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4 Low-Beta P&C Insurance Stocks to Beat Volatile Market

Fed’s move to pause rate hike, economic slowdown and inflationary pressure are some factors that have been inducing market volatility. The growth rate is expected to slow down to 0.7% in the fourth quarter, per a Treasury Department forecast posted on CNBC. Fed estimated GDP to grow 1.5% in 2024 at its September FOMC meeting. Despite challenges, the Zacks Property and Casualty (P&C) Insurance industry has gained 11.8% year to date compared with the S&P 500 Composite’s gain of 19.6% and the Finance sector’s increase of 10.1%, banking on its operational strength.

Investors always look for a safe portfolio of stocks that would give them solid returns amid market turmoil. Arch Capital Group ACGL, The Allstate Corporation ALL, The Travelers Companies Inc. TRV, and Axis Capital Holdings Limited AXS have the potential to make investors happy, courtesy of their fundamental strength.

Factors Driving the Industry

The P&C insurance industry continues to benefit from improved pricing, increased exposure, prudent underwriting, streamlined portfolio, new business growth as well as stable retention.

Global commercial insurance prices rose for 24 straight quarters, though the magnitude has slowed down, per Marsh Global Insurance Market Index. Better pricing ensures improved premiums.

AM Best states that premiums for the U.S. P&C industry, net of reinsurance, grew 9.7% in the first six months of 2023. Per Deloitte Insights, gross premiums are estimated to increase about six-fold to $722 billion by 2030. China and North America should account for more than two-thirds of the global market, per the report.

However, the performance of insurers is measured by underwriting profitability. AM Best reports a total net underwriting loss of $24.5 billion in the first half of 2023, much higher than the $6.6 billion incurred in the year-ago period, mainly attributable to rising loss costs, above-average catastrophe activity, and adverse trends in personal auto. In fact, AM Best maintains a negative outlook on U.S. personal lines with no expectation to reverse the same soon.

The insurance industry is a beneficiary of the rising rate environment. The Fed has raised rates 11 times since March 2022. Though the Fed paused the rate hike, there are chances of a rate cut next year. Nonetheless, companies that have locked in high-interest rates are bound to generate higher yields at this point.

Industry players remain focused on digitalization to improve scale and efficiencies. A sturdy capital level supports inorganic expansion, investment in growth initiatives and capital payout to shareholders.

Amid the current situation, let’s focus on some low-beta stocks that tend 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 a 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 times of uncertainty. We have included stocks with a 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 parameters:

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

Headquartered in Pembroke, Bermuda, Arch Capital Group offers insurance, reinsurance and mortgage insurance across the world. The expected long-term earnings growth rate is 10%. The Zacks Consensus Estimate for 2024 has moved up 0.8% in the past 60 days and indicates year-over-year growth of 1%.

This Zacks Rank #3 is a leading specialty P&C and mortgage insurer, which is poised to grow on new business opportunities, rate increases, growth in existing accounts and inorganic growth encompassing international expansion. With operations spread across geographies, a compelling product portfolio provides meaningful diversification and earnings stability to the insurer.

Headquartered in Northbrook, IL, The Allstate Corporation is the third-largest property-casualty insurer and the largest publicly-held personal lines carrier in the United States. It is principally engaged, through its subsidiaries, in providing a wide variety of property and casualty insurance and surety products and services to businesses, organizations and individuals in the United States and select international markets. The expected long-term earnings growth rate is 7%. The Zacks Consensus Estimate for 2024 has moved up 1.1% in the past 60 days and indicates year-over-year growth of 728.5%.

A diversified product portfolio, strategic acquisitions, and disciplined pricing should continue to fuel the top line. Changes in the business mix to focus on those that command a high return on equity bodes well for growth. Allstate's strategic business streamlining and cost reduction efforts are central to its long-term growth strategy.

New York-based The Travelers Companies is a holding company. It is principally engaged, through its subsidiaries, in providing a wide variety of property and casualty insurance and surety products and services to businesses, organizations and individuals in the United States and select international markets. The expected long-term earnings growth rate is 10.2%. The Zacks Consensus Estimate for 2024 has moved up 1.8% in the past 60 days and indicates year-over-year growth of 51.1%.

Travelers’ high levels of retention, improved pricing and increased new business while achieving a positive renewal premium change poise it well for growth. This Zacks Rank #3 insurer 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.

Bermuda-based AXIS Capital Holdings Limited provides a broad range of specialty insurance and reinsurance solutions to its clients on a worldwide basis through operating subsidiaries and branch networks based in Bermuda, the United States, Europe, Singapore, Canada, Latin America and the Middle East. The expected long-term earnings growth rate is 5%. The Zacks Consensus Estimate for 2024 has moved up 2% in the past 60 days and indicates year-over-year growth of 11.4%.

Rate increases, increased new business opportunities and focus on driving growth in its most attractive lines, underwriting excellence, a compelling and diversified product portfolio, digital capabilities and solid capital position poise it well for growth.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

The Travelers Companies, Inc. (TRV) : Free Stock Analysis Report

The Allstate Corporation (ALL) : Free Stock Analysis Report

Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report

Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report

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