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WRB or CNA: Which P&C Insurer Should You Buy for Higher Returns?
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Increased exposure, streamlined operations, global presence, better pricing, solid underwriting and a strong capital position have helped the Zacks Property and Casualty Insurance industry perform well. The industry has risen 7.9% in the past six months compared with the Zacks S&P 500 composite’s rise of 5.6%.
The performance of non-life insurers is affected by catastrophes. Per Gallagher Re, total economic losses were estimated to be $290 billion for the first nine months of 2023. AM Best reported a total net underwriting loss of $24.5 billion in the first half of 2023, much higher than $6.6 billion incurred in the year-ago period, largely attributable to a rise in loss costs, above-average catastrophe activity and adverse trends in personal auto. The combined ratio was 104.5 for the same time frame per the credit rating giant, to which catastrophe losses added 960 basis points.
An increase in catastrophe activities leads to a change in pricing. Global commercial insurance prices rose for 24 straight quarters, though the magnitude has slowed down, per Marsh Global Insurance Market Index. Improved pricing drives higher premiums, ensuring smooth claims settlement.
AM Best stated that U.S. P&C industry premiums, net of reinsurance, grew 9.7% in the first six months of 2023. Per Deloitte Insights, gross premiums are estimated to increase about six-fold to $722 billion by 2030. China and North America should account for more than two-thirds of the global market, per the report.
The insurance industry benefits from a rising rate environment. The Fed made four hikes in 2023, taking the tally to 11 since March 2022. Long-tail insurers are poised to benefit more.
The industry is continually undergoing technological developments to improve scale and efficiencies. While a solid policyholders’ surplus helps the industry absorb losses, a sturdy capital level supports inorganic expansion, investment in growth initiatives and capital payout to shareholders.
Here, we focus on two property and casualty insurers, namely W.R. Berkley Corp. (WRB - Free Report) and CNA Financial Corporation (CNA - Free Report) . W.R. Berkley, with a market capitalization of $18.8 billion, is one of the nation’s largest commercial lines property casualty insurance providers. CNA Financial, with a market capitalization of $11.4 billion, mainly offers commercial P&C insurance products. The companies sport a Zacks Rank #1 (Strong Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s now see how these P&C insurers fare in terms of some of the key metrics.
Price Performance
W.R. Berkley has gained 0.3% year to date versus CNA Financial’s decline of 0.1%. The industry has risen 12.8% in the said time frame.
Return on Equity
W.R. Berkley has a return on equity (“ROE”) of 18.5%, which exceeds CNA Financial’s ROE of 13.8% and the industry average of 7.2%.
Dividend Yield
CNA Financial’s dividend yield of 4% exceeds W.R. Berkley’s dividend yield of 0.6% and the industry average of 0.3%.
Debt-to-Equity
W.R. Berkley’s debt-to-equity ratio of 40.9 is higher than the industry average of 24 as well as CNA Financial’s reading of 38.2.
Growth Projection
The Zacks Consensus Estimate for WRB’s 2024 earnings indicates a 20.2% increase from the year-ago reported figure, while that for CNA implies a year-over-year increase of 7.4%.
The expected long-term earnings growth rate for WRB is 9%, while that for CNA is 5%.
Combined Ratio
The combined ratio represents the underwriting profitability of an insurer. WRB’s combined ratio for the first nine months of 2023 was 90.1, while the same for CNA was 94.
Net Margin
WRB’s proforma net margin for the trailing 12 months is 10.7%, higher than CNA’s reading of 9.3%.
To Conclude
Our comparative analysis shows that WRB has the edge over CNA with respect to price performance, return on equity, combined ratio, net margin and growth projection. CNA outpaces WRB in terms of dividend yield and leverage.
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WRB or CNA: Which P&C Insurer Should You Buy for Higher Returns?
Increased exposure, streamlined operations, global presence, better pricing, solid underwriting and a strong capital position have helped the Zacks Property and Casualty Insurance industry perform well. The industry has risen 7.9% in the past six months compared with the Zacks S&P 500 composite’s rise of 5.6%.
The performance of non-life insurers is affected by catastrophes. Per Gallagher Re, total economic losses were estimated to be $290 billion for the first nine months of 2023. AM Best reported a total net underwriting loss of $24.5 billion in the first half of 2023, much higher than $6.6 billion incurred in the year-ago period, largely attributable to a rise in loss costs, above-average catastrophe activity and adverse trends in personal auto. The combined ratio was 104.5 for the same time frame per the credit rating giant, to which catastrophe losses added 960 basis points.
An increase in catastrophe activities leads to a change in pricing. Global commercial insurance prices rose for 24 straight quarters, though the magnitude has slowed down, per Marsh Global Insurance Market Index. Improved pricing drives higher premiums, ensuring smooth claims settlement.
AM Best stated that U.S. P&C industry premiums, net of reinsurance, grew 9.7% in the first six months of 2023. Per Deloitte Insights, gross premiums are estimated to increase about six-fold to $722 billion by 2030. China and North America should account for more than two-thirds of the global market, per the report.
The insurance industry benefits from a rising rate environment. The Fed made four hikes in 2023, taking the tally to 11 since March 2022. Long-tail insurers are poised to benefit more.
The industry is continually undergoing technological developments to improve scale and efficiencies. While a solid policyholders’ surplus helps the industry absorb losses, a sturdy capital level supports inorganic expansion, investment in growth initiatives and capital payout to shareholders.
Here, we focus on two property and casualty insurers, namely W.R. Berkley Corp. (WRB - Free Report) and CNA Financial Corporation (CNA - Free Report) . W.R. Berkley, with a market capitalization of $18.8 billion, is one of the nation’s largest commercial lines property casualty insurance providers. CNA Financial, with a market capitalization of $11.4 billion, mainly offers commercial P&C insurance products. The companies sport a Zacks Rank #1 (Strong Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s now see how these P&C insurers fare in terms of some of the key metrics.
Price Performance
W.R. Berkley has gained 0.3% year to date versus CNA Financial’s decline of 0.1%. The industry has risen 12.8% in the said time frame.
Return on Equity
W.R. Berkley has a return on equity (“ROE”) of 18.5%, which exceeds CNA Financial’s ROE of 13.8% and the industry average of 7.2%.
Dividend Yield
CNA Financial’s dividend yield of 4% exceeds W.R. Berkley’s dividend yield of 0.6% and the industry average of 0.3%.
Debt-to-Equity
W.R. Berkley’s debt-to-equity ratio of 40.9 is higher than the industry average of 24 as well as CNA Financial’s reading of 38.2.
Growth Projection
The Zacks Consensus Estimate for WRB’s 2024 earnings indicates a 20.2% increase from the year-ago reported figure, while that for CNA implies a year-over-year increase of 7.4%.
The expected long-term earnings growth rate for WRB is 9%, while that for CNA is 5%.
Combined Ratio
The combined ratio represents the underwriting profitability of an insurer. WRB’s combined ratio for the first nine months of 2023 was 90.1, while the same for CNA was 94.
Net Margin
WRB’s proforma net margin for the trailing 12 months is 10.7%, higher than CNA’s reading of 9.3%.
To Conclude
Our comparative analysis shows that WRB has the edge over CNA with respect to price performance, return on equity, combined ratio, net margin and growth projection. CNA outpaces WRB in terms of dividend yield and leverage.