Prudent pricing, an improving rate environment, exposure growth, prudent underwriting and solid capital position poise property and casualty insurers well amid a volatile market. However, an active catastrophe environment could weigh on the upside.
Global commercial insurance prices rose for 22 straight quarters though the magnitude has slowed down, per Marsh Global Insurance Market Index. Improving pricing drives improved premiums and 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. Per Deloitte Insights, 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. The insurance industry is rate sensitive. The Fed has already made two hikes in 2023, taking the tally to nine since March 2022. An improving rate environment is a boon for insurers, especially long-tail insurers. Amid the tailwinds, the unpredictable nature of catastrophic events weighs on the underwriting profitability of insurers. Aon estimated a global economic loss of $313 billion in 2022 from natural disasters, while insured losses were estimated to be 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 supports insurers in strategic mergers and acquisitions, investing in growth initiatives, engaging in share buybacks, increasing dividends or paying out special dividends. The industry has risen 0.1% year to date versus the Finance sector’s decrease of 1.6%. The Zacks S&P 500 composite has witnessed an increase of 10.6% in the said time frame. Image Source: Zacks Investment Research
Here we focus on two property and casualty insurers, namely
Cincinnati Financial Corporation ( CINF Quick Quote CINF - Free Report) and Markel Corporation ( MKL Quick Quote MKL - Free Report) . Cincinnati Financial, with a market capitalization of $15.5 billion, markets property and casualty insurance. Markel, with a market capitalization of $17.7 billion, markets and underwrites specialty insurance products in the United States, the United Kingdom, Canada, and internationally. Both companies carry a Zacks Rank #3 (Hold). You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Let’s now see how these P&C insurers have fared in terms of some of the key metrics. Price Performance
Markel has gained 0.8% year to date against Cincinnati Financial’s decline of 4%.
Return on Equity
Markel has a return on equity (ROE) of 8.1%, which exceeds Cincinnati Financial’s ROE of 5.4% and the industry average of 6.9%.
Cincinnati Financial’s dividend yield of 3.1% tops the industry average of 0.4%. Markel does not pay dividend.
Markel’s debt-to-equity ratio of 28.5 is higher than the industry average of 24.5 as well as Cincinnati Financial’s reading of 8.3.
The Zacks Consensus Estimate for 2023 earnings indicates a 9.4% increase from the year-ago reported figure for CINF and 22.9% for MKL.
The consensus estimate for 2024 earnings indicates a 25.3% increase from the year-ago reported figure for CINF and 6.2% for MKL. Combined Ratio
The combined ratio represents the underwriting profitability of an insurer. MKL’s combined ratio was 90.6 in the first quarter of 2023, improving 470 basis points (bps) year over year, while the same for CINF was 100.7, deteriorating 1080 bps year over year.
Our comparative analysis shows that Markel has the edge over Cincinnati Financial with respect to price performance, return on equity, growth projection and combined ratio and valuation. CINF outpaces MKL on dividend yield and leverage.