The Federal Reserve kept interest rate unchanged at 0-0.25% in its two-day FOMC meeting that concluded on Jun 10. The decision came in the wake of the COVID-19 outbreak continuing to weigh on economic activity, employment and inflation in the near term.
The Fed might not raise rates until 2023 as Fed Chair Jerome Powell stated "We’re not even thinking about thinking about raising rates." Per the Federal Reserve, the Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. Only two of the 17 top officials expect rates to move slightly higher in 2022.
Though there have been signs of improvement like job additions in May and improvement in oil prices, the Fed preferred to stay cautious. Powell stated that ‘the report was a welcome surprise but just one month’s data’. He also stated that there were about 20 million job losses due to the pandemic.
Impact on Insurers
Generally, insurers are major beneficiaries of a rising rate environment because of their sensitivity to interest rate. A low rate environment weighs on investment income, an important component in insurers’ top line. Insurers invest a portion of premiums collected to meet their commitments to policyholders.
A near zero interest rate is thus a concern especially for long-tail Property and Casualty Insurance providers and Life insurers (whose earnings are typically derived from the spread between their investment returns and what they credit as interest on insurance policies and products). In a low interest rate environment, life insurers' income from investments might be insufficient to meet the contractually-guaranteed obligations to policyholders, which cannot be lowered.
Nonetheless, better pricing, exposure growth (an increase in the number and value of insurable interests), sturdy policyholders’ surplus, among others, will likely help maintain underwriting profitability for non-life insurers. Life insurers are refraining from selling long duration term life insurance or making changes to product portfolio by moving away from guaranteed savings products toward protection products of unit-linked savings products, which should help maintain profitability in this low-rate environment.
5 Insurance Picks in the Current Scenario
Amid such a macro backdrop, investors may like to add insurance stocks with strong fundamentals and potential to generate better yields.
It’s an intimidating task to zero in on underpriced stocks with high growth potential. The Zacks Stock Screener makes this work relatively simpler. The selected stocks have a favorable VGM Score of A or B and Zacks Rank #1 (Strong Buy) or 2 (Buy).
VGM Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth, and most promising momentum.
Back-tested results show that stocks with a favorable Style Score coupled with a solid Zacks Rank are the best investment options.
Northbrook, IL-based The Allstate Corporation ALL provides property and casualty, and other insurance products in the United States and Canada. The stock has a VGM Score of A and carries a Zacks Rank #2. Its expected long-term earnings growth is currently pegged at 7.5%, higher than the industry average of 7.2%. The company surpassed estimates in each of the last four reported quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
Marietta, PA-based Donegal Group Inc. DGICA provides personal and commercial lines of property and casualty insurance to businesses and individuals in the Mid-Atlantic, Midwestern, New England, and southern states. The stock has a VGM Score of A and carries a Zacks Rank #2. The Zacks Consensus Estimate for 2020 earnings moved north by 13.6%. The company surpassed estimates in each of the last four reported quarters.
New York, NY -based National General Holdings NGHC provides various insurance products and services in the United States, Bermuda, Luxembourg, and Sweden. The stock has a VGM Score of A and sports a Zacks Rank #1. The consensus estimate for 2020 and 2021 earnings moved north by about 10% and 3.2%, respectively in the past 60 days.
Charlotte, NC based Brighthouse Financial, Inc. BHF provides annuity and life insurance products in the United States. The stock has a VGM Score of B and carries a Zacks Rank #2. The Zacks Consensus Estimate for 2020 indicates a 225.7% year-over-year increase. The company’s earnings surpassed estimates in each of the last four reported quarters
Tampa, FL based BRP Group, Inc. BRP operates as an insurance distribution company in the United States and internationally. The stock has a VGM Score of B and carries a Zacks Rank #2. Its expected long-term earnings growth rate is currently pegged at 46.2%, higher than the industry average of 15%. The consensus estimate for 2020 and 2021 earnings moved north by 42.9% and 15.8%, respectively in the past 30 days.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
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The Allstate Corporation (ALL) : Free Stock Analysis Report
BRP Group, Inc. (BRP) : Free Stock Analysis Report
National General Holdings Corp (NGHC) : Free Stock Analysis Report
Donegal Group, Inc. (DGICA) : Free Stock Analysis Report
Brighthouse Financial, Inc. (BHF) : Free Stock Analysis Report
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