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5 Must-Buy Property & Casualty Insurers for Stellar Returns

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The Property and Casualty (P&C) insurance space is set to benefit from better pricing, prudent underwriting, increased exposure, an improving rate environment and a solid capital position. With the ongoing economic expansion, insurers remain well-poised for growth.

The Zacks-defined Property and Casualty Insurance industry is currently in the top 14% of the Zacks Industry Rank. In the past year, the industry has provided 26.6% returns, while its year-to-date return is 15.1%. Since it is ranked in the top half of the Zacks Ranked Industries, we expect it to outperform the market over the next three to six months.

Future Catalysts

Price hikes, operational strength, higher retention, strong renewal and the appointment of retail agents should help write higher premiums. Per Deloitte Insights, gross premiums are estimated to increase sixfold to $722 billion by 2030.

Per Fitch Ratings, personal auto is likely to deliver a better performance this year. This coupled with better investment results and lower claims should fuel insurers' performance in 2024. Analysts at Swiss Re Institute predict premiums to grow 5.5% in 2024.

The P&C insurance 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 costs. Insurers continue to invest heavily in technology to improve basis points, scale and efficiencies.

However, the industry is susceptible to catastrophe events, which drag down underwriting profits. Per reports in Aon, total economic losses were $380 billion in 2023, while insured losses were $118 million. According to AM Best, total net underwriting loss was $38 billion in 2023, marking a 10-year high, largely attributable to weather-related losses, high inflation as well as reinsurance pricing pressure.

Meanwhile, consolidation in the property and casualty industry is likely to continue as players look to diversify their operations into new business lines and geography. Deloitte estimates more mergers and acquisitions in the reinsurance space in 2024.

Finally, a massive rise in the market interest rate will raise the cost of funds, enabling financial companies to widen the spread between longer-term assets, such as loans, with shorter-term liabilities, thus boosting the financial sector’s profit margin.

The spread between the longer-term assets and shorter-term liabilities would increase the spread of insurers. The Fed is in no hurry to reduce the benchmark lending rate from the existing level of 5.25-5.5%. The insurance industry's profitability has risen historically during periods of rising interest rates.

Our Top Picks

We have narrowed our search to five P&C insurers with strong potential for 2024. These stocks have seen positive earnings estimates in the last 30 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks  year to date.

Zacks Investment Research
Image Source: Zacks Investment Research

The Progressive Corp. (PGR - Free Report) continues to gain on higher premiums, given its compelling product portfolio, leadership position and strength in both Vehicle and Property businesses. Focus on becoming a one-stop insurance destination, catering to customers opting for a combination of home and auto insurance, augurs well for PGR’s growth.

Policies in force and retention ratio should remain healthy. Competitive pricing to retain current customers and address customer needs with new offerings should continue to drive policy life expectancy.

The Progressive has an expected revenue and earnings growth rate of 18.2% and 84.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7.6% over the last 30 days.

Palomar Holdings Inc. (PLMR - Free Report) is well-poised on solid revenue growth and balance sheet. Focus on new business, strong premium retention rates for existing business and renewals of existing policies bode well for PLMR. Premiums should benefit from PLMR’s solid product portfolio as well as geographic expansion and rate increases.

Net investment income of PLMR is expected to grow on the back of higher average balance of investments. A higher return on equity indicates efficient utilization of shareholders’ value. PLMR expects to generate adjusted net income between $110 million and $115 million in 2024.

Palomar Holdings has an expected revenue and earnings growth rate of 28.2% and 21.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the last seven days.

Arch Capital Group Ltd. (ACGL - Free Report) boasts a strong product portfolio and has a solid track record of premium growth. Premiums should benefit from new business opportunities, rate increases, and growth in existing accounts and in Australian single-premium mortgage insurance.

ACGL has also been diversifying its Mortgage Insurance business via strategic acquisitions that also complement the strength in the specialty insurance and reinsurance businesses. A solid capital position shields ACGL from market volatility. ACGL’s growing Investment portfolio provides meaningful tailwinds to its bottom line.

Arch Capital Group has an expected revenue and earnings growth rate of 18.8% and 0.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last seven days.

The Allstate Corp. (ALL - Free Report) has been benefiting from consistent growth in premiums, attributed to strategic acquisitions and expanding ventures. Rate hikes to counter inflationary pressures on loss costs are expected to continue in ALL’s auto insurance business for 2024.

ALL’s focus on optimizing core operations has allowed it to redirect resources toward high-growth areas. The sale of ALL’s Health & Benefits division is expected to free up capital. Cost-saving initiatives are projected to boost profits. The expense ratio improved 50 bps year over year in the first quarter.

Allstate has an expected revenue and earnings growth rate of 10.2% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.2% over the last seven days.

RLI Corp. (RLI - Free Report) is one of the industry’s most profitable property and casualty writers with an impressive track record of underwriting profits. A strong local branch office network, a broad range of product offerings, and a focus on specialty insurance lines contribute to its profits.

RLI’s ability to maintain the combined ratio at favorable levels even in the toughest operating environment reflects superior underwriting discipline. The decision to drop underperforming products from its property business also bodes well. RLI’s strong capital position provides financial flexibility to operating subsidiaries and supports wealth distribution to shareholders.

RLI has an expected revenue and earnings growth rate of 15.3% and 18%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the last seven days.

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