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6 Low-Beta Property & Casualty Insurers to Beat Volatility

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The Zacks Property and Casualty Insurance industry has been bearing the brunt of the coronavirus pandemic, near-zero interest rates, trade tariffs and inflation rate. The P&C Insurance industry has declined 20.7% year to date compared with the S&P 500 composite’s decline of 3.7%.



P&C insurers are exposed to catastrophes that induce volatility in underwriting profitability. Colorado State University estimates ‘very active Atlantic hurricane season in 2020 and hurricane activity will be about 150% of the average season.’ It predicted 19 named storms this hurricane season that runs from Jun 1 to Nov 30, including 13 hurricanes, of which four could be major hurricanes.  

Nonetheless, insurers’ prudent underwriting, favorable reserve development and sturdy capital level should help withstand the blow. Per American Property Casualty Insurance Association and Verisk, U.S. property/casualty insurance industry surplus was a record $847.8 billion at 2019 end compared with $742.2 billion as of Dec 31, 2018.

Moreover, price hikes by industry players should help them stay afloat.  In the first quarter of 2020, commercial insurance pricing improved 14%, property rates increased 21%, casualty pricing rose 5%, U.S. financial and professional lines pricing increased 23%, cyber insurance pricing rose 6%, and Auto pricing was up 10%, per Marsh LLC in a report published in Business insurance.  Per Willis Towers Watson Insurance Marketplace Realities 2020, rate hikes should continue through 2020. However, Marsh noted that the COVID-19 outbreak will have a greater impact on pricing in the remainder of 2020.

In a near-zero interest rate environment, investment income and yield remain under pressure. Also, a low rate is a concern especially for long-tail P&C insurers.

Though greater use of technology should help insurers in seamless underwriting and claims processing amid the pandemic, which necessitated social distancing and remote working, slowdown in economic growth might weigh on new sales and insurable exposure.

Amid such a situation, let’s focus on some low-beta stocks that are poised to deliver steady performance irrespective of market conditions.

What is Beta?

Beta indicates the volatility of a particular stock with respect to the market. In other words, beta measures the extent of stock price movement relative to the market.

If a company has a beta of 1, it means that the relative volatility of the stock is the same as that of the market. In the same way, if the stock's beta is greater than 1, then it is more volatile than the market. Conversely, a beta below 1 signifies low volatility.

In a turbulent market, it is advisable to focus on low-beta stocks as these will ensure steady return on investment.

The Winning Strategy

We have used our proprietary Zacks Stock Screener to find out stocks that can deliver steady performance even in this turbulent period. In our screening criteria, we have included stocks with beta less than 1 for shortlisting low-risk stocks. But low beta cannot be the only stock selection criterion. So, we have added a few other factors that will ensure that we pick stocks can withstand the ongoing turmoil and provide steady returns to investors. The other parameters are:

Percentage Change in Price in the Last 12 Weeks greater than 1: This ensures that the stocks saw positive price movement over the last three months.

Average 20 Day Volume greater than 400,000: A substantial trading volume ensures that the stocks are easily tradable.

Zacks Rank less than equal to 3: Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stocks will either outperform or perform in line with the broader U.S. equity market over the next one to three months. You can see the complete list of today’s Zacks #1 Rank stocks here.

VGM Score of A or B: The selected stocks have a VGM Score of A or B.

The Picks

Pembroke, Bermuda-based Arch Capital Group Ltd. (ACGL - Free Report) provides insurance, reinsurance, and mortgage insurance products worldwide. The expected long-term earnings growth rate is 10%, better than the industry average of 8.5%.

Northbrook, IL-based The Allstate Corporation (ALL - Free Report) provides property and casualty, and other insurance products in the United States and Canada. The Zacks Consensus Estimate for 2020 has moved up 1.4% in the past 60 days and indicates year-over-year growth of 2.4%. The expected long-term earnings growth rate is 7.5%.

Zurich, Switzerland-based Chubb Limited (CB - Free Report) provides insurance and reinsurance products worldwide. The company has a stellar history of delivering positive surprise in each of the last 15 reported quarters.

Mayfield, OH-based 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 expected long-term earnings growth rate is 6%.

Hamilton, Bermuda-based Everest Re Group, Ltd. (RE - Free Report) provides reinsurance and insurance products in the United States, Bermuda, and internationally. The company has a solid history of delivering positive surprise in each of the last seven reported quarters.

New York, NY-based The Travelers Companies, Inc. (TRV - Free Report) provides a range of commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals in the United states and internationally. The expected long-term earnings growth rate is 5.8%.

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