The COVID-19 pandemic wreaked havoc in 2020, taking a huge toll on the economy. This was reflected in the decline in major indices this year.
Like most other industries, insurance too took a beating. Adding to the woes, a continued low rate environment and an active hurricane season weighed on the performance of insurers. The insurance industry has declined 7.2% year to date.
Per Verisk and the American Property Casualty Insurance Association (APCIA), net income of the private U.S. property/casualty insurance industry declined 26% in the first half of 2020, largely attributable to the pandemic. Net underwriting gains too decreased, though net written premiums increased per the report.
However, since the third quarter of 2020, insurers have been witnessing a turnaround owing to reopening of the economy.
Also, frequent natural disasters accelerate the policy renewal rate and set the stage for increase in pricing. Per Colorado State University, the 2020 Atlantic hurricane season was expected to be extremely active with hurricane activity of about 190% of the average season. Per Willis Towers Watson’s Commercial Lines Insurance Pricing Survey, 23 U.S. commercial insurance lines are expected to witness price rise while five might see either increases, decreases or flat renewals.
Per Willis Towers Watson’s 2021 Insurance Marketplace Realities report, except for one, all lines should witness price rise next year.
Prudent underwriting through increased adoption of technology will ensure smooth functioning while maintaining social distancing norms. The property and casualty insurance industry in particular is witnessing the emergence of insurtech — technology-led insurers.
In fact, in the latest FOMC meeting, though interest rate was retained at near-zero level with indication of no raises until 2023, economic growth was estimated to be 4.2% in 2021. However, a low rate environment is likely to weigh on life insurers in 2021.
A well-capitalized level should continue to help the insurance industry absorb any unprecedented shock.
Nonetheless, concerns over rise in new coronavirus cases will keep enthusiasm muted.
Hidden Gems to Bet On
Given the challenging operating environment, most of the insurers suffered this year. However, we pick some stocks that are likely to rebound on their fundamental strength next year. Though a daunting task, the Zacks Stock Screener has made the job relatively easy.
The following four stocks with more than $1 billion market capitalization have lost more than 20% year to date but carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The stocks have also seen their 2021 estimates move north.
Headquartered in New York, Alleghany Corporation Y engages in property and casualty reinsurance and insurance businesses in the United States and internationally. This Zacks Rank #1 insurer has seen its 2021 estimates move 15.1% up in the past 60 days. The consensus estimate for 2021 indicates 187.6% growth over 2020. Though the stock has lost 25.3% year to date, strong underwriting performances by TransRe and RSUI, CapSpecialty, and PacificComp poise it well.
Headquartered in Cincinnati, OH, American Financial Group AFG is a holding company which, through its subsidiaries, engages primarily in property and casualty insurance, with focus on specialized commercial products for businesses. This Zacks Rank #2 insurer has seen its 2021 estimates move 4.9% up in the past 60 days. The consensus estimate for 2021 indicates 18.1% growth over 2020. Though the stock has lost 21.2% year to date, consistent price increase in property and casualty business, small-to-medium sized acquisitions, and product launches poise it well.
Timberlake, MO-based Reinsurance Group of America RGA is a leading global provider of traditional life and health reinsurance and financial solutions with operations in the United States, Latin America, Canada, Europe, the Middle East, Africa, Asia and Australia. This Zacks Rank #2 insurer has seen its 2021 estimates move 0.6% up in the past 60 days. The consensus estimate for 2021 indicates 43.9% growth over 2020. Though the stock has lost 29.8% year to date, changing life reinsurance pricing environment and expanding business in the pension risk transfer market poise it well.
Headquartered in Connecticut, The Hartford Financial Services Group HIG is one of the major multi-line insurance and investment companies in the country, providing investment products, group life and group disability insurance, property and casualty insurance and mutual funds in the United States. This Zacks Rank #2 insurer has seen its 2021 estimates move 3.7% up in the past 60 days. The consensus estimate for 2021 indicates 0.7% growth over 2020. Though the stock has lost 20.6% year to date, divestiture of non-core businesses, focus on lowering expenses, and strengthening of its commercial business lines poise it well. The expected long-term earnings growth rate is 7%
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021? These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold.
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The Hartford Financial Services Group, Inc. (HIG) : Free Stock Analysis Report
Reinsurance Group of America, Incorporated (RGA) : Free Stock Analysis Report
American Financial Group, Inc. (AFG) : Free Stock Analysis Report
Alleghany Corporation (Y) : Free Stock Analysis Report
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