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3 Value Stocks From the Undervalued Multiline Insurance Industry
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The Zacks Multiline Insurance industry is currently undervalued than the Zacks S&P 500 composite and the Zacks Finance sector. The industry’s price-to-book (the best multiple for valuing insurers because of their unpredictable financial results) of 2.18 was less than the Zacks S&P 500 composite’s P/B of 5.72 and the sector’s P/B of 3.12. Such below-market positioning hints at room for an upside in the days ahead.
Industry vs Zacks S&P 500 composite
Image Source: Zacks Investment Research
Industry vs Sector
Image Source: Zacks Investment Research
Thus, before their valuation increases, it is wise to locate some undervalued stocks with growth potential.
Driving Forces
Product diversification helps multiline insurance industry players lower concentration risks, ensure uninterrupted revenue generation, and improve the retention ratio. The industry is well-poised to benefit from better pricing, prudent underwriting, increased exposure, faster economic recovery on the receding impacts of the pandemic and increased vaccinations.
The multiline insurance industry provides single insurance coverage, bundling automobile, long-term care, and life and health insurance to individuals and businesses. Since the companies offer single insurance coverage for multiple products, customer retention improves. The insured stands to benefit from lower premium payments than paying individual premiums for insuring varied products.
With two rate hikes in 2023, investment income should improve further, as insurers are beneficiaries of a rising rate environment. An improving rate environment is favorable for long-tail insurers. Also, investment income is an important component of an insurer’s top line.
Increased awareness, driving higher demand for protection products, should benefit sales and premiums for life insurance operations. Continued improvements in pricing and an increase in exposure should support premium growth. Per Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023, while non-life premiums are expected to increase 2.2%. Per Deloitte Insights, commercial lines are witnessing more growth than personal lines, which is estimated to continue into 2023. Also, homeowners’ premiums have been improving better than personal auto.
Consolidation in the multiline insurance industry is expected to continue, as insurers look to diversify their operations into new business lines and geographies. The solid capital level of the multiline insurers will fuel merger and acquisition (M&A) activities to ramp up growth, and aid these insurers in engaging in shareholder-friendly moves.
Insurers have increased investment in emerging technologies in a bid to drive efficiency, enhance cybersecurity, upgrade policy administration and claims systems, and expand automation capabilities across their organizations.
Price Performance
The industry has underperformed the Zacks S&P 500 composite and the Finance sector in the past year. The Zacks S&P 500 composite has risen 3.2% against the sector’s decrease of 5.8% and the industry’s decline of 13.3% in the said time frame.
Image Source: Zacks Investment Research
Nonetheless, product diversification, prudent underwriting and increased exposure should help the multiline insurers bounce back and remain well-poised for the longer term.
Value Picks
With the help of the Zacks Stock Screener, we have selected three multiline insurance stocks with an impressive Value Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 (Buy). Back-tested results have shown that stocks with a favorable Value Score coupled with a solid Zacks Rank are the best investment options. You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks with growth potential have witnessed positive estimate revisions, reflecting analysts’ confidence in the companies’ operational efficiency and have a cheaper valuation.
Assurant, Inc. (AIZ - Free Report) : Headquartered in New York, this Zacks Rank #1 insurer is a global provider of risk management solutions in the housing and lifestyle markets, protecting where people live and the goods they buy. A well-performing Global Lifestyle business, growth in fee-based capital-light businesses and solid capital management poise AIZ well for growth. Its expected long-term earnings growth rate is pegged at 11.6%.
AIZ has a decent record of beating earnings estimates in three of the trailing four reported quarters and missed in one, the average surprise being 18.18%. Assurant has a strong capital management policy and it has been utilizing 50% of its free cash flow to repurchase shares. A solid capital position supports effective capital deployment. AIZ expects to deploy capital primarily to support business growth by funding investments, mergers and acquisitions, and returning capital to shareholders through share repurchases and dividends.
The company’s return on equity in the trailing 12 months was 13.4%, better than the industry average of 9.8%.
Assurant’s P/B ratio is 1.49. AIZ shares have lost 33.7% in the past year.
Image Source: Zacks Investment Research
American International Group, Inc. (AIG - Free Report) : Headquartered in New York, this Zacks Rank #2 company provides insurance products for commercial, institutional and individual customers in North America and internationally. Strategic business de-risking and acquisitions, cost-control efforts, and accelerated capital deployment will drive American International’s growth. Its expected long-term earnings growth rate is pegged at 10%.
AIG’s global commercial business witnessed a rate increase and new business growth. The personal lines insurance has witnessed a recovery in the travel and warranty business. This, in turn, drives the company’s net written premiums and revenue growth. American International has made a significant shift in its capital utilization and expects to use the capital for possible buyouts in the international markets, boosting the company's personal and life lines segments plus investing in the domestic middle market.
Also, American International’s robust cash generation abilities have enabled it to continue capital deployments to boost shareholder value through share buybacks and dividend payouts.
It has a decent track of beating earnings estimates in three of the trailing four reported quarters and missed in one, the average surprise being 9.22%.
American International’s P/B ratio is 0.86. AIG shares have lost 8.7% in the past year.
Image Source: Zacks Investment Research
Radian Group Inc. (RDN - Free Report) : Philadelphia, PA-based Radian is a credit enhancement company, which supports homebuyers, mortgage lenders, loan servicers and investors with a suite of private mortgage insurance, and related risk-management products and services. Improvements in quality and the size of mortgage insurance in force poise it well for growth.
Radian’s mortgage insurance portfolio is expected to create a strong foundation for future earnings. RDN is focused on improving its mortgage insurance portfolio, the primary catalyst of long-term earnings growth. Based on a total mortgage origination market of $1.7 trillion, Radian expects the private mortgage insurance market in 2023 to be between $300 million and $325 billion. Also, given the strong credit characteristics of the new loans insured, we expect the company to see fewer claims than before. Its expected long-term earnings growth rate is pegged at 5%.
The company has a stellar record of beating earnings estimates in the trailing four quarters, the average surprise being 38.72%. RDN currently carries Zacks Rank #2.
Return on equity in the trailing 12 months was 19.9%, better than the industry average of 9.8%.
A strong capital position helps Radian deploy capital via share repurchases and dividend hikes, enhancing shareholder value. The company’s dividend yield of 3.5% betters the industry average of 2.79. The insurer expects Radian Guaranty to pay between $200 million and $300 million of additional ordinary dividends during the remainder of 2023, based on current performance expectations and consistent with the prior guidance. The board approved a new two-year $300-million share buyback program in January 2023.
Radian’s P/B ratio is 0.98. RDN shares have gained 18% in the past year.
Image Source: Zacks Investment Research
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3 Value Stocks From the Undervalued Multiline Insurance Industry
The Zacks Multiline Insurance industry is currently undervalued than the Zacks S&P 500 composite and the Zacks Finance sector. The industry’s price-to-book (the best multiple for valuing insurers because of their unpredictable financial results) of 2.18 was less than the Zacks S&P 500 composite’s P/B of 5.72 and the sector’s P/B of 3.12. Such below-market positioning hints at room for an upside in the days ahead.
Industry vs Zacks S&P 500 composite
Industry vs Sector
Thus, before their valuation increases, it is wise to locate some undervalued stocks with growth potential.
Driving Forces
Product diversification helps multiline insurance industry players lower concentration risks, ensure uninterrupted revenue generation, and improve the retention ratio. The industry is well-poised to benefit from better pricing, prudent underwriting, increased exposure, faster economic recovery on the receding impacts of the pandemic and increased vaccinations.
The multiline insurance industry provides single insurance coverage, bundling automobile, long-term care, and life and health insurance to individuals and businesses. Since the companies offer single insurance coverage for multiple products, customer retention improves. The insured stands to benefit from lower premium payments than paying individual premiums for insuring varied products.
With two rate hikes in 2023, investment income should improve further, as insurers are beneficiaries of a rising rate environment. An improving rate environment is favorable for long-tail insurers. Also, investment income is an important component of an insurer’s top line.
Increased awareness, driving higher demand for protection products, should benefit sales and premiums for life insurance operations. Continued improvements in pricing and an increase in exposure should support premium growth. Per Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023, while non-life premiums are expected to increase 2.2%. Per Deloitte Insights, commercial lines are witnessing more growth than personal lines, which is estimated to continue into 2023. Also, homeowners’ premiums have been improving better than personal auto.
Consolidation in the multiline insurance industry is expected to continue, as insurers look to diversify their operations into new business lines and geographies. The solid capital level of the multiline insurers will fuel merger and acquisition (M&A) activities to ramp up growth, and aid these insurers in engaging in shareholder-friendly moves.
Insurers have increased investment in emerging technologies in a bid to drive efficiency, enhance cybersecurity, upgrade policy administration and claims systems, and expand automation capabilities across their organizations.
Price Performance
The industry has underperformed the Zacks S&P 500 composite and the Finance sector in the past year. The Zacks S&P 500 composite has risen 3.2% against the sector’s decrease of 5.8% and the industry’s decline of 13.3% in the said time frame.
Nonetheless, product diversification, prudent underwriting and increased exposure should help the multiline insurers bounce back and remain well-poised for the longer term.
Value Picks
With the help of the Zacks Stock Screener, we have selected three multiline insurance stocks with an impressive Value Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 (Buy). Back-tested results have shown that stocks with a favorable Value Score coupled with a solid Zacks Rank are the best investment options. You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks with growth potential have witnessed positive estimate revisions, reflecting analysts’ confidence in the companies’ operational efficiency and have a cheaper valuation.
Assurant, Inc. (AIZ - Free Report) : Headquartered in New York, this Zacks Rank #1 insurer is a global provider of risk management solutions in the housing and lifestyle markets, protecting where people live and the goods they buy. A well-performing Global Lifestyle business, growth in fee-based capital-light businesses and solid capital management poise AIZ well for growth. Its expected long-term earnings growth rate is pegged at 11.6%.
AIZ has a decent record of beating earnings estimates in three of the trailing four reported quarters and missed in one, the average surprise being 18.18%.
Assurant has a strong capital management policy and it has been utilizing 50% of its free cash flow to repurchase shares. A solid capital position supports effective capital deployment. AIZ expects to deploy capital primarily to support business growth by funding investments, mergers and acquisitions, and returning capital to shareholders through share repurchases and dividends.
The company’s return on equity in the trailing 12 months was 13.4%, better than the industry average of 9.8%.
Assurant’s P/B ratio is 1.49. AIZ shares have lost 33.7% in the past year.
Image Source: Zacks Investment Research
American International Group, Inc. (AIG - Free Report) : Headquartered in New York, this Zacks Rank #2 company provides insurance products for commercial, institutional and individual customers in North America and internationally. Strategic business de-risking and acquisitions, cost-control efforts, and accelerated capital deployment will drive American International’s growth. Its expected long-term earnings growth rate is pegged at 10%.
AIG’s global commercial business witnessed a rate increase and new business growth. The personal lines insurance has witnessed a recovery in the travel and warranty business. This, in turn, drives the company’s net written premiums and revenue growth. American International has made a significant shift in its capital utilization and expects to use the capital for possible buyouts in the international markets, boosting the company's personal and life lines segments plus investing in the domestic middle market.
Also, American International’s robust cash generation abilities have enabled it to continue capital deployments to boost shareholder value through share buybacks and dividend payouts.
It has a decent track of beating earnings estimates in three of the trailing four reported quarters and missed in one, the average surprise being 9.22%.
American International’s P/B ratio is 0.86. AIG shares have lost 8.7% in the past year.
Radian Group Inc. (RDN - Free Report) : Philadelphia, PA-based Radian is a credit enhancement company, which supports homebuyers, mortgage lenders, loan servicers and investors with a suite of private mortgage insurance, and related risk-management products and services. Improvements in quality and the size of mortgage insurance in force poise it well for growth.
Radian’s mortgage insurance portfolio is expected to create a strong foundation for future earnings. RDN is focused on improving its mortgage insurance portfolio, the primary catalyst of long-term earnings growth. Based on a total mortgage origination market of $1.7 trillion, Radian expects the private mortgage insurance market in 2023 to be between $300 million and $325 billion. Also, given the strong credit characteristics of the new loans insured, we expect the company to see fewer claims than before. Its expected long-term earnings growth rate is pegged at 5%.
The company has a stellar record of beating earnings estimates in the trailing four quarters, the average surprise being 38.72%. RDN currently carries Zacks Rank #2.
Return on equity in the trailing 12 months was 19.9%, better than the industry average of 9.8%.
A strong capital position helps Radian deploy capital via share repurchases and dividend hikes, enhancing shareholder value. The company’s dividend yield of 3.5% betters the industry average of 2.79. The insurer expects Radian Guaranty to pay between $200 million and $300 million of additional ordinary dividends during the remainder of 2023, based on current performance expectations and consistent with the prior guidance. The board approved a new two-year $300-million share buyback program in January 2023.
Radian’s P/B ratio is 0.98. RDN shares have gained 18% in the past year.