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4 Best Value Bets From Undervalued P&C Insurance Industry

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The Zacks Property and Casualty industry is currently undervalued compared with the S&P 500 index. The price-to-book (P/B) ratio, the best multiple for valuing insurers because of their unpredictable financial results, is 1.4, less than the broader market’s P/B of 3.9. Such below market positioning hints at room for upside in the coming quarters.

Before the valuation expands, it is wise to add some undervalued stocks with growth potential to investors’ portfolio for better returns.

Driving Forces

Underwriting results, a P&C insurer’s profitability measure, are favored by a benign catastrophe environment. The ongoing year has endured a California mudslide in the first quarter followed by two severe wind and hailstorms witnessed in Texas and some parts of Southeastern states during April. A not so active cat environment coupled with price hikes should fuel underwriting profitability for insurers. Also, natural disasters should accelerate the policy renewal rate.

Though P&C insurers’ financials are less sensitive to interest rates than life insurers’, as the large financial portfolios managed by these carriers are designed to be fairly conservative, yet the improving interest rate environment will cushion to investment income. The interest rate has climbed up to 1.75% from its near-zero level during the financial crisis. While a wave of optimism followed the Fed’s last meeting hinting at a probable June hike, the regulatory body’s indication of more such rate raises this year as well as the next should add more impetus to investment results.

The insurance industry is well capitalized. Its capital level is at an all-time high, inspiring players to pursue mergers and acquisitions, thus curbing competition in the process.

The tax rate overhaul, calling for $1.5 trillion lower tax burden, slashed the rate to 21% from 35%. Lower tax incidence widens scope for capital deployment as well as margin expansion.

An improving employment scenario raises optimism too. Per Bureau of Labor Statistics, unemployment rate in May was 3.8%, lowest in 18 years.  With the same declining, demand for insurance goes on the rise. This in turn will again drive the premiums higher, the primary source of insurers’ revenues.

Price Performance

The industry has underperformed the S&P 500 index year to date. While the index has gained 3.2%, the industry has declined 2.3%.


Nonetheless, strategic initiatives to build a competitive and diversified portfolio, mergers and consolidation for ramping up growth and global expansion plus an addition of capabilities position insurers well for a healthy performance.

Picking the Stocks

Despite the P&C insurance industry plummeting since the onset of the current year, solid fundamentals will likely boost the insurers’ performance.  

With the help of our Zacks Stock Screener, we have selected three P&C insurance stocks with  an impressive Value Score and a bullish Zacks Rank. Back-tested results have shown that stocks with a favorable Style Score of A or B coupled with a solid Zacks Rank are the best investment bets on offer.

These stocks have also witnessed northbound estimates reflecting analyst’s confidence in the companies’ operational efficiency. Shares of these companies have outperformed the industry as well as the broader market year to date

The Progressive Corporation (PGR - Free Report) provides personal and commercial auto insurance, residential property insurance and other specialty property-casualty insurance and related services, primarily in the United States. The stock sports a Zacks Rank #1 (Strong Buy) and has a Value Score of B. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised nearly 8% upward and moved 6.7% north for 2019 over the last 60 days. The P/B ratio of 3.7 is lower than the broader market’s tally of 3.9. You can see the complete list of today’s Zacks #1 Rank stocks here. Shares of the company have rallied 13.9% year to date, outperforming the industry's decline.


Conifer Holdings, Inc. (CNFR - Free Report) offers insurance coverage in specialty commercial and personal product lines. The stock holds a Zacks Rank #2 (Buy) and has an attractive Value Score of A. The consensus estimate for 2018 has been revised upward by a soaring 71.4% while the same for 2019, raised 3.4% in the last 60 days. The P/B ratio of 1.02 is lower than the broader market’s figure.Shares of the company have gained 6% year to date, outperforming the industry's decrease.


Federated National Holding Company (FNHC - Free Report) engages in insurance underwriting, distribution and claims processing business in the United States. The stock has a Zacks Rank of 2 and a robust Value Score of A. The consensus mark for 2018 has been moved 12.5% up in the last 60 days. The P/B ratio of 1.46 is lower than the broader market’s value.Shares of the company have surged 41.3% year to date versus the industry's fall.


HCI Group, Inc. (HCI - Free Report) primarily engages in the property and casualty insurance business in Florida. The stock is a Zacks #2 Ranked player and has a strong Value Score of A. The Zacks Consensus Estimate for 2018 has been increased 5.9% and 1.7% for 2019 in the last 60 days. The P/B ratio of 2.04 is lower than the broader market’s count.Shares of the company have soared 43.8% year to date against the industry's decline.


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