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MET or AIG: Which Multiline Insurance Stock is Better-Positioned?
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The U.S. multiline insurers are riding on the back of diversified portfolios, improved pricing environment, interest rate hikes, prudent underwriting results and technological advancements.
Premiums, the most significant contributor to an insurer’s top line, is aided by uninterrupted rate hikes, exposure growth and solid customer retention rates. Diversified portfolios of multiline insurers minimize concentration risks and hence, provides an impetus to their premiums. For constructing such efficient portfolios, industry players often resort to mergers and acquisitions and a solid capital position backs them to undertake such growth-related initiatives.
Industry participants with exposure to property and casualty (“P&C”) business line might reap the benefit of rate increases in property and personal lines. Significant rate hikes will outstrip the claim costs and hence, drive the underwriting results of multiline insurers. Per Swiss Re, the U.S. P&C insurance premiums are expected to improve 7.5% in 2023 followed by a 5.5% rise in 2024.
Though catastrophe losses come with its own share of worries, they usually ramp up the policy renewal rate, thereby leading to a better pricing environment.
Improved interest rates boost investment yields for those insurers that have exposure to rate-sensitive products. After three rate hikes so far in 2023, the Fed finally put a temporary halt to its rate-hiking spree in the June meeting. Nevertheless, it signaled two probable rate hikes this year. An aging U.S. population and a high mortality rate observed nationwide are likely to have sustained the solid demand for insurance and protection products of life insurers in the days ahead.
Auto premiums are aided by an increasing number of cars plying on roads — owing to people's confidence in traveling — and the easing of inflationary headwinds. Resumption of commercial and industrial activities in full swing are expected to keep the demand for workers compensation insurance high in the days ahead.
Prudent technology investments in blockchain, AI, advanced analytics, telematics, cloud computing and robotic process automation boosts margins of multiline insurers by bringing about accelerated claim payments and automation in processes.
The Zacks Multiline Insurance industry, which is housed within the broader Zacks Finance sector gained 5.3% in the past three months compared with the sector’s growth of 6.1%. Meanwhile, the S&P Index has risen 8.8% in the same period.
Image Source: Zacks Investment Research
Against this backdrop, let’s take a look at two multiline insurance stocks, MetLife, Inc. (MET - Free Report) and American International Group, Inc. (AIG - Free Report) , with market capitalizations of $43.1 billion and $41.5 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 into specific parameters to ascertain which company is better positioned at the moment.
Price Performance
American International’s shares have gained 13% in the past three months compared with the industry’s rally of 5.3%. Shares of MetLife have declined 3.8% in the same time frame. Evidently, AIG has the edge over MET here.
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.
MET’s bottom line beat estimates in two of the trailing four quarters and missed the mark twice, the average surprise being 0.70%. AIG’s earnings surpassed the consensus mark in three of the trailing four quarters and missed the mark once, the average surprise being 9.22%. Thus, American International has a better reading than MetLife on this front.
Return on Equity (ROE)
ROE is a profitability measure, which indicates how efficiently the company is utilizing its shareholders' funds.
MetLife's ROE of 16.9% compares favorably with American International’s ROE of 8.6% and remains higher than the industry’s average of 9.8%.
Valuation
Price-to-book (P/B) value is the best multiple used for valuing insurance stocks. Compared with MET’s forward 12-month P/B ratio of 1.34, AIG is cheaper, with a reading of 0.91. The multiline insurance industry’s P/B ratio is 2.28.
Debt-to-Equity Ratio
The lower the debt-to-equity ratio, the better for the company as it implies a sound solvency level. American International’s leverage ratio of 56.2% remains lower than MetLife’s ratio of 57.5% and the industry’s average of 60.5%. Therefore, AIG holds an edge over MET in this case.
Dividend Yield
Both companies are regular dividend payers. MetLife’s dividend yield of 3.7% betters American International’s metric of 2.5% and is higher than the industry’s average of 2.7%. MET wins over AIG on this front.
Robust 2023 Prospects
The Zacks Consensus Estimate for MetLife’s 2023 earnings indicates a year-over-year improvement of 12.9%, while the same for American International suggests a 42.9% year-over-year growth this year. Thus, AIG has the edge over MET here.
Long-Term Growth Projection
Both stocks' expected long-term earnings growth rate is lower than the industry’s average of 12.1%. However, the metric for MetLife is pegged at 11.2%, better than American International’s figure of 10%.
VGM Score
The VGM Score rates each stock on its combined weighted styles, helping identify those with the most attractive value, the best growth and the most promising momentum. MetLife and American International have an unimpressive VGM Score of C, faring equally on this front.
Insurance Premiums
One of the major contributors to an insurer’s revenues is its premiums. The metric for MetLife declined 9.7% year over year in the first quarter of 2023, while the same for American International improved 19.1% year over year in the same time frame. Thus. AIG is the winner in this context.
Conclusion
Our comparative analysis shows that American International is better poised than MetLife for its price performance, earnings surprise, valuation, debt-to-equity ratio, 2023 prospects and insurance premiums. MET scores higher in terms of ROE, expected long-term growth forecast and dividend yield. With the scale tipping majorly toward AIG, the stock appears to be better poised.
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MET or AIG: Which Multiline Insurance Stock is Better-Positioned?
The U.S. multiline insurers are riding on the back of diversified portfolios, improved pricing environment, interest rate hikes, prudent underwriting results and technological advancements.
Premiums, the most significant contributor to an insurer’s top line, is aided by uninterrupted rate hikes, exposure growth and solid customer retention rates. Diversified portfolios of multiline insurers minimize concentration risks and hence, provides an impetus to their premiums. For constructing such efficient portfolios, industry players often resort to mergers and acquisitions and a solid capital position backs them to undertake such growth-related initiatives.
Industry participants with exposure to property and casualty (“P&C”) business line might reap the benefit of rate increases in property and personal lines. Significant rate hikes will outstrip the claim costs and hence, drive the underwriting results of multiline insurers. Per Swiss Re, the U.S. P&C insurance premiums are expected to improve 7.5% in 2023 followed by a 5.5% rise in 2024.
Though catastrophe losses come with its own share of worries, they usually ramp up the policy renewal rate, thereby leading to a better pricing environment.
Improved interest rates boost investment yields for those insurers that have exposure to rate-sensitive products. After three rate hikes so far in 2023, the Fed finally put a temporary halt to its rate-hiking spree in the June meeting. Nevertheless, it signaled two probable rate hikes this year. An aging U.S. population and a high mortality rate observed nationwide are likely to have sustained the solid demand for insurance and protection products of life insurers in the days ahead.
Auto premiums are aided by an increasing number of cars plying on roads — owing to people's confidence in traveling — and the easing of inflationary headwinds. Resumption of commercial and industrial activities in full swing are expected to keep the demand for workers compensation insurance high in the days ahead.
Prudent technology investments in blockchain, AI, advanced analytics, telematics, cloud computing and robotic process automation boosts margins of multiline insurers by bringing about accelerated claim payments and automation in processes.
The Zacks Multiline Insurance industry, which is housed within the broader Zacks Finance sector gained 5.3% in the past three months compared with the sector’s growth of 6.1%. Meanwhile, the S&P Index has risen 8.8% in the same period.
Image Source: Zacks Investment Research
Against this backdrop, let’s take a look at two multiline insurance stocks, MetLife, Inc. (MET - Free Report) and American International Group, Inc. (AIG - Free Report) , with market capitalizations of $43.1 billion and $41.5 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 into specific parameters to ascertain which company is better positioned at the moment.
Price Performance
American International’s shares have gained 13% in the past three months compared with the industry’s rally of 5.3%. Shares of MetLife have declined 3.8% in the same time frame. Evidently, AIG has the edge over MET here.
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.
MET’s bottom line beat estimates in two of the trailing four quarters and missed the mark twice, the average surprise being 0.70%. AIG’s earnings surpassed the consensus mark in three of the trailing four quarters and missed the mark once, the average surprise being 9.22%. Thus, American International has a better reading than MetLife on this front.
Return on Equity (ROE)
ROE is a profitability measure, which indicates how efficiently the company is utilizing its shareholders' funds.
MetLife's ROE of 16.9% compares favorably with American International’s ROE of 8.6% and remains higher than the industry’s average of 9.8%.
Valuation
Price-to-book (P/B) value is the best multiple used for valuing insurance stocks. Compared with MET’s forward 12-month P/B ratio of 1.34, AIG is cheaper, with a reading of 0.91. The multiline insurance industry’s P/B ratio is 2.28.
Debt-to-Equity Ratio
The lower the debt-to-equity ratio, the better for the company as it implies a sound solvency level. American International’s leverage ratio of 56.2% remains lower than MetLife’s ratio of 57.5% and the industry’s average of 60.5%. Therefore, AIG holds an edge over MET in this case.
Dividend Yield
Both companies are regular dividend payers. MetLife’s dividend yield of 3.7% betters American International’s metric of 2.5% and is higher than the industry’s average of 2.7%. MET wins over AIG on this front.
Robust 2023 Prospects
The Zacks Consensus Estimate for MetLife’s 2023 earnings indicates a year-over-year improvement of 12.9%, while the same for American International suggests a 42.9% year-over-year growth this year. Thus, AIG has the edge over MET here.
Long-Term Growth Projection
Both stocks' expected long-term earnings growth rate is lower than the industry’s average of 12.1%. However, the metric for MetLife is pegged at 11.2%, better than American International’s figure of 10%.
VGM Score
The VGM Score rates each stock on its combined weighted styles, helping identify those with the most attractive value, the best growth and the most promising momentum. MetLife and American International have an unimpressive VGM Score of C, faring equally on this front.
Insurance Premiums
One of the major contributors to an insurer’s revenues is its premiums. The metric for MetLife declined 9.7% year over year in the first quarter of 2023, while the same for American International improved 19.1% year over year in the same time frame. Thus. AIG is the winner in this context.
Conclusion
Our comparative analysis shows that American International is better poised than MetLife for its price performance, earnings surprise, valuation, debt-to-equity ratio, 2023 prospects and insurance premiums. MET scores higher in terms of ROE, expected long-term growth forecast and dividend yield. With the scale tipping majorly toward AIG, the stock appears to be better poised.