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4 Insurance Stocks That Have Crushed the S&P 500 Year to Date

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The S&P 500 has performed well so far this year after a disappointing 2018. The benchmark index has gained 14.9% year to date having lost 6.2% in 2018. The easing of tensions between the United States and China on optimism regarding US-China trade negotiations, decline in weekly jobless claims to a 50-year low and strong manufacturing data likely drove the index on the growth path.

The U.S. labor market continues to gain momentum, signaling a stable economy.  However, at its Mar 20, 2019 FOMC meeting, the Fed announced that short-term interest rates will remain unchanged this year, implying that GDP growth might slow down to 2.1%. Nonetheless, factors like low unemployment rate (estimated at 3.7% in 2019) and core inflation rate (expected at 2% through 2021) contribute to a bullish economic outlook.

However, per our Earnings Preview, S&P 500 earnings are expected to decline 4% in the first quarter though revenues are expected to increase 4.6%.  Broad-based margin pressure will likely dent earnings. Last year, margins received a major boost from the Tax Cuts and Jobs Act — an overhaul of the tax code after 31 years that lowered the corporate tax burden to 21% from 35% and leading to a $1.5-trillion tax reduction.

The insurance industry seems to have benefited from a not-so-active catastrophe environment. However, January winter storms and an extreme cold weather (Polar Vortex) cost the United States nearly a billion dollars per Aon plc’s catastrophe report on Feb 13, 2019.

The central bank will not raise rates in 2019 against its earlier expectation of two raises due to slowing economic growth and sluggish inflation. The rate currently stands at 2.50% compared with a near- zero level at the time of the financial crisis. A better rate environment should aid investment results.  

Pricing firmed up from the fourth quarter of 2017 post major catastrophes like Hurricane Harvey Irma and Maria. Nonetheless, workers compensation and international liability pricing that were soft in 2018 should continue to be so in 2019 per excerpts from Insurance Marketplace Realities 2019 by Willis Towers Watson. Rates are expected to increase in low single-digit to low double-digit across most insurance lines in 2019 per the report.  Per analysts at Moody’s Investors Service, the rate increases are anticipated to exceed the loss cost trends in auto lines, roughly match the metric in the property lines and lag slightly in the commercial casualty lines in 2019.

Adoption of technologies like artificial intelligence, robotic process automation, cognitive intelligence or blockchain should help insurers curb operational costs. Also, sturdy capital level supporting consolidations, strategic investments as well as dividend increase and share buybacks should continue to support growth.

4 Insurance Outperformers YTD

Though the insurance industry has risen 6.5% year to date, it has underperformed the Zacks S&P 500 composite. However, there are some insurers, which managed to outperform the broader index.

These stocks have seen estimates for 2019 move north in the last four weeks. Also, these stocks have an impressive Growth Score of A or B. This style score analyzes the growth prospects of a company.

First American Financial Corporation (FAF - Free Report) provides financial services. The Zacks Rank #3 (Hold) stock has a Growth Score of A. The Zacks Consensus Estimate for 2019 has moved up 1.1% in the past 30 days. The stock has gained 19.7% year to date.

Lincoln National Corporation (LNC - Free Report) operates multiple insurance and retirement businesses in the United States. The Zacks Rank #3  stock has a Growth Score of B. The consensus estimate for 2019 has moved up 0.7% in the past 30 days. The stock has gained 23.7% year to date.

Willis Towers Watson Public Limited Company (WLTW - Free Report) operates as an advisory, broking, and solutions company worldwide. The Zacks Rank #3 stock has a Growth Score of A. The Zacks Consensus Estimate for 2019 has moved up 0.6% in the past 30 days. The stock has gained 17.5% year to date.

Prudential plc (PUK - Free Report) provides a range of retail financial products and services, and asset management services in Asia, the United States, the United Kingdom, Europe, and Africa. The Zacks Rank #3  stock has a Growth Score of A. The Zacks Consensus Estimate for 2019 has moved up 1.5% in the past 30 days. The stock has gained 22.8% year to date.

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