5 Property & Casualty Insurers to Gain Despite Industry Challenges – October 28, 2022

5 Property & Casualty Insurers to Gain Despite Industry Challenges – October 28, 2022

The Zacks Property and Casualty Insurance (P&C) industry is likely to benefit from better pricing, prudent underwriting and exposure growth. Industry players like Berkshire Hathaway Inc. (BRK.B Free Report) , Chubb Limited (CB Free Report) , The Progressive Corporation (PGR Free Report) , W.R. Berkley Corporation (WRB Free Report) and ProAssurance Corporation (PRA Free Report) are poised to grow despite a rise in catastrophic activities. Given an active catastrophe environment, the policy renewal rate should accelerate. Also, the increasing adoption of technology and the emergence of insurtech will help in the smooth functioning of the industry players.

Though the industry is witnessing a rate increase, the magnitude has decreased in the last seven quarters. Nonetheless, an improvement in surplus and accelerated economic activities set the stage for a better M&A environment.

About the Industry

The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property insurance, and casualty insurance products and services. Such insurance helps to safeguard property in case of any natural or man-made disasters. Liability coverages are also provided by some industry players. The insurance coverage offered also includes automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, and professional indemnity and surety. Premiums are the primary source of revenues for these insurers. These companies invest a portion of premiums to meet their commitments to policyholders. The interest rate environment has started to improve. The Fed has already made five hikes in 2022 with more to come. An improving rate environment is a boon for insurers, especially long-tail insurers.

4 Trends Shaping the Future of the Property and Casualty Insurance Industry

Improved pricing to help navigate claims: Catastrophes are a concern for insurers due to the high degree of losses incurred. They implement price hikes to ensure uninterrupted claims payment. Per Marsh, global commercial insurance prices in the third quarter of 2022 increased 16%, marking the 20th straight quarter of price increase. However, Marsh also stated that the magnitude has declined in the last seven quarters. Per Willis Towers Watson’s 2022 Insurance Marketplace Realities report, rates will continue to rise but by a small margin.  Better pricing will help insurers write higher premiums and address claims payment prudently. Per Deloitte insights, global non-life premiums are estimated to grow 3.7% in 2022.  

Catastrophe loss induces volatility in underwriting profits: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profit. Per Colorado State University (CSU), the 2022 above-average hurricane season may have 19 named storms, including nine hurricanes and four major hurricanes. Per Swiss Re, the industry incurred global insured catastrophe losses of $38 billion in the first half of 2022.  The third quarter largely suffered the wrath of Hurricane Ian, which weighed on the underwriting profitability of many industry players.  Swiss Re estimates claims stemming from Hurricane Ian in the range of $50 billion to $65 billion. However, exposure growth, better pricing, prudent underwriting and favorable reserve development will help withstand the blow. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.

Merger and acquisitions: Consolidation in the property and casualty industry is likely to continue as players look to diversify their operations into new business lines and geography. Buying businesses along the same lines will also continue as players look to gain market share and grow in their niche areas. With the reopening of the economy, optimistic growth outlook and sturdy capital level, the industry is witnessing a number of mergers, acquisitions and consolidations.

Increased adoption of technology: The industry is witnessing increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation that expedite business operations and save cost. The industry has also witnessed the emergence of insurtech — technology-led insurers — creating competition for incumbent players. The focus of insurtech is mainly on the property and casualty insurance industry. Accelerated digitalization has become the need of the hour and insurers continue to invest heavily in technology to improve basis points, scale and efficiencies. Per Deloitte Insights, the technology budget is projected to increase 13.7% in 2022. As insurtechs use the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains a huge market risk.

Zacks Industry Rank Indicates Dull Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak prospects in the near term. The Zacks Property and Casualty Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #163, which places it in the bottom 35% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. The estimates have moved down 4.2% since February 2022.

Before we present a few property and casualty stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms S&P 500 and Sector

The Property and Casualty Insurance industry has outperformed both the Zacks S&P 500 composite as well as its sector over the past year. The stocks in this industry have collectively risen 1.1% in the past year compared with the Finance sector and the Zacks S&P 500 composite’s decline of 17.6% and 18.3%, respectively.

One-Year Price Performance

Current Valuation

On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.39X compared with the S&P 500’s 5.37X and the sector’s 3.15X.

Over the past five years, the industry has traded as high as 1.54X, as low as 1.18X and at the median of 1.36X.

Price-to-Book (P/B) Ratio (TTM)

Price-to-Book (P/B) Ratio (TTM)


5 Property and Casualty Insurance Stocks to Keep an Eye on

We are recommending two Zacks Rank #1 (Strong Buy) stocks and one Zacks Rank #2 (Buy) stock from the P&C Insurance industry. We are also presenting two stocks carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

W.R. Berkley: Based in Greenwich, CT, this insurer is one of the nation’s largest commercial lines property casualty insurance providers. A solid insurance business, strong international business and sturdy financial position bode well for this Zacks Rank #1 insurer. While operations in emerging market support international business, several new startup units in various business lines, expansion of international business, rate increase, benefits derived from market dislocations, and high retention should drive the Insurance business.

The Zacks Consensus Estimate for W.R. Berkley’s 2022 and 2023 bottom line suggests a respective year-over-year increase of 24.7% and 12.01%. The expected long-term earnings growth rate is 9%. It has a VGM Score of B. WRB delivered a four-quarter average earnings surprise of 25.63%.

Price and Consensus: WRB

Berkshire Hathaway: Omaha, NE-based Berkshire Hathaway owns more than 90 subsidiaries in insurance, railroads, utilities, manufacturing services, retail and homebuilding. BRK.B boasts one of the largest property and casualty insurance companies measured by premium volume. BRK.B, sporting a Zacks Rank #1, should continue to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments. Continued insurance business growth fuels an increase in float, drives earnings and generates maximum return on equity. With Warren Buffett at its helm, Berkshire continues to create tremendous value for shareholders.

The Zacks Consensus Estimate for Berkshire’s 2022 and 2023 bottom line suggests a respective year-over-year increase of 16.7% and 4.2%. The expected long-term earnings growth rate is 7%. BRK.B delivered a four-quarter average earnings surprise of 17.55%.

Price and Consensus: BRK.B

ProAssurance: Jacksonville, FL-based Fidelity Financial provides various insurance products in the United States. This Zacks Rank #2 insurer should continue to benefit from higher premiums, strong retention rates, underwriting discipline in the Specialty P&C unit and a strong investment result.  Notably, the NORCAL Mutual buyout intensified its focus on Medical Professional Liability Insurance and enhanced its size and scale in the MPLI space, making the combined entity the nation’s third-largest specialty writer of liability insurance for healthcare professionals and facilities.

Estimates for ProAssurance’s 2023 bottom line suggest a year-over-year increase of 27.4%. PRA delivered a four-quarter average earnings surprise of 150.98%

Price and Consensus: PRA

Progressive: This Mayfield, OH-based company is a leading auto insurer in the United States and has one of the largest auto insurance groups. PGR is the largest seller of motorcycle policies, a market leader in commercial auto insurance and one of the top 15 homeowner carriers based on premiums written.  PGR’s compelling product portfolio, leadership position, strength in both Vehicle and Property businesses, healthy policies in force and retention continue to bode well for growth. PGR carries a Zacks Rank #3.

The Zacks Consensus Estimate for Progressive’s 2022 and 2023 bottom line suggests a respective year-over-year increase of 0.7% and 47.9%. The expected long-term earnings growth rate is 19.2%, better than the industry average of 11.3%. It has a VGM Score of B.

Price and Consensus: PGR

Chubb: Based in Zurich, Switzerland, Chubb is one of the world’s largest providers of P&C insurance and reinsurance. It has diversified through acquisitions into many specialty lines and also provides specialized insurance products. This Zacks Rank #3 insurer is poised to benefit from its focus on capitalizing on the potential of middle-market businesses and strategic initiatives, which pave the way for long-term growth.

The Zacks Consensus Estimate for Chubb’s 2022 and 2023 bottom line suggests a respective year-over-year increase of 20.5% and 14%. The expected long-term earnings growth rate is 10%. It has a VGM Score of B. CB delivered a four-quarter average earnings surprise of 11.75%.

Price and Consensus: CB


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