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5 Low-Beta Insurance Stocks to Beat Market Volatility

Inflationary pressure, Fed’s move to pause rate hike, economic slowdown and banking turmoil are some factors that have been inducing market volatility. Despite these as well as the ongoing Atlantic hurricane season, the insurance industry has gained 3% year to date compared with the S&P 500 composite’s increase of 14.7%, banking on its inherent strength.

Investors always look for a safe portfolio of stocks that would give them solid returns despite market turmoil.  Chubb Limited CB, The Travelers Companies Inc. TRV, American Equity Investment Life Holding Company AEL, The Hartford Financial Services Group Inc. HIG and Aflac Incorporated AFL have the potential to make investors happy, courtesy of their fundamental strength.

Factors Driving the Industry

An improving rate environment is a boon for insurers. While life insurers invest a large portion of the premiums to ensure smooth claims payout, investment income is an important component of the top line. The Fed has made three hikes in 2023, taking the tally to 10 since March 2022. However, at its recently concluded FOMC meeting, the committee has paused further rate hikes for the time being despite high inflation. The Fed hinted at another increase by 2023 end. Companies that have locked in high interest rates are bound to generate higher yields at this point.

P&C or non-life insurers are exposed to catastrophes that induce volatility in underwriting profits. Colorado State University predicts a “near average active Atlantic hurricane season in 2023.” However, improved pricing (most of the lines are witnessing rate increase), prudent underwriting, favorable reserve development and a sturdy capital level should help withstand the blow.

Global commercial insurance prices rose for 22 straight quarters though the magnitude has slowed down, per Marsh Global Insurance Market Index. Improvement in pricing drives premiums and claims payment. Per Deloitte Insights, gross premiums are estimated to increase sixfold to $722 billion by 2030

Life insurers continue to roll out investment products that provide bundled covers of guaranteed retirement income, life and healthcare to cater to customers preferring policies with “living” benefits more than those with death benefits. A compelling product portfolio will thus aid sales of life insurers. Per Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023. Per a report published in ReporterLinker, global life insurance gross written premium is expected to be $2.5 trillion by 2026.

Players are investing heavily in technology to improve scale and efficiencies. Also, a solid 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.

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 Zurich, Switzerland, Chubb Limited boasts being one of the world’s largest providers of property and casualty (P&C) insurance and reinsurance and the largest publicly traded P&C insurer, based on market capitalization of $56.9 billion. The expected long-term earnings growth rate is 10%. The Zacks Consensus Estimate for 2023 has moved up 1% in the past 60 days and indicates year-over-year growth of 15.2%.

This Zacks Rank #3 insurer is poised to benefit from its focus on capitalizing on the potential of middle-market businesses and strategic initiatives, which pave the way for long-term growth.

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 9.3%. The Zacks Consensus Estimate for 2023 has moved up 0.5% in the past 60 days and indicates year-over-year growth of 14.7%.

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.

Incorporated in the state of Iowa, American Equity Investment Life Holding Company is a leader in the development and sale of fixed index and fixed rate annuity products. The Zacks Consensus Estimate for 2023 has moved up 15.9% in the past 60 days and indicates year-over-year growth of 64.6%.

Focus on expansion into new verticals, the increasing popularity of index products in the market, a solid balance sheet and effective capital deployment should help this Zacks Rank #3 insurer grow.

Headquartered in Hartford, CT, The Hartford Financial Services Group 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 (P&C) insurance and mutual funds in the United States. The expected long-term earnings growth rate is 9.3%. The Zacks Consensus Estimate for 2023 indicates year-over-year growth of 4.6%.

This Zacks Rank #3 insurer is poised to grow on improvement in the quality and size of mortgage insurance in force, a decline in claim payments, given the strong credit characteristics of the new loans insured, maintenance of capital in compliance with regulations, and solid capital position.

Headquartered in Columbus, GA, Aflac provides supplemental health and life insurance products. The expected long-term earnings growth rate is 4.7%. The Zacks Consensus Estimate for 2023 has moved up 3.9% in the past 60 days and indicates year-over-year growth of 1%.

Consistent operating results at the U.S. segment, cost-curbing initiatives and solid capital management will drive long-term growth. This Zacks Rank #3 insurer continues building out its dental network and readying the platform for increased volumes as it moves upmarket and introduces a direct-to-consumer individual product.

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 Hartford Financial Services Group, Inc. (HIG) : Free Stock Analysis Report

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

Chubb Limited (CB) : Free Stock Analysis Report

Aflac Incorporated (AFL) : Free Stock Analysis Report

American Equity Investment Life Holding Company (AEL) : Free Stock Analysis Report

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Zacks Investment Research