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3 Insurance Stocks Worth Betting on Now for Solid Gains

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After suffering muted revenues and high claims due to COVID-led disruption in 2020, the insurance industry is set on a solid footing this year.
Economic revival, job gains and reopening of businesses spurred demand for various types of insurance products. After all, insurance provides a huge cushion to businesses in the event of an unexpected loss. It is the insurance company, which comes to the rescue by covering up the loss caused by destruction via payment of claims to its customers in return for a paltry sum of premium.

The insurance industry is also an important contributor to the country’s GDP. Its share of the total GDP was 3.1% in 2020, up from 2.9% a year before. The fortunes of the industry are tied to economic growth and therefore, it is now poised for expansion.

While economic recovery looks strong enough to drive premiums for insurers who are key contributors to revenues, net investment income — another crucial component of the top line — takes a hit from low interest rates.

Insurers have to pay claims, which may come up due to accidents. Hence, the premium collected is invested in safe assets like bonds. With the interest rates set to remain low at least through 2023, insurers are resorting to alternative investment opportunities, such as private equity, hedge funds and other specialty investments including infrastructure, mineral rights, aircraft leases, and debt & real-estate limited partnerships. This strategy helped insurers protect their investment incomes.

Against this backdrop, let’s consider some insurers with a top Zacks Rank and an attractive valuation for benefiting one’s investment portfolio to reap handsome returns.

MetLife Inc. MET impressed investors with stellar results this year wherein earnings handily beat  estimates. Revenues and earnings both grew year over year. Overall growth case looks strong for the insurer as the improving employment scenario is expected to further boost sales for its group benefits insurance business.

The company’s net investment income grew in the first six months of 2021, courtesy of its private equity investments. Underwriting margins will also see some respite this year from the COVID-led surge in claims. With the widespread rollout of vaccination programs, claims are expected to decline to aid margins in the process.

MetLife, which shares space with The Allstate Corp. ALL, is busy streamlining its operations by disposing non-core business and pumping resources into potential growth projects. MetLife’s strategic moves are backed by its solid capital position and a strong cash-generating capability. It expects to generate approximately $20 billion of free cash flow over the five-year period from 2020 through 2024, an amount equal to more than 40% of its current market capitalization.

This presently Zacks Rank #2 (Buy) entity’s dividend payment history is another boon for its investors. Recently, the player hiked its payout by 4.3%, which witnessed a CAGR of 10% over the last decade. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The stock looks undervalued with a price-to-book ratio of 0.78 compared with its industry’s average of 1.58.

Another stock worth betting on is American International Group Inc. AIG, which beat on earnings for the second time in a row, reflecting improvements made  in its property/casualty operations since 2017. In the first half of 2021, revenue growth was registered at 5.4% versus a decline of 12% in the comparable period of 2020.

The company endured a choppy operating environment with revenues dwindling every year since 2013 (except in 2019) due to low insurance rates, a fiercely competitive landscape and several asset divestitures that reduced its revenue sources.

Thus the company kept on shedding its numerous non-related businesses hat it produced little synergies. Other  operational improvements taken since 2017 under the tenure of the then CEO Brian Dupperault are now yielding results.

This year, the company should gain traction from a better insurance premium rate in a hardening market along with a lower expense base, aided by its AIG 200 initiative. This, in turn, should lead to a rise in premiums and underwriting gains.

More positive news is that the COVID-related losses are decreasing with the economy on the mend. This places the company in a favorable operating position.

The company is also divesting its Life and Retirement business via an IPO. Though this strategic move will stifle the diversification benefits, management believes that it is ‘the optimal path forward’.

We believe, these prudent efforts will fuel growth ahead. With its current price-to-book value of 0.72 compared with the industry average of 1.58, the stock looks cheaply priced and a good buy. It currently has a Zacks Rank of 2.

The Hartford Financial Services Group, Inc. HIG presents a well-diversified revenue and earnings profile with its focus mainly on property & casualty (P&C) insurance, group benefits and mutual funds, and its multiple distribution channels.

Its Commercial insurance business, the largest contributor to its earnings, is pretty stable from the profitability point of view. Further, with premium rates for commercial insurance going up this year, revenues should get a nice leg up.

The company’s personal lines benefits from its long-term relationship with the AARP affinity group. Its top-tier position in the group life and disability market along with strong capital adequacy and a distribution network of independent agents is another positive.

Apart from a bullish top-line growth scenario, the bottom line should see healthy growth from the company’s operational transformation and its expense-reduction plan launched last year.

The presently Zacks #2 Ranked company boasts balance sheet strength. Its total debt is 23.9% (almost unchanged from the sequential figure) of its total equity, lower than the industry average of 43.1%. Its times interest earned of 12.34X is better than the industry's average of 2.3X.

The stock’s current price-to-book value of 1.3 makes it a promising bargain.



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The Hartford Financial Services Group, Inc. (HIG) : Free Stock Analysis Report
 
American International Group, Inc. (AIG) : Free Stock Analysis Report
 
MetLife, Inc. (MET) : Free Stock Analysis Report
 
The Allstate Corporation (ALL) : Free Stock Analysis Report
 
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