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The Zacks Property and Casualty Insurance (P&C) industry is likely to benefit from better pricing, prudent underwriting and exposure growth. Industry players like Berkshire Hathaway Inc., Chubb Ltd., Arch Capital Group, W.R. Berkley Corp. and Cincinnati Financial Corp. are poised to grow despite a rise in catastrophic activities. Given an active catastrophe environment, the policy renewal rate should accelerate. Also, the increasing adoption of technology and the emergence of insurtech will help the industry players function smoothly.
Though the industry is witnessing an increase in premium pricing, the magnitude has decreased in the last 11 quarters. Nonetheless, an improvement in surplus and accelerated economic activities set the stage for a better M&A environment.
About the Industry
The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property insurance, and casualty insurance products and services. Such insurance helps to safeguard property in case of any natural or man-made disasters. Liability coverages are also provided by some industry players. The insurance coverage offered also includes automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, and professional indemnity and surety.
Premiums are the primary source of revenues for these insurers. These companies invest a portion of premiums to meet their commitments to policyholders. The Fed has already made four hikes in 2023, taking the tally to 11 since March 2022. An improving rate environment is a boon for insurers, especially long-tail insurers.
3 Trends Shaping the Future of the Property and Casualty Insurance Industry
Improved pricing to help navigate claims: Catastrophes are a concern for insurers due to the high degree of losses incurred. Insurers implement price hikes to ensure uninterrupted claims payment. Global commercial insurance prices rose for 24 straight quarters though the magnitude has slowed down over the last 11 quarters, per Marsh Global Insurance Market Index. Better pricing will help insurers write higher premiums and address claims payment prudently.
Per Fitch Ratings, personal auto is likely to deliver better performance in 2024. This coupled with better investment results and lower claims should fuel insurers' performance next year per Fitch Ratings. Per Deloitte Insights, gross premiums are estimated to increase sixfold to $722 billion by 2030.
China and North America should account for more than two-thirds of the global market, per the report. Analysts at Swiss Re Institute predict premiums to grow 7.5% in 2023 and 5.5% in 2024. Per reports published in Carrier Management, direct premiums written across the P&C business in 2023 are estimated to grow in double digits.
Catastrophe loss induces volatility in underwriting profits: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profits. Per reports in Gallagher Re, total economic losses were estimated to be $290 billion in the first nine months of 2023. According to AM Best, total net underwriting loss was $32.2 billion in the first nine months of 2023, much higher than $24.6 billion incurred in the year-ago period, largely attributable to rising loss costs, above-average catastrophe activity and adverse trends in personal auto.
The combined ratio was 103.5 for the same time frame per the credit rating giant, to which catastrophe losses added 980 basis points. Per a report in Insurance Journal, the combined net ratio in 2023 is estimated to be 102.2. Underwriting losses are expected to be primarily due to soft performance in personal lines, which are expected to witness higher catastrophe losses per Insurance Information Institute and Milliman.
However, exposure growth, better pricing, prudent underwriting and favorable reserve development will help withstand the blow. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
Increased adoption of technology: The industry is witnessing increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation that expedite business operations and save cost. The industry has also witnessed the emergence of insurtech — technology-led insurers — which creates competition for incumbent players.
The focus of insurtech is mainly on the property and casualty insurance industry. Insurers continue to invest heavily in technology to improve basis points, scale and efficiencies. However, with insurtechs using the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains a huge market risk. The use of technology also poses cyber threats.
Zacks Industry Rank Indicates Bright Prospects
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates rosy prospects in the near term. The Zacks Property and Casualty Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #30, which places it in the top 12% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Earnings estimates have increased 4.9% since August 2023.
Before we present a few property and casualty stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector, Underperforms S&P 500
The Property and Casualty Insurance industry has outperformed the sector but underperformed the Zacks S&P 500 composite over the past year. The stocks in this industry have collectively risen 16.1% in a year compared with the Finance sector and the Zacks S&P 500 composite’s increases of 14.1% and 21.3%, respectively.
Current Valuation
On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.47X compared with the S&P 500’s 5.95X and the sector’s 3.3X.
Over the past five years, the industry has traded as high as 1.55X, as low as 0.97X and at the median of 1.39X.
5 Property and Casualty Insurance Stocks to Add to Your Portfolio
W.R. Berkley: Based in Greenwich, CT., W.R. Berkley is one of the nation’s largest commercial lines property casualty insurance providers. Better pricing, expansion of international business, reserving discipline, a solid balance sheet and prudent capital management policy poise this Zacks Rank #1 insurer well for growth.
The Zacks Consensus Estimate for WRB’s 2024 earnings suggests 20.2% year-over-year growth. The consensus estimate has moved up 0.5% in the past 30 days. The expected long-term earnings growth rate is pegged at 9%.
Arch Capital Group: Pembroke, Bermuda-based Arch Capital Group offers insurance, reinsurance and mortgage insurance across the world. New business opportunities, rate increases, growth in existing accounts, growth in Australian single premium mortgage insurance and increases across most lines of business poise this Zacks Rank #2 insurer well for growth.
The Zacks Consensus Estimate for Arch Capital’s 2024 earnings suggests 1.1% year-over-year growth. The consensus estimate has moved up 2 cents in the past 30 days. ACGL’s earnings surpassed estimates in each of the last four quarters, the average surprise being 35.15%. The expected long-term earnings growth rate is pegged at 10%.
Berkshire Hathaway: Omaha, NE-based Berkshire Hathaway owns more than 90 subsidiaries in insurance, railroads, utilities, manufacturing services, retail and homebuilding. BRK.B boasts one of the largest property and casualty insurance companies measured by premium volume. BRK.B, carrying a Zacks Rank #2, should continue to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments.
Continued insurance business growth fuels an increase in float, drives earnings and generates maximum return on equity. With Warren Buffett at its helm, Berkshire continues to create tremendous value for shareholders.
The Zacks Consensus Estimate for 2024 bottom line suggests a year-over-year increase of 11.1%. The consensus estimate has moved up 0.9% in the past 30 days. The expected long-term earnings growth rate is 7%.
Cincinnati Financial: This Fairfield, OH-based company markets property and casualty insurance. Several growth initiatives and price increases, a well-performing Commercial Lines segment, a higher level of insured exposures, rate increase, an agent-focused business model, consistent cash flow generation and favorable reserve release position it well for growth. This Zacks Rank #2 insurer has a solid track of raising dividends in the last 62 years.
The Zacks Consensus Estimate for 2024 earnings has moved 3.1% north in the past 60 days. The consensus estimate for 2024 earnings indicates an improvement of 8.4% year over year. The expected long-term earnings growth rate is 18.2%, better than the industry average of 12.3%.
Chubb: Based in Zurich, Switzerland, Chubb is one of the world’s largest providers of P&C insurance and reinsurance. It has diversified through acquisitions into many specialty lines and also provides specialized insurance products. This Zacks Rank #2 insurer is poised to benefit from its focus on capitalizing on the potential of middle-market businesses and strategic initiatives, which pave the way for long-term growth.
The Zacks Consensus Estimate for 2024 bottom line has moved north by 0.1% in the past 30 days. The Zacks Consensus Estimate for 2024 earnings indicates an improvement of 7.4% year over year. The expected long-term earnings growth rate is 10%.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Berkshire Hathaway, Chubb, Arch Capital, W.R. Berkley and Cincinnati Financial
For Immediate Release
Chicago, IL – December 18, 2023 – Today, Zacks Equity Research discusses Berkshire Hathaway Inc. (BRK.B - Free Report) , Chubb Ltd. (CB - Free Report) , Arch Capital Group (ACGL - Free Report) , W.R. Berkley Corp. (WRB - Free Report) and Cincinnati Financial Corp. (CINF - Free Report) .
Industry: P&C Insurance
Link: https://www.zacks.com/commentary/2198499/5-stocks-to-buy-from-the-prospering-pc-insurance-industry
The Zacks Property and Casualty Insurance (P&C) industry is likely to benefit from better pricing, prudent underwriting and exposure growth. Industry players like Berkshire Hathaway Inc., Chubb Ltd., Arch Capital Group, W.R. Berkley Corp. and Cincinnati Financial Corp. are poised to grow despite a rise in catastrophic activities. Given an active catastrophe environment, the policy renewal rate should accelerate. Also, the increasing adoption of technology and the emergence of insurtech will help the industry players function smoothly.
Though the industry is witnessing an increase in premium pricing, the magnitude has decreased in the last 11 quarters. Nonetheless, an improvement in surplus and accelerated economic activities set the stage for a better M&A environment.
About the Industry
The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property insurance, and casualty insurance products and services. Such insurance helps to safeguard property in case of any natural or man-made disasters. Liability coverages are also provided by some industry players. The insurance coverage offered also includes automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, and professional indemnity and surety.
Premiums are the primary source of revenues for these insurers. These companies invest a portion of premiums to meet their commitments to policyholders. The Fed has already made four hikes in 2023, taking the tally to 11 since March 2022. An improving rate environment is a boon for insurers, especially long-tail insurers.
3 Trends Shaping the Future of the Property and Casualty Insurance Industry
Improved pricing to help navigate claims: Catastrophes are a concern for insurers due to the high degree of losses incurred. Insurers implement price hikes to ensure uninterrupted claims payment. Global commercial insurance prices rose for 24 straight quarters though the magnitude has slowed down over the last 11 quarters, per Marsh Global Insurance Market Index. Better pricing will help insurers write higher premiums and address claims payment prudently.
Per Fitch Ratings, personal auto is likely to deliver better performance in 2024. This coupled with better investment results and lower claims should fuel insurers' performance next year per Fitch Ratings. Per Deloitte Insights, gross premiums are estimated to increase sixfold to $722 billion by 2030.
China and North America should account for more than two-thirds of the global market, per the report. Analysts at Swiss Re Institute predict premiums to grow 7.5% in 2023 and 5.5% in 2024. Per reports published in Carrier Management, direct premiums written across the P&C business in 2023 are estimated to grow in double digits.
Catastrophe loss induces volatility in underwriting profits: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profits. Per reports in Gallagher Re, total economic losses were estimated to be $290 billion in the first nine months of 2023. According to AM Best, total net underwriting loss was $32.2 billion in the first nine months of 2023, much higher than $24.6 billion incurred in the year-ago period, largely attributable to rising loss costs, above-average catastrophe activity and adverse trends in personal auto.
The combined ratio was 103.5 for the same time frame per the credit rating giant, to which catastrophe losses added 980 basis points. Per a report in Insurance Journal, the combined net ratio in 2023 is estimated to be 102.2. Underwriting losses are expected to be primarily due to soft performance in personal lines, which are expected to witness higher catastrophe losses per Insurance Information Institute and Milliman.
However, exposure growth, better pricing, prudent underwriting and favorable reserve development will help withstand the blow. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
Increased adoption of technology: The industry is witnessing increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation that expedite business operations and save cost. The industry has also witnessed the emergence of insurtech — technology-led insurers — which creates competition for incumbent players.
The focus of insurtech is mainly on the property and casualty insurance industry. Insurers continue to invest heavily in technology to improve basis points, scale and efficiencies. However, with insurtechs using the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains a huge market risk. The use of technology also poses cyber threats.
Zacks Industry Rank Indicates Bright Prospects
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates rosy prospects in the near term. The Zacks Property and Casualty Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #30, which places it in the top 12% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Earnings estimates have increased 4.9% since August 2023.
Before we present a few property and casualty stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector, Underperforms S&P 500
The Property and Casualty Insurance industry has outperformed the sector but underperformed the Zacks S&P 500 composite over the past year. The stocks in this industry have collectively risen 16.1% in a year compared with the Finance sector and the Zacks S&P 500 composite’s increases of 14.1% and 21.3%, respectively.
Current Valuation
On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.47X compared with the S&P 500’s 5.95X and the sector’s 3.3X.
Over the past five years, the industry has traded as high as 1.55X, as low as 0.97X and at the median of 1.39X.
5 Property and Casualty Insurance Stocks to Add to Your Portfolio
We are recommending one Zacks Rank #1 (Strong Buy) stock and four Zacks Rank #2 (Buy) stocks from the P&C Insurance industry. You can see the complete list of today’s Zacks #1 Rank stocks here.
W.R. Berkley: Based in Greenwich, CT., W.R. Berkley is one of the nation’s largest commercial lines property casualty insurance providers. Better pricing, expansion of international business, reserving discipline, a solid balance sheet and prudent capital management policy poise this Zacks Rank #1 insurer well for growth.
The Zacks Consensus Estimate for WRB’s 2024 earnings suggests 20.2% year-over-year growth. The consensus estimate has moved up 0.5% in the past 30 days. The expected long-term earnings growth rate is pegged at 9%.
Arch Capital Group: Pembroke, Bermuda-based Arch Capital Group offers insurance, reinsurance and mortgage insurance across the world. New business opportunities, rate increases, growth in existing accounts, growth in Australian single premium mortgage insurance and increases across most lines of business poise this Zacks Rank #2 insurer well for growth.
The Zacks Consensus Estimate for Arch Capital’s 2024 earnings suggests 1.1% year-over-year growth. The consensus estimate has moved up 2 cents in the past 30 days. ACGL’s earnings surpassed estimates in each of the last four quarters, the average surprise being 35.15%. The expected long-term earnings growth rate is pegged at 10%.
Berkshire Hathaway: Omaha, NE-based Berkshire Hathaway owns more than 90 subsidiaries in insurance, railroads, utilities, manufacturing services, retail and homebuilding. BRK.B boasts one of the largest property and casualty insurance companies measured by premium volume. BRK.B, carrying a Zacks Rank #2, should continue to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments.
Continued insurance business growth fuels an increase in float, drives earnings and generates maximum return on equity. With Warren Buffett at its helm, Berkshire continues to create tremendous value for shareholders.
The Zacks Consensus Estimate for 2024 bottom line suggests a year-over-year increase of 11.1%. The consensus estimate has moved up 0.9% in the past 30 days. The expected long-term earnings growth rate is 7%.
Cincinnati Financial: This Fairfield, OH-based company markets property and casualty insurance. Several growth initiatives and price increases, a well-performing Commercial Lines segment, a higher level of insured exposures, rate increase, an agent-focused business model, consistent cash flow generation and favorable reserve release position it well for growth. This Zacks Rank #2 insurer has a solid track of raising dividends in the last 62 years.
The Zacks Consensus Estimate for 2024 earnings has moved 3.1% north in the past 60 days. The consensus estimate for 2024 earnings indicates an improvement of 8.4% year over year. The expected long-term earnings growth rate is 18.2%, better than the industry average of 12.3%.
Chubb: Based in Zurich, Switzerland, Chubb is one of the world’s largest providers of P&C insurance and reinsurance. It has diversified through acquisitions into many specialty lines and also provides specialized insurance products. This Zacks Rank #2 insurer is poised to benefit from its focus on capitalizing on the potential of middle-market businesses and strategic initiatives, which pave the way for long-term growth.
The Zacks Consensus Estimate for 2024 bottom line has moved north by 0.1% in the past 30 days. The Zacks Consensus Estimate for 2024 earnings indicates an improvement of 7.4% year over year. The expected long-term earnings growth rate is 10%.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.