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TRV or ALL: Which P&C Stock is Better-Placed at the Moment?
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The U.S. property and casualty (P&C) insurance industry has been benefitting from a couple of factors — a better pricing environment, exposure growth and strong customer retention rates. Frequent rate hikes by the Fed act as another tailwind for insurers. However, continued catastrophic events and persistent inflationary headwinds might create roadblocks in the way of P&C insurers.
Premiums, being the most significant contributors to insurers’ top lines, remain well-poised for growth as an improved pricing environment encourages insurers to implement price hikes. With consistent rate increases, insurers can pursue uninterrupted claim payments, which is of dire need amid an active catastrophe season. According to the Swiss Re Institute, the insurance industry is expected to generate average annual premium growth of 2.1% in 2023 and 2024.
Though an active catastrophe environment comes with its share of worries, they usually accelerate the policy renewal rate. P&C insurers also remain equipped with reinsurance covers and favorable reserve development to counter catastrophe losses and shield their underwriting results.
An improving interest rate scenario usually boosts the investment yields of insurers. Seven rate hikes were implemented by the Fed last year. Reports have surfaced hinting at rate increases in early 2023.
A solid capital position motivates P&C insurers to increasingly undertake mergers and acquisitions (M&A). These growth initiatives aim to strengthen an insurer’s capability and bring about a diversified portfolio, which minimize concentration risks for insurers. However, the looming fear of recession and continued interest rate increases might slow down the pace of entering M&A deals by industry players.
The insurance industry pursues significant technology investments in blockchain, AI and advanced analytics for ramping up claim payments and bringing about automation in processes. These investments will save operational costs and boost the margins of insurers in the long-run.
The prevailing scenario makes us optimistic regarding consistent growth in the industry, which should boost the prospects of companies with sound business fundamentals.
The Zacks P&C Insurance industry, which is housed within the broader Zacks Finance sector, has gained 10.4% in the past six months compared with the sector’s growth of 2.6%. The S&P Index dipped 0.5% in the same time frame.
Let's delve deeper into specific parameters to ascertain which company is better positioned at the moment.
Price Performance
Though shares of both companies have underperformed the industry’s rally of 10.4% in the past six months, Travelers has the edge over Allstate on this front. TRV and ALL gained 9.6% and 3.8%, respectively, in the same time frame.
Image Source: Zacks Investment Research
Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Travelers’ bottom line beat estimates in each of the trailing four quarters, the average surprise being 25.39%. Meanwhile, Allstate’s earnings surpassed the mark in three of the trailing four quarters and missed once, the average surprise being 8.29%. It is clear that TRV has a better reading than ALL here.
Return on Equity (ROE)
ROE is a profitability measure, which indicates how efficiently the company is utilizing its shareholders' funds.
Travelers’ ROE of 14.3% compares favorably with Allstate’s ROE of 5.1% and remains higher than the industry’s average of 6.7%.
Image Source: Zacks Investment Research
Valuation
Price-to-book (P/B) value is the best multiple used for valuing insurers. Compared with Allstate’s trailing 12-month P/B ratio of 2.31, Travelers is cheaper, with a reading of 2.21. The P&C insurance industry’s P/B ratio is 1.52.
Image Source: Zacks Investment Research
Debt-to-Equity Ratio
The lower the debt-to-equity ratio, the better it is for the company, as it implies a sound solvency level. Both stocks have a higher leverage ratio than the industry’s average of 25.8%. TRV’s leverage ratio of 36.6% betters ALL’s ratio of 45.4%. Therefore, Travelers holds an edge over Allstate on this front.
Image Source: Zacks Investment Research
Dividend Yield
Both companies are regular dividend payers. Allstate’s dividend yield of 2.5% betters Travelers’ metric of 2% and remains higher than the industry’s average of 0.4%. ALL wins over TRV on this front.
Growth Projection
Both stocks' expected long-term earnings growth rate is lower than the industry’s average of 9.7%. However, the metric for Travelers is pegged at 5.5%, better than Allstate’s figure of 5.1%.
VGM Score
VGM Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth and the most promising momentum. Both Travelers and Allstate have an impressive VGM Score of B, faring equally on this front.
Insurance Premiums
One of the major contributors to a P&C insurer’s revenues is its premiums. Net written premiums of Travelers improved 11% year over year in the first nine months of 2022. Meanwhile, Allstate’s premiums rose 8.4% year over year in the same time frame. Thus. TRV is the winner in this context.
Conclusion
Our comparative analysis shows that Travelers is better-poised than Allstate with respect to most metrics barring the ones on dividend yield and VGM Score. With the scale significantly toward TRV, the stock appears to be better positioned than ALL.
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TRV or ALL: Which P&C Stock is Better-Placed at the Moment?
The U.S. property and casualty (P&C) insurance industry has been benefitting from a couple of factors — a better pricing environment, exposure growth and strong customer retention rates. Frequent rate hikes by the Fed act as another tailwind for insurers. However, continued catastrophic events and persistent inflationary headwinds might create roadblocks in the way of P&C insurers.
Premiums, being the most significant contributors to insurers’ top lines, remain well-poised for growth as an improved pricing environment encourages insurers to implement price hikes. With consistent rate increases, insurers can pursue uninterrupted claim payments, which is of dire need amid an active catastrophe season. According to the Swiss Re Institute, the insurance industry is expected to generate average annual premium growth of 2.1% in 2023 and 2024.
Though an active catastrophe environment comes with its share of worries, they usually accelerate the policy renewal rate. P&C insurers also remain equipped with reinsurance covers and favorable reserve development to counter catastrophe losses and shield their underwriting results.
An improving interest rate scenario usually boosts the investment yields of insurers. Seven rate hikes were implemented by the Fed last year. Reports have surfaced hinting at rate increases in early 2023.
A solid capital position motivates P&C insurers to increasingly undertake mergers and acquisitions (M&A). These growth initiatives aim to strengthen an insurer’s capability and bring about a diversified portfolio, which minimize concentration risks for insurers. However, the looming fear of recession and continued interest rate increases might slow down the pace of entering M&A deals by industry players.
The insurance industry pursues significant technology investments in blockchain, AI and advanced analytics for ramping up claim payments and bringing about automation in processes. These investments will save operational costs and boost the margins of insurers in the long-run.
The prevailing scenario makes us optimistic regarding consistent growth in the industry, which should boost the prospects of companies with sound business fundamentals.
The Zacks P&C Insurance industry, which is housed within the broader Zacks Finance sector, has gained 10.4% in the past six months compared with the sector’s growth of 2.6%. The S&P Index dipped 0.5% in the same time frame.
Image Source: Zacks Investment Research
Against this backdrop, let’s take a look at the two P&C insurers, The Travelers Companies, Inc. (TRV - Free Report) and The Allstate Corporation (ALL - Free Report) , with market capitalizations of $43.9 billion and $36 billion, respectively. Both stocks carry a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let's delve deeper into specific parameters to ascertain which company is better positioned at the moment.
Price Performance
Though shares of both companies have underperformed the industry’s rally of 10.4% in the past six months, Travelers has the edge over Allstate on this front. TRV and ALL gained 9.6% and 3.8%, respectively, in the same time frame.
Image Source: Zacks Investment Research
Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Travelers’ bottom line beat estimates in each of the trailing four quarters, the average surprise being 25.39%. Meanwhile, Allstate’s earnings surpassed the mark in three of the trailing four quarters and missed once, the average surprise being 8.29%. It is clear that TRV has a better reading than ALL here.
Return on Equity (ROE)
ROE is a profitability measure, which indicates how efficiently the company is utilizing its shareholders' funds.
Travelers’ ROE of 14.3% compares favorably with Allstate’s ROE of 5.1% and remains higher than the industry’s average of 6.7%.
Image Source: Zacks Investment Research
Valuation
Price-to-book (P/B) value is the best multiple used for valuing insurers. Compared with Allstate’s trailing 12-month P/B ratio of 2.31, Travelers is cheaper, with a reading of 2.21. The P&C insurance industry’s P/B ratio is 1.52.
Image Source: Zacks Investment Research
Debt-to-Equity Ratio
The lower the debt-to-equity ratio, the better it is for the company, as it implies a sound solvency level. Both stocks have a higher leverage ratio than the industry’s average of 25.8%. TRV’s leverage ratio of 36.6% betters ALL’s ratio of 45.4%. Therefore, Travelers holds an edge over Allstate on this front.
Image Source: Zacks Investment Research
Dividend Yield
Both companies are regular dividend payers. Allstate’s dividend yield of 2.5% betters Travelers’ metric of 2% and remains higher than the industry’s average of 0.4%. ALL wins over TRV on this front.
Growth Projection
Both stocks' expected long-term earnings growth rate is lower than the industry’s average of 9.7%. However, the metric for Travelers is pegged at 5.5%, better than Allstate’s figure of 5.1%.
VGM Score
VGM Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth and the most promising momentum. Both Travelers and Allstate have an impressive VGM Score of B, faring equally on this front.
Insurance Premiums
One of the major contributors to a P&C insurer’s revenues is its premiums. Net written premiums of Travelers improved 11% year over year in the first nine months of 2022. Meanwhile, Allstate’s premiums rose 8.4% year over year in the same time frame. Thus. TRV is the winner in this context.
Conclusion
Our comparative analysis shows that Travelers is better-poised than Allstate with respect to most metrics barring the ones on dividend yield and VGM Score. With the scale significantly toward TRV, the stock appears to be better positioned than ALL.