The insurance industry has managed to perform well this year despite economic volatilities and the momentum is expected to continue in 2023. High inflation, a rising interest rate environment to tame inflation, geopolitical conflicts, a strong dollar affecting businesses and fears of a looming recession have thrown multiple curveballs. Still, the insurance industry weathered the storm bravely in 2022.

Thanks to technological advancements, exposure growth, better pricing and underwriting, strong capital position and increasing global presence, the insurance industry outperformed the market and the Finance sector. Especially in the year’s second half, while the market was trying to cope with inflation and related rate hikes, the industry was gaining from increased investment yields. In the past six months, the insurance industry jumped 9.2% while the finance sector moved up 2.6% and the Zacks S&P 500 composite declined 0.3%.

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Banking on the favorable backdrop, insurance companies like Voya Financial, Inc. (VOYA Quick QuoteVOYA - Free Report) , MGIC Investment Corporation (MTG Quick QuoteMTG - Free Report) and Mercury General Corporation (MCY Quick QuoteMCY - Free Report) have fared well this year and are expected to continue the momentum next year. Considering the current macroeconomic volatility, it will be wise to invest in these analyst-preferred stocks. Analysts with deep fundamental knowledge and understanding of the industry and its companies provide prudent investment opportunities. Following Wall Street recommendations and expert opinions can be one of the safest investment options.

Key Drivers

Commercial insurance prices continue to rise. The global commercial insurance prices climbed 6% in the third quarter this year, per Marsh’s Global Insurance Market Index, marking the 20^th consecutive quarter of composite pricing hikes. The above-average hurricane season helped in increasing awareness, which also resulted in improved pricing. In the first half of the year alone, economic losses due to natural disasters climbed to $72 billion per Swiss Re. These have improved prices, which ensures higher premiums and better claims payments.

Most insurance lines are expected to witness price increases in the coming days, triggering premium hikes. According to Deloitte Insights, gross premiums are likely to jump sixfold by 2030 to $722 billion. Per that report, China and North America are expected to contribute more than 66.7% to the total market.

To counter inflation, the Fed hiked interest rates six times this year and more are expected to follow in the coming year. Even though the magnitude of increases is likely to decline, the absolute value will be significantly higher than the last year’s low-rate environment. This will benefit insurers with rate-sensitive investments. Higher yield from their investments will boost their bottom line.

The life insurance market is expected to gain from growing awareness following the pandemic. Even though the high inflation rate is affecting policies sold figures currently, with an improved inflation rate expected in the future, the number of policies sold is likely to rise.

Investments in technological infrastructures, mergers and acquisitions and streamlining operations will benefit insurance players going ahead. Accelerated digitalization, increased use of blockchain, advanced analytics, telematics, cloud computing, artificial intelligence and robotic process automation will help companies to optimize operations and reduce costs. While mergers and acquisitions are expected to boost their footprints and product portfolio, business streamlining will help them to focus more on core profitable operations.

3 Analyst Suggested Insurance Stocks for 2023

We shortlisted three insurance stocks with the help of the Zacks Stock Screener. These stocks have a Zacks Rank of 1 (Strong Buy) or 2 (Buy). The Zacks Rank is a reliable tool that helps you trade confidently regardless of your trading style and risk tolerance. To learn more about how you can use this proven system for market-beating gains, visit Zacks Rank Education.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Also, more than 70% of brokers recommend these stocks as a strong buy or buy. Our research shows such stocks provide good investment opportunities.

Voya Financial: Headquartered in New York, Voya is a retirement, investment, and employee benefits company. Solid performance across Wealth Solutions, Investment Management and Health Solutions are expected to boost the company’s bottom line going ahead. Strategic buyouts are likely to help VOYA scale its business segments. Its strong capital position and high cash flow yield are major positives.

The 2022 Zacks Consensus Estimate for VOYA’s earnings is pegged at $6.82 per share, which witnessed seven upward estimates in the past 60 days against one in the opposite direction. It beat the Zacks Consensus Estimate for earnings in each of the last four quarters. NEX has a trailing four-quarter earnings surprise of roughly 35.2%, on average.

Zacks Rank: #2

Average Broker Recommendation: 1.63

Last Closing Price: $60.88

QTD Price Performance: 0.6%

MGIC Investment: Based in Milwaukee, WI, MGIC Investment is a provider of private mortgage insurance, and other services through its subsidiaries. New business and rising annual persistency are expected to result in the continued growth of its insurance-in-force portfolio. Also, declining claim filings in the coming days are expected to reduce paid claims and boost its financial profile. Its improving private mortgage market share will provide an edge over its peers.

The 2022 Zacks Consensus Estimate for MTG’s earnings is pegged at $2.86 per share, indicating 49.7% year-over-year growth. It has witnessed two upward estimate revisions in the past 60 days against none in the opposite direction. MGIC Investment beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 36.3%, on average.

Zacks Rank: #2

Average Broker Recommendation: 1.75

Last Closing Price: $12.94

QTD Price Performance: 0.9%

Mercury General: Brea, CA-based Mercury General, along with its subsidiaries, operates as a multiple-line insurance organization. It offers personal auto and homeowners insurance and other products to its clients. Improving auto rate filings are expected to benefit the company going ahead. Given the inflationary pressure and supply chain shocks, prices are bound to go up, aiding its top line. Also, its investment income is expected to get a boost from rising interest rates.

The 2022 Zacks Consensus Estimate for MCY’s bottom line has improved 42.5% in the past 60 days. Mercury Generalbeat the Zacks Consensus Estimate for earnings in the last reported quarter by more than 150%.

Zacks Rank: #1

Average Broker Recommendation: 1

Last Closing Price: $33.11

QTD Price Performance: 16.5%