Property and casualty insurers are facing operational challenges arising due to the pandemic. The resultant increase in unemployment and furlough adversely impacted new sales in property and casualty insurance space. Claims are also likely to have increased.
The industry has lost 18.8% year to date, wider than the Zacks S&P 500 composite’s decrease of 5.4% but narrower than the Finance sector’s decrease of 22.4%.
The property and casualty insurance industry in particular is witnessing the emergence of insurtech — technology-led insurers — creating competition for existing players.
Nonetheless, better pricing and exposure growth will likely help maintain underwriting profitability. Sturdy policyholders’ surplus will help the industry absorb losses.
Here we focus on two property and casualty insurers, namely CNA Financial Inc. (CNA - Free Report) and RLI Corporation (RLI - Free Report)
While CNA Financial provides commercial property and casualty insurance products primarily in the United States, RLI Corp underwrites property and casualty insurance in the United States and internationally. Both these stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s now see how these life insurers have fared in terms of some of the key metrics.
RLI Corp has outperformed both CNA Financial and the industry year to date. While shares of RLI Corp have lost 13.1%, CNA Financial has lost 33.6%.
Return on Equity (ROE)
RLI Corp with a return on equity of 11.8% exceeded CNA Financial’s ROE of 8.4% and the industry average of 6.5%.
Price to book value is the best multiple used for valuing insurers. Compared with the life insurance industry’s P/B ratio of 1.22 and RLI Corp’s reading of 3.84, CNA Financial is cheaper with a reading of 0.78.
CNA Financial with dividend yield of nearly 5% betters RLI Corp.’s 1.4% as well as the industry’s average of 0.5%.
Both RLI Corp and CNA Financial’s debt-to-equity ratio is lower than the industry average of 27.9. RLI Corp with a lower reading of 16.3 has an edge over CNA Financial’s ratio of 25.9.
Earnings Surprise History
RLI Corp outpaced expectations in three of the last four trailing quarters, delivering positive average surprise of 12.88%. Though CNA Financial surpassed estimates in two of the last four trailing quarters, the average negative surprise was 0.88%.
RLI Corp has an edge in this respect.
Combined ratio is a profitability measure for insurers to identify how well an insurer is performing in its daily operations. A ratio below 100% indicates that the company is making an underwriting profit. RLI Corp.’s combined ratio of 92 betters CNA Financial’s reading of 97.5.
Our comparative analysis shows that RLI Corp. has an edge over CNA Financial with respect to price performance, return on equity, leverage, earnings surprise history and combined ratio Meanwhile, CNA Financial scores higher in terms of valuation and dividend yield.
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