividends since 2017, seeing a five-year CAGR (2016-2022) of 14.6%. For the long term, it targets maintaining an operating return on equity in the mid-teens range.
The Zacks Consensus Estimate for Kinsale’s 2023 earnings suggests 22.4% year-over-year growth on 32.2% higher revenues. The consensus estimate has moved up 0.8% in the past seven days. KNSL’s earnings surpassed estimates in each of the last four quarters, the average surprise being 15.16%. It has a Growth Score of B.
Focus on the excess and supply market, prudent underwriting, lower expense ratio, growth in the investment portfolio and effective capital deployment should continue to drive KNSL. Shares of KNSL have rallied 17.9% year to date.
Image Source: Zacks Investment Research
Headquartered in New York, American International provides insurance products for commercial, institutional, and individual customers in North America and internationally. Strategic business de-risking and acquisitions, cost-control efforts, and accelerated capital deployment will drive American International’s growth. The multi-line insurer currently holds a Zacks Rank # 3.
AIG’s global commercial business witnessed a rate increase and new business growth. The Personal lines insurance business has witnessed a recovery in the travel and warranty business. This is in turn drives the company’s net written premiums and revenue growth. American International has made a significant shift in its capital utilization and expects to use the capital for possible buyouts in the international markets, boosting the company's personal and life lines segments plus investing in the domestic middle market.
Also, its robust cash generation abilities have enabled it to continue capital deployment to boost shareholder value through share buybacks and dividend payouts. AIG is well-poised for progress, as is evident from its impressive VGM Score of B. American International has an impressive Value Score A. It currently has a P/B ratio of 1.16.
The Zacks Consensus Estimate for American International’s 2023 earnings suggests 40.7% year-over-year growth on 7.9% higher revenues. AIG’s earnings surpassed estimates in three of the last four quarters and missed in one, the average surprise being 13.01%. The expected long-term earnings growth rate is pegged at 10%. Shares of AIG have rallied 11.3% year to date.
Image Source: Zacks Investment Research