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3 Value Stocks From the Undervalued P&C Insurance Space
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The Zacks Property and Casualty Insurance industry is currently undervalued than the Zacks S&P 500 composite and the Zacks Finance sector. The price-to-book (P/B) ratio, the best multiple for valuing insurers because of their unpredictable financial results, is 1.47, less than the Zacks S&P 500 composite’s P/B of 5.95 and the sector’s P/B of 3.3. Such below-market positioning hints at room for upside in the coming quarters.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Before their valuation expands, it is wise to add some undervalued stocks with growth potential to your portfolio.
Driving Factors
The property and casualty insurance industry has been gaining momentum on the back of improved pricing, increased technology advancements, exposure growth, underwriting profitability, favorable reserve development and global expansion, as well as an impressive solvency level.
Global commercial insurance prices rose for 24 straight quarters, but the magnitude has slowed down, per Marsh Global Insurance Market Index. Better pricing ensures improved premiums. Per Deloitte Insights, gross premiums are estimated to increase six-fold to $722 billion by 2030.
The P&C insurance industry remains exposed to catastrophe losses stemming from natural disasters, which drag down underwriting profit. Per Swiss Re, natural catastrophe-insured losses are expected to exceed $100 billion in 2023. This marked the fourth consecutive year and the sixth year since 2017 when the insurance industry has witnessed huge losses.
Exposure growth, improved pricing, prudent underwriting, favorable reserve development and a sturdy capital position will help absorb catastrophe losses. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
With four rate hikes so far in 2023, investment income is likely to have improved, as insurers are the beneficiaries of a rising rate environment. The Fed had raised its key interest rate by 0.25% and reached a target of 5.25-5.5%, 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 important component of insurers’ top lines.
Industry players remain focused on digitalization to improve scale and efficiencies. A sturdy capital level supports inorganic expansion, investment in growth initiatives and capital payout to shareholders.
Price Performance
The insurance industry has outperformed the Finance sector in the past year. The insurance industry has risen 16.8%, outperforming the Finance sector’s growth of 15.1% in the said time frame. Meanwhile, the Zacks S&P 500 composite has rallied 22.6% in the past year.
Image Source: Zacks Investment Research
Better pricing, prudent underwriting and increased exposure should help insurers retain the momentum and remain well-poised for the longer term.
Value Picks
With the help of the Zacks Stock Screener, we have selected three 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 and 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 their operational efficiency and a cheaper valuation.
Axis Capital Holdings Limited (AXS - Free Report) : Headquartered in Pembroke, Bermuda, this property and casualty insurer provides various specialty insurance and reinsurance products worldwide. AXIS Capital continues to build on its Specialty Insurance, Reinsurance, and Accident and Health to pave the way for long-term growth. Apart from fortifying the casualty and professional lines in the insurance segment, its focus on deploying resources prudently while enhancing efficiencies, and improving its portfolio mix and underwriting profitability, bodes well. Its expected long-term earnings growth rate is pegged at 5%.
This insurer surpassed earnings estimates in each of the last four quarters, the average beat being 22.45%.
AXIS Capital is a leading specialty insurer and global reinsurer aiming for leadership in specialty risks. The company, thus, remains focused on growth in Marine Cargo, Cyber and Renewable Energy, which is likely to provide a solid double-digit return on equity opportunities. AXIS Capital continues to boost shareholder value through share buybacks and dividend hikes. AXS currently carries a Zacks Rank #2.
The company’s return on equity in the trailing 12 months was 18.1%, better than the industry average of 7.1%. AXS also has an impressive VGM Score of A.
Axis Capital’s P/B ratio is 1.04. AXS shares have gained 0.05% in the past year.
Image Source: Zacks Investment Research
RenaissanceRe Holdings Ltd. (RNR - Free Report) : Headquartered in Pembroke, Bermuda, RNR offers insurance and reinsurance products in the domestic and international markets. It was founded in 1993 and currently has a market cap of $10.5 billion.
RenaissanceRe is strategically positioned for growth, leveraging rising premiums earned. The rise in returns from the fixed-maturity portfolio and improving underwriting results add further momentum. The favorable impacts of a high interest rate environment act as a key driver. Its Casualty and Specialty business is expected to play a significant role in its top-line growth. The company’s ability to generate growing free cash flow is commendable, which will improve its financial flexibility. Its strategic acquisition initiatives continue to play a pivotal role in fostering business expansion. RNR also has an impressive VGM Score of A.
RenaissanceRe has a decent track of beating earnings estimates in each of the trailing four reported quarters, the average surprise being 16.48%. RNR presently has a Zacks Rank #2.
The company’s return on equity in the trailing 12 months was 26.6%, better than the industry average of 7.1%.
RenaissanceRe’s P/B ratio is 1.46. RNR shares have rallied 7% in the past year.
Image Source: Zacks Investment Research
CNA Financial Corporation (CNA - Free Report) : CNA Financial offers commercial P&C insurance products mainly across the United States. The insurer’s focus on better pricing and increased exposure, and higher new business and retention across its Specialty, Commercial and International segments poise it well for growth.
A strong balance sheet and cash flows enable CNA Financial to engage in shareholder-friendly moves like dividend hikes. On the back of a disciplined execution denoted by strong underwriting results and confidence in future earnings performances, the company has hiked its dividends over the past couple of years. CNA also has an impressive VGM Score of B. Its expected long-term earnings growth rate is pegged at 5%. CNA Financial currently sports a Zacks Rank #1.
CNA Financial has a decent track of beating earnings estimates in three of the trailing four reported quarters and missed in one, the average surprise being 9.24%.
The company’s return on equity in the trailing 12 months was 13.7%, better than the industry average of 7.1%.
CNA Financial’s P/B ratio is 1.37. CNA shares have rallied 0.9% in the past year.
Image Source: Zacks Investment Research
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3 Value Stocks From the Undervalued P&C Insurance Space
The Zacks Property and Casualty Insurance industry is currently undervalued than the Zacks S&P 500 composite and the Zacks Finance sector. The price-to-book (P/B) ratio, the best multiple for valuing insurers because of their unpredictable financial results, is 1.47, less than the Zacks S&P 500 composite’s P/B of 5.95 and the sector’s P/B of 3.3. Such below-market positioning hints at room for upside in the coming quarters.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Before their valuation expands, it is wise to add some undervalued stocks with growth potential to your portfolio.
Driving Factors
The property and casualty insurance industry has been gaining momentum on the back of improved pricing, increased technology advancements, exposure growth, underwriting profitability, favorable reserve development and global expansion, as well as an impressive solvency level.
Global commercial insurance prices rose for 24 straight quarters, but the magnitude has slowed down, per Marsh Global Insurance Market Index. Better pricing ensures improved premiums. Per Deloitte Insights, gross premiums are estimated to increase six-fold to $722 billion by 2030.
The P&C insurance industry remains exposed to catastrophe losses stemming from natural disasters, which drag down underwriting profit. Per Swiss Re, natural catastrophe-insured losses are expected to exceed $100 billion in 2023. This marked the fourth consecutive year and the sixth year since 2017 when the insurance industry has witnessed huge losses.
Exposure growth, improved pricing, prudent underwriting, favorable reserve development and a sturdy capital position will help absorb catastrophe losses. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
With four rate hikes so far in 2023, investment income is likely to have improved, as insurers are the beneficiaries of a rising rate environment. The Fed had raised its key interest rate by 0.25% and reached a target of 5.25-5.5%, 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 important component of insurers’ top lines.
Industry players remain focused on digitalization to improve scale and efficiencies. A sturdy capital level supports inorganic expansion, investment in growth initiatives and capital payout to shareholders.
Price Performance
The insurance industry has outperformed the Finance sector in the past year. The insurance industry has risen 16.8%, outperforming the Finance sector’s growth of 15.1% in the said time frame. Meanwhile, the Zacks S&P 500 composite has rallied 22.6% in the past year.
Image Source: Zacks Investment Research
Better pricing, prudent underwriting and increased exposure should help insurers retain the momentum and remain well-poised for the longer term.
Value Picks
With the help of the Zacks Stock Screener, we have selected three 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 and 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 their operational efficiency and a cheaper valuation.
Axis Capital Holdings Limited (AXS - Free Report) : Headquartered in Pembroke, Bermuda, this property and casualty insurer provides various specialty insurance and reinsurance products worldwide. AXIS Capital continues to build on its Specialty Insurance, Reinsurance, and Accident and Health to pave the way for long-term growth. Apart from fortifying the casualty and professional lines in the insurance segment, its focus on deploying resources prudently while enhancing efficiencies, and improving its portfolio mix and underwriting profitability, bodes well. Its expected long-term earnings growth rate is pegged at 5%.
This insurer surpassed earnings estimates in each of the last four quarters, the average beat being 22.45%.
AXIS Capital is a leading specialty insurer and global reinsurer aiming for leadership in specialty risks. The company, thus, remains focused on growth in Marine Cargo, Cyber and Renewable Energy, which is likely to provide a solid double-digit return on equity opportunities. AXIS Capital continues to boost shareholder value through share buybacks and dividend hikes. AXS currently carries a Zacks Rank #2.
The company’s return on equity in the trailing 12 months was 18.1%, better than the industry average of 7.1%. AXS also has an impressive VGM Score of A.
Axis Capital’s P/B ratio is 1.04. AXS shares have gained 0.05% in the past year.
Image Source: Zacks Investment Research
RenaissanceRe Holdings Ltd. (RNR - Free Report) : Headquartered in Pembroke, Bermuda, RNR offers insurance and reinsurance products in the domestic and international markets. It was founded in 1993 and currently has a market cap of $10.5 billion.
RenaissanceRe is strategically positioned for growth, leveraging rising premiums earned. The rise in returns from the fixed-maturity portfolio and improving underwriting results add further momentum. The favorable impacts of a high interest rate environment act as a key driver. Its Casualty and Specialty business is expected to play a significant role in its top-line growth. The company’s ability to generate growing free cash flow is commendable, which will improve its financial flexibility. Its strategic acquisition initiatives continue to play a pivotal role in fostering business expansion. RNR also has an impressive VGM Score of A.
RenaissanceRe has a decent track of beating earnings estimates in each of the trailing four reported quarters, the average surprise being 16.48%. RNR presently has a Zacks Rank #2.
The company’s return on equity in the trailing 12 months was 26.6%, better than the industry average of 7.1%.
RenaissanceRe’s P/B ratio is 1.46. RNR shares have rallied 7% in the past year.
Image Source: Zacks Investment Research
CNA Financial Corporation (CNA - Free Report) : CNA Financial offers commercial P&C insurance products mainly across the United States. The insurer’s focus on better pricing and increased exposure, and higher new business and retention across its Specialty, Commercial and International segments poise it well for growth.
A strong balance sheet and cash flows enable CNA Financial to engage in shareholder-friendly moves like dividend hikes. On the back of a disciplined execution denoted by strong underwriting results and confidence in future earnings performances, the company has hiked its dividends over the past couple of years. CNA also has an impressive VGM Score of B. Its expected long-term earnings growth rate is pegged at 5%. CNA Financial currently sports a Zacks Rank #1.
CNA Financial has a decent track of beating earnings estimates in three of the trailing four reported quarters and missed in one, the average surprise being 9.24%.
The company’s return on equity in the trailing 12 months was 13.7%, better than the industry average of 7.1%.
CNA Financial’s P/B ratio is 1.37. CNA shares have rallied 0.9% in the past year.
Image Source: Zacks Investment Research