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Insurance Stocks to Pick on a Resilient U.S. Jobs Report

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Jobs growth picked up in November and smashed estimates, with nonfarm payrolls seeing the biggest increase in 10 months. Hiring increased the most in health care and professional and technical services, with the unemployment rate remaining at record low levels and an improvement in wages. Employment also rose in manufacturing, reflecting the return of workers from the General Motors strike, which began on Sep 15.

Such a hiring spree eased niggling concerns about the economy. Let us, thus, take a look at insurance stocks that stand to gain from a stellar jobs report.

Employment Numbers Beat Consensus

According to the Bureau of Labor Statistics, the economy added 266,000 new jobs in November, exceeding analysts’ estimates of around 180,000. The prior two months also saw positive revision to the initial reading. The change in total nonfarm payroll employment for September was revised up by 13,000 to 193,000 from 180,000 and the change for October was revised up by 28,000 to 156,000 from 128,000.

Nonetheless, hiring speeds were up by 180,000, on average, in the first nine months of this year. This was, however, lower than the 223,000 average monthly gain in 2018.

Meanwhile, the jobless rate fell to 3.5%, marking its lowest level since 1969. The real unemployment rate, including those who are underemployed and discouraged, also known as the U6 rate, fell to 6.9%, one-tenth of a percentage point below the October reading.

Expected Stance on Monetary Policy

The data points relating to the labor market paints a sunny picture of the U.S. economy. This should amount to a steady interest rate stance by the Federal Reserve Chairman Jerome Powell for now, (federal rates have been increased thrice so far this year). This means there is less likelihood of any further rate cut in 2019, which bodes well for the finance sector and should benefit industries like banking and insurance.

Insurance Industry to Gain

The Insurance industry which directly gains from a decline in unemployment is one of the biggest beneficiaries. There is more than one reason for the industry to gain.

First, in the current economic scenario, a strong jobs growth would hold up any further   interest rates cut for now and insurance companies would be relatively better off in investing their float  (the amount of money on hand at any given moment that an insurer has collected in insurance premiums but has not paid out in claims). A low interest rate eats into their investment income.

Second, a strong employment scenario means an increase in the number of jobs added, which automatically drives demand for employer-sponsored insurance. Most private (non-government) life and health coverage in the United States is employment-based.

Finally, the insurance industry is to some extent insulated from the direct effects of the U.S.-China trade tariffs and thus looks better positioned. While the recent strong job reports elevate pressure on the United States to go into reconciliatory talks with China, we see no positive development as yet.

All in all, the insurance industry looks like a stable bet in the current fragile economic environment.

Year to date, the Zacks Multi-line Insurance industry has gained 20.4% compared with the Zacks S&P 500 composite's growth of 18.4%. 

Our Picks

Fidelity National Financial Inc. (FNF - Free Report) : The company currently has a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its current-year earnings increased 8.1% over the past 30 days. The company’s expected earnings growth rate for the current year is 23.3% in comparison with the industry’s projected growth of 14.1%. The company has outperformed the broader industry so far this year (+49.9% versus +10.5%).

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Hanover Insurance Group, Inc. (THG - Free Report) currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings increased 2.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 24.3% in comparison with the industry’s projected growth of 14.1%. The company has outperformed the broader industry so far this year (+16.7% versus +10.5%).

NMI Holdings, Inc. (NMIH - Free Report) carries a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 1.6% over the past 30 days. The company’s expected earnings growth rate for the current year is 53.6% in comparison with the industry’s projected growth of 14.1%. The company has outperformed the broader industry so far this year (+87.3% versus +10.5%).

W.R.Berkley Corp. (WRB - Free Report) has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased  6.6% over the past 30 days. The company’s expected earnings growth rate for the current year is 14.2%, in line with the industry’s projected growth. The company has outperformed the broader industry so far this year (+42.2% versus +10.5%).

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