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Kinsale or RenaissanceRe: Which is a Better-Positioned Stock?
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The Zacks Property and Casualty Insurance industry is well-placed, given improving pricing, increase in interest rate, exposure growth, prudent underwriting and solid capital position. However, an active catastrophe environment could weigh on the upside. The P&C insurers continue to witness better pricing, though the magnitude has slowed down.
The industry has lost 1.5% in the past year compared with the Zacks S&P 500 composite’s decline of 8.4% and the Finance sector’s 6.8% fall.
Image Source: Zacks Investment Research
Here we focus on two property and casualty insurers, namely Kinsale Capital Group, Inc. (KNSL - Free Report) and RenaissanceRe Holdings Ltd. (RNR - Free Report) . Kinsale Capital, with a market capitalization of $7.23 billion, a specialty insurance company, provides property and casualty insurance products in the United States. RenaissanceRe, with a market capitalization of $9.2 billion, provides reinsurance and insurance products in the United States and internationally. Both P&C insurers sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Per Global Insurance Market Index released by Marsh, global commercial insurance prices increased 4% in the fourth quarter of 2022. It marked the 21st consecutive quarter of price increases. An expanded distribution, operational strength, higher retention, strong renewal, price increases and a solid balance sheet are likely to help insurers retain momentum. Per Deloitte Insights, gross premiums are estimated to increase about six-fold to $722 billion by 2030. Per Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023.
The insurance industry is likely to grow on the back of higher new business premiums, growth in the line of business and expanding international business.
The P&C insurers remain exposed to catastrophe loss from natural disasters and weather-related events, which induce volatility in their underwriting results. Per Swiss Re Institute, natural catastrophe activity resulted in insured losses of $115 billion in 2022, which is higher than the 10-year average of $81 billion. Swiss Re estimated Hurricane Ian to be 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 should help insurers withstand the blows.
Insurance companies are the direct beneficiaries of growing interest rates. Seven rate hikes have been implemented by the Fed in 2022 to control persistent inflation. In the last February 2023 meeting, the Fed raised interest rates by 25 basis points to the range of 4.5% to 4.75%, the highest since October 2007. This marked the eighth consecutive rate hike that started in March 2022.
Riding on operational efficiency resulting in a solid capital position, insurers should continue to engage in strategic mergers and acquisitions to sharpen their competitive edge, build on a niche, expand globally, diversify their portfolio and deploy capital to enhance shareholder value. With the reopening of the economy, an optimistic growth outlook and a solid capital level of the insurers, 2021 saw 869 deals, up 40% from 620 in 2020 while the total deal value surged 165% to $57.5 billion per Deloitte. The first half of 2022 witnessed 427 deals per Deloitte.
The insurance industry is witnessing greater use of technology like blockchain, AI, advanced analytics, telematics, cloud computing and robotic process automation to expedite business operations and save costs. The P&C industry also witnessed the emergence of insurtech — technology-led insurers — sparking competition for incumbent players. Per Deloitte Insights, insurers remain focused on ramping up data and analytics capabilities as well as realizing the benefit of the technological infrastructure.
Let’s now see how the P&C insurers, KNSL and RNR have fared in terms of some of the key metrics.
Price Performance
RenaissanceRe has gained 49.7% in the past year, outperforming Kinsale Capital gain of 47.8% and against the industry’s decrease of 1.5%.
Image Source: Zacks Investment Research
Return on Equity (ROE)
Kinsale Capital, with a return on equity of 27.08%, exceeds RenaissanceRe’s ROE of 7.36% and the industry average of 6.64%.
Image Source: Zacks Investment Research
Valuation
The price-to-book value is the best multiple used for valuing insurers. Compared with Kinsale Capital’s P/B ratio of 9.7, RenaissanceRe is cheaper, with a reading of 2.01. The P&C insurance industry’s P/B ratio is 1.39.
Image Source: Zacks Investment Research
Debt-to-Capital
Kinsale Capital’s debt-to-capital ratio of 20.8 is higher than RenaissanceRe’s reading of 18 as well as the industry average of 20.48. Therefore, RenaissanceRe has an advantage over Kinsale Capital on this front.
Earnings Surprise History
Kinsale Capital outpaced expectations in each of the last seven reported quarters. RenaissanceRe surpassed estimates in four of the last seven reported quarters.
Growth Projection
Earnings growth and stock price gains often indicate a company’s strong prospects.
The Zacks Consensus Estimate for RenaissanceRe’s 2023 earnings implies year-over-year increase of 220.27%, while that of Kinsale Capital suggests year-over-year increase of 26.4%.
Therefore, RNR is at an advantage on this front.
Combined Ratio
Kinsale Capital’s combined ratio was 77.9% in 2022, whereas that of RenaissanceRe was 97.7% in the said time frame. Thus, the combined ratio of KNSL was better than RNR.
Dividend Yield
RenaissanceRe’s dividend yield of 0.7% is better than the Kinsale Capital’s dividend yield of 0.1%. Thus, RNR has an advantage over KNSL on this front.
Image Source: Zacks Investment Research
To Conclude
Our comparative analysis shows that RenaissanceRe is better positioned than Kinsale Capital with respect to price performance, dividend yield, leverage, valuation and growth projection. Meanwhile, Kinsale Capital scores higher in terms of return on equity, combined ratio and earnings surprise history. With the scale significantly tilted toward RNR, the stock appears to be better poised.
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Kinsale or RenaissanceRe: Which is a Better-Positioned Stock?
The Zacks Property and Casualty Insurance industry is well-placed, given improving pricing, increase in interest rate, exposure growth, prudent underwriting and solid capital position. However, an active catastrophe environment could weigh on the upside. The P&C insurers continue to witness better pricing, though the magnitude has slowed down.
The industry has lost 1.5% in the past year compared with the Zacks S&P 500 composite’s decline of 8.4% and the Finance sector’s 6.8% fall.
Image Source: Zacks Investment Research
Here we focus on two property and casualty insurers, namely Kinsale Capital Group, Inc. (KNSL - Free Report) and RenaissanceRe Holdings Ltd. (RNR - Free Report) .
Kinsale Capital, with a market capitalization of $7.23 billion, a specialty insurance company, provides property and casualty insurance products in the United States. RenaissanceRe, with a market capitalization of $9.2 billion, provides reinsurance and insurance products in the United States and internationally. Both P&C insurers sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Per Global Insurance Market Index released by Marsh, global commercial insurance prices increased 4% in the fourth quarter of 2022. It marked the 21st consecutive quarter of price increases. An expanded distribution, operational strength, higher retention, strong renewal, price increases and a solid balance sheet are likely to help insurers retain momentum. Per Deloitte Insights, gross premiums are estimated to increase about six-fold to $722 billion by 2030. Per Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023.
The insurance industry is likely to grow on the back of higher new business premiums, growth in the line of business and expanding international business.
The P&C insurers remain exposed to catastrophe loss from natural disasters and weather-related events, which induce volatility in their underwriting results. Per Swiss Re Institute, natural catastrophe activity resulted in insured losses of $115 billion in 2022, which is higher than the 10-year average of $81 billion. Swiss Re estimated Hurricane Ian to be 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 should help insurers withstand the blows.
Insurance companies are the direct beneficiaries of growing interest rates. Seven rate hikes have been implemented by the Fed in 2022 to control persistent inflation. In the last February 2023 meeting, the Fed raised interest rates by 25 basis points to the range of 4.5% to 4.75%, the highest since October 2007. This marked the eighth consecutive rate hike that started in March 2022.
Riding on operational efficiency resulting in a solid capital position, insurers should continue to engage in strategic mergers and acquisitions to sharpen their competitive edge, build on a niche, expand globally, diversify their portfolio and deploy capital to enhance shareholder value. With the reopening of the economy, an optimistic growth outlook and a solid capital level of the insurers, 2021 saw 869 deals, up 40% from 620 in 2020 while the total deal value surged 165% to $57.5 billion per Deloitte. The first half of 2022 witnessed 427 deals per Deloitte.
The insurance industry is witnessing greater use of technology like blockchain, AI, advanced analytics, telematics, cloud computing and robotic process automation to expedite business operations and save costs. The P&C industry also witnessed the emergence of insurtech — technology-led insurers — sparking competition for incumbent players. Per Deloitte Insights, insurers remain focused on ramping up data and analytics capabilities as well as realizing the benefit of the technological infrastructure.
Let’s now see how the P&C insurers, KNSL and RNR have fared in terms of some of the key metrics.
Price Performance
RenaissanceRe has gained 49.7% in the past year, outperforming Kinsale Capital gain of 47.8% and against the industry’s decrease of 1.5%.
Image Source: Zacks Investment Research
Return on Equity (ROE)
Kinsale Capital, with a return on equity of 27.08%, exceeds RenaissanceRe’s ROE of 7.36% and the industry average of 6.64%.
Image Source: Zacks Investment Research
Valuation
The price-to-book value is the best multiple used for valuing insurers. Compared with Kinsale Capital’s P/B ratio of 9.7, RenaissanceRe is cheaper, with a reading of 2.01. The P&C insurance industry’s P/B ratio is 1.39.
Image Source: Zacks Investment Research
Debt-to-Capital
Kinsale Capital’s debt-to-capital ratio of 20.8 is higher than RenaissanceRe’s reading of 18 as well as the industry average of 20.48. Therefore, RenaissanceRe has an advantage over Kinsale Capital on this front.
Earnings Surprise History
Kinsale Capital outpaced expectations in each of the last seven reported quarters. RenaissanceRe surpassed estimates in four of the last seven reported quarters.
Growth Projection
Earnings growth and stock price gains often indicate a company’s strong prospects.
The Zacks Consensus Estimate for RenaissanceRe’s 2023 earnings implies year-over-year increase of 220.27%, while that of Kinsale Capital suggests year-over-year increase of 26.4%.
Therefore, RNR is at an advantage on this front.
Combined Ratio
Kinsale Capital’s combined ratio was 77.9% in 2022, whereas that of RenaissanceRe was 97.7% in the said time frame. Thus, the combined ratio of KNSL was better than RNR.
Dividend Yield
RenaissanceRe’s dividend yield of 0.7% is better than the Kinsale Capital’s dividend yield of 0.1%. Thus, RNR has an advantage over KNSL on this front.
Image Source: Zacks Investment Research
To Conclude
Our comparative analysis shows that RenaissanceRe is better positioned than Kinsale Capital with respect to price performance, dividend yield, leverage, valuation and growth projection. Meanwhile, Kinsale Capital scores higher in terms of return on equity, combined ratio and earnings surprise history. With the scale significantly tilted toward RNR, the stock appears to be better poised.