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4 Insurance Stocks That Have Outperformed S&P 500 in a Year

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The insurance industry has benefited from improved pricing, increased technology advancements, exposure growth, global expansion and impressive solvency. Redesigning and repricing of products and services, prudent underwriting standards and an improving rate environment have also added to the upside.

The insurance industry has outperformed the Zacks S&P 500 composite and the Finance sector in the past year. The insurance industry has rallied 25.3% in the past year compared with the Zacks S&P 500 composite’s growth of 19.5% and the Finance sector’s increase of 13.3%.

Zacks Investment Research
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Here are four insurance stocks that have performed well this year, backed by their strong fundamentals. Arch Capital Group Ltd. (ACGL - Free Report) , Kinsale Capital Group, Inc. (KNSL - Free Report) , Radian Group Inc. (RDN - Free Report) and Primerica, Inc. (PRI - Free Report) have outperformed the industry, the sector and the S&P 500 composite in the past year. These stocks are poised to retain the rally, given solid prospects.

Driving Forces

The industry has been witnessing continued improvement in price, though the magnitude has slowed down. Per Deloitte Insights, gross premiums are estimated to increase sixfold to $722 billion by 2030. Per Deloitte Insights, trends like commercial lines witnessing growth faster than personal lines and homeowners’ premiums improving better than personal auto are likely to continue in 2023. Better pricing ensures improved premiums and prudent claims payment.

However, catastrophes and non-life insurers’ profitability are inversely related. Colorado State University (CSU) expects an above-normal 2023 Atlantic hurricane season with 18 named storms. These include nine hurricanes and four major hurricanes. This year’s hurricane season could be about 130% of the average season per CSU. Nonetheless, prudent underwriting and solid reserve should help them withstand the blows.

Swiss Re estimated a global economic loss of $120 billion in the first half of 2023 from natural disasters, while insured losses were estimated to be about $50 billion. Per Insurance Information Institute and Milliman, the combined net ratio in 2023 is estimated to be 102.2.

With four rate hikes already in 2023, investment income is likely to have improved, as insurers are beneficiaries of a rising rate environment. The Fed had raised its key interest rate by 0.25% and reached a target range of 5.25% to 5.5%, which marked the highest level in 22 years. An improving rate environment is a boon for insurers, especially long-tail insurers. Also, investment income is an essential component of insurers’ top line.

Product diversification helps 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.

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%.

Players are investing heavily in technology to improve scale and efficiencies. While a solid policyholders’ surplus will help the property and casualty insurance industry absorb losses, a sturdy capital level continues to aid the insurers in pursuing strategic mergers and acquisitions, investing in growth initiatives, engaging in share buybacks, and increasing dividends or paying out special dividends.

4 Insurers in Focus

With the help of the Zacks Stock Screener, we have selected four insurance stocks that rallied in the past year and are poised to retain the momentum.

Pembroke, Bermuda, Arch Capital Group is a leading specialty P&C and mortgage insurer and offers insurance, reinsurance and mortgage insurance worldwide. New business opportunities, rate increases, growth in existing accounts, growth in Australian single premium mortgage insurance and increases across most lines of business boost premiums. The property and casualty insurer currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Arch Capital has significantly boosted its inorganic growth through prudent acquisitions. These helped the company expand internationally, add capabilities, enhance operations and diversify its business.

The P&C insurer has maintained a robust capital position over the years, reflecting its financial flexibility. The company’s robust capital and liquidity position shield it from market volatility, enabling it to retain its financial strength and flexibility required to pursue new opportunities in keeping with its long-term strategy.

The Zacks Consensus Estimate for Arch Capital’s 2023 earnings suggests 37.3% year-over-year growth on 30.5% higher revenues. The consensus estimate has moved up 7% in the past 60 days. ACGL’s earnings surpassed estimates in each of the last four quarters, the average surprise being 26.83%. The expected long-term earnings growth rate is pegged at 10%. Shares of ACGL have rallied 86.3% in the past year.

Richmond, VA-based Kinsale is a specialty insurance company that offers various insurance and reinsurance products across all 50 states of the United States, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands.  The property and casualty insurer currently carries a Zacks Rank #2 (Buy).

Kinsale continues to benefit from dislocation within the broader property and casualty insurance industry, rate increases and premium growth. It expects to maintain profitability and growth with its strategy of prudent underwriting, combined with technology-driven low costs and a focus on the E&S market in the long term.

Strong channels of independent insurance brokers and better pricing reflecting superior underwriting discipline have been driving improvement in the combined ratio of its P&C business over the past few years. KNSL has been able to maintain the underlying combined ratio below 95% for the last few years and aims to maintain the same in the mid-80s range in the long term.

Banking on solid cash flow, the company has increased dividends since 2017 at an eight-year CAGR (2016-2023) of 13.7%. For the long term, it targets maintaining an operating return on equity in the mid-teens range.

The Zacks Consensus Estimate for Kinsale’s 2023 earnings suggests 48.2% year-over-year growth on 48.29% higher revenues. The consensus estimate has moved up 8.8% in the past 60 days. The insurer has a favorable VGM Score of B. KNSL’s earnings surpassed estimates in each of the last four quarters, the average surprise being 14.88%. It has a Growth Score of A.

Focus on the excess and supply market, prudent underwriting, lower expense ratio, growth in the investment portfolio and effective capital deployment should continue to drive KNSL. Shares of KNSL have rallied 63.6% in the past year.

Philadelphia, PA-based Radian is a credit enhancement company that 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. The multi-line insurer currently carries a Zacks Rank #2.

Radian’s mortgage insurance portfolio will 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 around $325 billion.

A strong capital position helps Radian deploy capital via share repurchases and dividend hikes, enhancing shareholder value. The insurer expects Radian Guaranty to pay between $300 million and $400 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.

The consensus estimate of Radian has moved up 5.8% in the past 60 days. RDN’s earnings surpassed estimates in each of the last four quarters, the average surprise being 30.88%. RDN has an impressive Value Score of B, reflecting an attractive stock valuation. Its expected long-term earnings growth rate is pegged at 5%. Shares of RDN have rallied 28.8% in the past year.

Duluth, GA-based Primerica is North America's second-largest issuer of term-life insurance coverage, aiming to be a successful senior health business while continuing to enhance its shareholders’ value. Strong demand for protection products drives sales growth and policy persistency benefits of this Zacks Rank #2 insurer. A strong business model makes Primerica well-poised to cater to the middle market's increased demand for financial security. Thus, Primerica envisions being a successful senior health business while continuing to enhance its shareholders’ value.

The insurer stays focused on increasing the size of the life license sales force through continued recruiting and licensing. Licensed representatives play a pivotal role in driving operational results for PRI. While the insurer has solid liquidity, Primerica has been strengthening its balance sheet by improving its leverage ratio. PRI scores strongly with credit rating agencies.

The Zacks Consensus Estimate for Primerica’s 2023 earnings suggests 36.6% year-over-year growth on 3% higher revenues. The consensus estimate has moved up 1.9% in the past 60 days. Primerica’s earnings surpassed estimates in each of the last four quarters, the average surprise being 6.46%. The insurer has an impressive Value Score of B. Shares of PRI have rallied 59.4% in the past year.

Zacks Investment Research
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