Property and Casualty Insurance industry is well poised for growth banking on the strength of better pricing, an improving rate environment, exposure growth, prudent underwriting and a solid capital position. However, an active catastrophe environment could weigh on the upside. The industry continues to witness better pricing. Global commercial insurance prices rose for 21 straight quarters though the magnitude has slowed down over the last eight quarters, per Marsh Global Insurance Market Index. Better pricing ensures improved premiums and prudent claims payment. Per Deloitte Insights, gross premiums are estimated to increase about sixfold to $722 billion by 2030. China and North America should account for more than two-thirds of the global market, per the report. Trends like commercial lines witnessing growth at a faster pace than personal lines and homeowners’ premiums improving better than personal auto are likely to continue in 2023 per Deloitte Insights. The insurance industry is rate sensitive. The Fed made seven hikes in 2022 and one this year so far. An improving rate environment is a boon for insurers, especially long-tail insurers. Also, rising rates drive net investment income, an important component of the top line. The Fed has announced taking the interest rate to 5.1% in 2023. The current federal interest rate currently stands at 4.75%. Thus, there is more room for rate hikes in 2023. Catastrophic events weigh on the underwriting profitability of insurers. Aon estimated global economic loss of $313 billion in 2022 from natural disasters while insured losses were estimated more than $130 billion. Net underwriting loss increased seven-fold to $26.9 billion in 2022 per a report published in Insurance Journal. Per Verisk and APCIA, the combined ratio deteriorated 310 basis points year over year to 102.7% in 2022. Nonetheless, the insurance industry continues to witness accelerated digitalization. Players are investing heavily in technology to improve scale and efficiencies. While a solid policyholders’ surplus will help the industry absorb losses, a sturdy capital level continues to aid insurers in pursuing strategic mergers and acquisitions, investing in growth initiatives, engaging in share buybacks, increasing dividends or paying out special dividends. Policyholders’ surplus totaled $952.4 billion at 2022 end per a report published in Insurance Journal. The industry has declined 1% year to date compared with the Finance sector’s decrease of 2.2%. The Zacks S&P 500 composite has risen 7% in the said time frame. Here we focus on two property and casualty insurers, namely Everest Re and CNA Financial Corporation ( CNA Quick Quote CNA - Free Report) . Everest Re, with a market capitalization of $14.2 billion, writes property and casualty, reinsurance and insurance in the United States, Bermuda and international markets. CNA Financial, with a market capitalization of $10.5 billion, offers commercial P&C insurance products, mainly across the United States. Both companies sport a Zacks Rank #1 (Strong Buy). You can see . the complete list of today’s Zacks #1 Rank stocks here Let’s now see how these P&C insurers have fared in terms of some of the key metrics. Price Performance
Everest Re has gained 9.6% year to date against CNA Financial’s decline of 8.5% and the industry’s decrease of 0.9%.
Return on Equity (ROE)
Everest Re has a return on equity of 12.4%, which is more than CNA Financial’s ROE of 11.3% and the industry average of 6.7%.
dividend yield of 4.5% tops Everest Re’s dividend yield of 1.8% and the industry average of 0.4%. Debt-to-Equity
Everest Re’s debt-to-equity ratio of 36.5 is higher than the industry average of 26 as well as CNA Financial’s reading of 31.5.
The Zacks Consensus Estimate for RE’s 2023 earnings indicates a 68.5% increase from the year-ago reported figure, while that for CNA implies a 10.4% increase.
The consensus estimate for RE’s 2024 earnings indicates a 16.2% increase from the year-ago reported figure, while that for CNA suggests a 3.5% rise. The expected long-term earnings growth rate is pegged at 30.3% for RE, better than the industry average of 14.6% and CNA’s 5% earnings growth rate. Combined Ratio
Combined ratio represents the underwriting profitability of an insurer. CNA’s combined ratio was 93 in 2022, up 300 basis points (bps) from 2021 while the same for RE was 96, up 180 bps year over year.
CNA Financial’s price-to-book of 1.19 is cheaper than the industry average of 1.43 and Everest Re’s valuation multiple of 1.68.
Nevertheless, both have a Value Score of B. Back-tested results show that stocks with a Style Score of A or B combined with a Zacks Rank #1 or #2 offer better returns. To Conclude
Our comparative analysis shows that CNA Financial has the edge over Everest RE with respect to leverage, dividend yield, combined ratio and valuation. RE outpaces CNA on price performance, growth projection and return on equity.