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3 Insurance Stocks That Have Outperformed the S&P 500 YTD
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The insurance industry has performed well so far this year, riding on better pricing, prudent underwriting, increased exposure, streamlined operations, global presence and a solid capital position. The industry has gained 11.1% year to date compared with the Finance sector’s increase of 15.9% and the Zacks S&P 500 composite’s rise of 25.1%.
Though the insurance industry is yet to outperform the broader sector, shares of Assurant Inc. (AIZ - Free Report) , Kinsale Capital Group, Inc. (KNSL - Free Report) and NMI Holdings (NMIH - Free Report) have outperformed the industry, the sector and the S&P 500 composite. These stocks are poised to retain the rally given their solid prospects.
Image Source: Zacks Investment Research
Factors at Play
Exposure to catastrophe activities affect underwriting profitability of property and casualty insurers. Per Gallagher Re, total economic losses were estimated to be $290 billion in the first nine months of 2023. Total net underwriting loss was $32.2 billion in the first nine months of 2023 per AM Best, much higher than $24.6 billion incurred in the year-ago period, largely attributed 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.
Nonetheless, 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 premiums, ensuring smooth claims settlement.
Per Deloitte Insights, non-life premiums are expected to increase 2.2%. The report also stated that trends like commercial lines witnessing growth faster than personal lines and homeowners’ premiums improving at a better rate than personal auto are likely to continue. However, underwriting losses are expected to persist due to challenging results in personal lines.
On the other hand, life insurers continue to roll out investment products that provide bundled covers of guaranteed retirement income, life and healthcare to cater to customers preferring policies with “living” benefits more than those with death benefits. Increased awareness is driving sales of life insurance products. Per Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023.
Investment income, an important component of an insurer’s top line, is impacted by the movement in interest rates. The Fed has paused rate hikes currently and indicated a rate cut next year. However, the interest rate has improved over the last several quarters. With 11 rate hikes since March 2022, the interest rate currently stands at 5.25-5.50%.
Accelerated digitalization, including the use of generative AI, is improving scale and efficiency, thus aiding margin expansion. Given a solid capital level, industry players are continually pursuing strategic mergers and acquisitions to gain market share, grow in their niche areas and diversify operations, apart from engaging in capital payout to shareholders.
Solid Picks for Better Returns
With the help of the Zacks Stock Screener, we have selected three insurance stocks with an impressive VGM Score of A or B. Each of these stocks either carries a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy). Back-tested results have shown that for stocks with a solid VGM Score and a favorable Zacks Rank, the returns are even better.
These stocks have also witnessed positive estimate revisions in the past 30 days, reflecting analysts’ confidence in the companies’ operational efficiency.
Headquartered in New York, Assurant is a global provider of risk management solutions in the housing and lifestyle markets. Increased mobile subscribers in North America, inorganic and organic growth strategies, higher average insured values, and effective capital deployment bode well for growth. It sports a Zacks Rank #1.
Assurant’s focus on growing fee-based capital-light businesses that presently constitute 52% of segmental revenues bodes well for growth. Management estimates contribution from the same to continue to grow in double digits over the longer term.
AIZ has a solid capital management policy in place. While it has been increasing dividends for the last 19 straight years, the company has $174 million remaining under its current share buyback authorization. Notably, its free cash flow conversion has been more than 100% over the last many quarters, reflecting its solid earnings.
The Zacks Consensus Estimate for 2024 earnings is pegged at $15.19 per share, indicating an increase of 4.2% on 4% higher revenues of $11.4 billion. The long-term earnings growth rate is currently pegged at 14.6%, better than the industry average of 11.8%. The consensus estimate for 2024 has moved up 0.7% in the past 30 days.
Shares of Assurant have rallied 33% year to date.
Richmond, VA-based Kinsale Capital 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. Kinsale’s premiums should continue to benefit from its established presence across the E&S market of the United States, improved submission flows and high retention rates arising from contract renewals. KNSL anticipates 2023 to be the sixth calendar year in a row with double-digit industry-wide E&S premium growth.
Kinsale enjoys the best combination of high growth and low combined ratio among its peers. KNSL targets a combined ratio in the mid-80s range over the long term. Notably, KNSL noted the E&S market has witnessed significant growth and generated better underwriting results than the broader P&C industry. It carries a Zacks Rank #2.
Strong cash flows enable Kinsale Capital to engage in shareholder-friendly moves like dividend hikes. Net cash provided by operating activities more than doubled over the last two years. 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, KNSL targets to maintain operating return on equity in the mid-teens range.
The Zacks Consensus Estimate for 2024 earnings is pegged at $14.72 per share, indicating an increase of 22% on 26.3% higher revenues of $1.5 billion. The consensus estimate for 2024 earnings has moved 0.3% higher in the past 30 days.
Shares of Kinsale have gained 27.9% year to date.
NMI Holdings, based in Emeryville, CA, provides private mortgage insurance (MI).
The company should continue to benefit from a strong mortgage origination market, robust growth in high-quality and short portfolios and increased private mortgage insurance penetration rates. It carries a Zacks Rank #2.
NMIH continues to build on its position in the private MI market, expand its customer base and grow its insured portfolio of high-quality residential loans by focusing on long-term customer relationships, financial strength and profitability.
NMI Holdings has a comprehensive reinsurance program in place for nearly the entirety of its in-force portfolio. This, in turn, enhances its return profile, absorbs loss, provides efficient growth capital and mitigates the impact of credit volatility.
The Zacks Consensus Estimate for 2024 earnings is pegged at $4.03 per share, indicating an increase of 6.5% on 7.4% higher revenues of $620.5 million. The consensus estimate for 2024 earnings has moved 1 cent up in the past 30 days.
Shares of NMI Holdings have gained 44.1% year to date.
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3 Insurance Stocks That Have Outperformed the S&P 500 YTD
The insurance industry has performed well so far this year, riding on better pricing, prudent underwriting, increased exposure, streamlined operations, global presence and a solid capital position. The industry has gained 11.1% year to date compared with the Finance sector’s increase of 15.9% and the Zacks S&P 500 composite’s rise of 25.1%.
Though the insurance industry is yet to outperform the broader sector, shares of Assurant Inc. (AIZ - Free Report) , Kinsale Capital Group, Inc. (KNSL - Free Report) and NMI Holdings (NMIH - Free Report) have outperformed the industry, the sector and the S&P 500 composite. These stocks are poised to retain the rally given their solid prospects.
Image Source: Zacks Investment Research
Factors at Play
Exposure to catastrophe activities affect underwriting profitability of property and casualty insurers. Per Gallagher Re, total economic losses were estimated to be $290 billion in the first nine months of 2023. Total net underwriting loss was $32.2 billion in the first nine months of 2023 per AM Best, much higher than $24.6 billion incurred in the year-ago period, largely attributed 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.
Nonetheless, 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 premiums, ensuring smooth claims settlement.
Per Deloitte Insights, non-life premiums are expected to increase 2.2%. The report also stated that trends like commercial lines witnessing growth faster than personal lines and homeowners’ premiums improving at a better rate than personal auto are likely to continue. However, underwriting losses are expected to persist due to challenging results in personal lines.
On the other hand, life insurers continue to roll out investment products that provide bundled covers of guaranteed retirement income, life and healthcare to cater to customers preferring policies with “living” benefits more than those with death benefits. Increased awareness is driving sales of life insurance products. Per Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023.
Investment income, an important component of an insurer’s top line, is impacted by the movement in interest rates. The Fed has paused rate hikes currently and indicated a rate cut next year. However, the interest rate has improved over the last several quarters. With 11 rate hikes since March 2022, the interest rate currently stands at 5.25-5.50%.
Accelerated digitalization, including the use of generative AI, is improving scale and efficiency, thus aiding margin expansion. Given a solid capital level, industry players are continually pursuing strategic mergers and acquisitions to gain market share, grow in their niche areas and diversify operations, apart from engaging in capital payout to shareholders.
Solid Picks for Better Returns
With the help of the Zacks Stock Screener, we have selected three insurance stocks with an impressive VGM Score of A or B. Each of these stocks either carries a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy). Back-tested results have shown that for stocks with a solid VGM Score and a favorable Zacks Rank, the returns are even better.
You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks have also witnessed positive estimate revisions in the past 30 days, reflecting analysts’ confidence in the companies’ operational efficiency.
Headquartered in New York, Assurant is a global provider of risk management solutions in the housing and lifestyle markets. Increased mobile subscribers in North America, inorganic and organic growth strategies, higher average insured values, and effective capital deployment bode well for growth. It sports a Zacks Rank #1.
Assurant’s focus on growing fee-based capital-light businesses that presently constitute 52% of segmental revenues bodes well for growth. Management estimates contribution from the same to continue to grow in double digits over the longer term.
AIZ has a solid capital management policy in place. While it has been increasing dividends for the last 19 straight years, the company has $174 million remaining under its current share buyback authorization. Notably, its free cash flow conversion has been more than 100% over the last many quarters, reflecting its solid earnings.
The Zacks Consensus Estimate for 2024 earnings is pegged at $15.19 per share, indicating an increase of 4.2% on 4% higher revenues of $11.4 billion. The long-term earnings growth rate is currently pegged at 14.6%, better than the industry average of 11.8%. The consensus estimate for 2024 has moved up 0.7% in the past 30 days.
Shares of Assurant have rallied 33% year to date.
Richmond, VA-based Kinsale Capital 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. Kinsale’s premiums should continue to benefit from its established presence across the E&S market of the United States, improved submission flows and high retention rates arising from contract renewals. KNSL anticipates 2023 to be the sixth calendar year in a row with double-digit industry-wide E&S premium growth.
Kinsale enjoys the best combination of high growth and low combined ratio among its peers. KNSL targets a combined ratio in the mid-80s range over the long term. Notably, KNSL noted the E&S market has witnessed significant growth and generated better underwriting results than the broader P&C industry. It carries a Zacks Rank #2.
Strong cash flows enable Kinsale Capital to engage in shareholder-friendly moves like dividend hikes. Net cash provided by operating activities more than doubled over the last two years. 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, KNSL targets to maintain operating return on equity in the mid-teens range.
The Zacks Consensus Estimate for 2024 earnings is pegged at $14.72 per share, indicating an increase of 22% on 26.3% higher revenues of $1.5 billion. The consensus estimate for 2024 earnings has moved 0.3% higher in the past 30 days.
Shares of Kinsale have gained 27.9% year to date.
NMI Holdings, based in Emeryville, CA, provides private mortgage insurance (MI).
The company should continue to benefit from a strong mortgage origination market, robust growth in high-quality and short portfolios and increased private mortgage insurance penetration rates. It carries a Zacks Rank #2.
NMIH continues to build on its position in the private MI market, expand its customer base and grow its insured portfolio of high-quality residential loans by focusing on long-term customer relationships, financial strength and profitability.
NMI Holdings has a comprehensive reinsurance program in place for nearly the entirety of its in-force portfolio. This, in turn, enhances its return profile, absorbs loss, provides efficient growth capital and mitigates the impact of credit volatility.
The Zacks Consensus Estimate for 2024 earnings is pegged at $4.03 per share, indicating an increase of 6.5% on 7.4% higher revenues of $620.5 million. The consensus estimate for 2024 earnings has moved 1 cent up in the past 30 days.
Shares of NMI Holdings have gained 44.1% year to date.