The Zacks Property and Casualty Insurance industry’s performance is affected by catastrophe events, both natural and man-made. The industry players' underwriting profitability is inversely related to the number of cat occurrences. Also, the magnitude of price increases has been declining for the last six quarters.
Colorado State University (CSU) predicted an active Atlantic hurricane season this year with 18 named storms. These include eight hurricanes and four major hurricanes. This year’s hurricane season could be about 120% of the average season per CSU.
Swiss Re estimated insured losses from natural catastrophes of about $35 million in the first half of 2022, while Munich Re estimated losses of $65 billion, with slightly more than half of insured. Per a report published in LAW360, AM Best estimated the net income of U.S. property and casualty insurers to decline 17% year over year to $31.4 billion in the first half of 2022.
Amid this, players like The Travelers Companies, Inc. TRV, AXIS Capital Holdings Limited AXS and Fidelity National Financial, Inc. FNF, who have an impressive dividend history, offer a breather.
Though the magnitude of price increase declined in the last six quarters, global commercial insurance prices rose for 19 straight quarters per Marsh Global Insurance Market Index.
Also, the interest rate environment is improving. The Fed has already made four rate hikes, with one more expected this September to combat inflation. An improving rate is a boon for insurers, especially long-tail P&C insurers. Also, investment income is an important component of insurers’ top line.
Players are investing heavily in technology to improve scale and efficiencies. While a solid policyholders’ surplus will help the industry absorb losses, a sturdy capital level continues to aid insurers in pursuing strategic mergers and acquisitions, investing in growth initiatives, engaging in share buybacks, and increasing dividends or paying out special dividends.
Dividend Stocks for Your Portfolio
In this volatile market, stocks that give regular dividends offer an attractive investment opportunity. Regular dividend hikes reflect confidence in operational strength, which, in turn, fuel earnings power.
With the help of the Zacks Stock Screener, we have selected three property and casualty insurers that have a Zacks Rank #3 (Hold), a dividend yield more than 2% as well as a five-year historical dividend growth more than 2%. These stocks have payout ratio of less than 60, reflecting enough room for future dividend increases. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Travelers Companies, with a market capitalization of $39 billion, is one of the leading writers of auto and homeowners’ insurance plus commercial U.S. property-casualty insurance.
TRV has increased dividends for 18 consecutive years with a compound annual growth rate of 9% over that period. Its current dividend of $3.72 yields 2.3%, better than the industry average of 0.4%. The insurer’s payout ratio is 25, with a five-year dividend growth rate of 5%. (Check Travelers Companies’ dividend history here)
The Travelers Companies, Inc. Dividend Yield (TTM)
The Travelers Companies, Inc. dividend-yield-ttm | The Travelers Companies, Inc. Quote
Travelers’ comprehensive portfolio of coverages across nine lines of business is poised to maintain high levels of retention, improve pricing and increase new business while achieving a positive renewal premium change. TRV maintains a conservative balance sheet among its peers. At the end of the second quarter of 2022, statutory capital and surplus were nearly $23.8 billion. It aims to generate increased earnings and capital, in excess of growth needs, and maintain a balanced approach to rightsizing capital and growing book value per share over time as part of its long-term financial strategy.
AXIS Capital, with a market capitalization of $4.6 billion, is a leading specialty insurer with a niche specialty reinsurance focus.
AXS made 18 consecutive dividend raises at a nine-year CAGR (2015 – 2022) of 5%, driven by solid earnings. Its current dividend of $1.72 yields 3.2%, which is one of the highest dividend yields among its peers. The insurer’s payout ratio is 29, with a five-year dividend growth rate of 2.4%. (Check AXIS Capital’s dividend history here)
Axis Capital Holdings Limited Dividend Yield (TTM)
Axis Capital Holdings Limited dividend-yield-ttm | Axis Capital Holdings Limited Quote
AXIS Capital continues to build on Specialty Insurance, Reinsurance plus Accident and Health portfolio, exit underperforming lines, invest in more attractive markets, and enter new markets, thus improving portfolio mix and underwriting profitability.
Fidelity National Financial, with a market capitalization of $11.5 billion, is a leading market player in the residential purchase, refinance, and commercial markets, delivering industry-leading margins.
This title insurer has increased dividends for the last 11 years at a nine-year CAGR of 12.1%. Its current dividend of $1.76 yields 4.2%. The insurer’s payout ratio is 23, with a five-year dividend growth rate of 9.5%. (Check Fidelity National’s dividend history here).
Fidelity National Financial, Inc. Dividend Yield (TTM)
Fidelity National Financial, Inc. dividend-yield-ttm | Fidelity National Financial, Inc. Quote
The nation’s largest title insurance and settlement services company should continue to witness momentum in refinance volumes, strong purchase demand and a rebound in commercial real estate activity. The market-leading position offers scale and competitive advantage by fueling revenues and lowering costs.
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