5 Momentum Insurance Stocks to Buy for a Stable Portfolio
The Wall Street rally of the past month has halted recently. Although the primary reason for the break in the rally was simply profit bookings, concerns regarding further hike in interest rate is also looming large. On Jun 22, in his testimony before the U.S. Congress, Fed Chairman Jerome Powell said that more rate hikes are expected by the end of this year.
According to Powell “Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.” The core consumer price index (excluding volatile food and energy items) was 5.3% in May, well above the central bank’s 2% target rate.
In the June FOMC meeting, the Fed kept the Fed fund rate unchanged in the range of 5-5.25% after 10 consecutive rate hikes. However, the Fed’s “dot plot” of the last FOMC indicated two more rate hikes of 25 basis points. This implies that the range of the benchmark lending rate is likely to go up in the range of 5.5-5.75% with a terminal rate of 5.6% instead of 5.125% projected after the May FOMC meeting.
Insurance Industry to Gain
A massive rise in the market interest rate will raise the cost of funds, enabling financial companies to widen the spread between longer-term assets, such as loans, with shorter-term liabilities, thus boosting the financial sector’s profit margin.
Moreover, higher bond yields will raise the market's risk-free returns. Insurance providers are generally compelled to hold ample long-term safe bonds to back the policies that are written. A higher interest rate should benefit insurance companies.
The spread between the longer-term assets and shorter-term liabilities would increase the spread of insurers. The insurance industry's profitability has risen historically during periods of rising interest rates.
Our Top Picks
We have narrowed our search to five momentum insurance stocks. These stocks have strong growth potential for the rest of 2023. Moreover, these stocks have seen positive earnings estimate revisions over the last 30 days. Finally, each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Unum Group’s UNM conservative pricing and reservation practices have contributed to overall profitability. The sustained increase in premiums is being fueled by high persistency levels in core business and strong sales volume along with solid benefits experience. The geographic expansion of UNM is paying off as acquired dental insurance businesses are growing in the United States and the U.K.
We believe that strong operating results have led to a solid level of statutory earnings and capital, boosting financial flexibility. UNM has continually enhanced shareholders’ value. For the long term, it estimates premium from core business to increase 3-5%. UNM estimates 45-55% growth in adjusted operating EPS by 2024.
Unum Group has an expected revenue and earnings growth rate of 2.5% and 20.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10.1% over the last 30 days.
Kinsale Capital Group Inc. KNSL continues to benefit from dislocation within the broader property/casualty insurance industry, rate increases and premium growth. Across the E&S market, KNSL’s products are exposed to those business lines, which have relatively lower risks.
Kinsale Capital boasts the lowest combined ratio among its specialty insurer peers while achieving the highest growth and targets the same in the mid-80s over the long term. KNSL has various reinsurance contracts to limit exposure to potential losses apart from arranging additional capacity for growth. Technological advancements have also been lowering expense ratios for quite some time.
Kinsale Capital has expected revenue and earnings growth rates of 37.8% and 36.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.4% over the last 30 days.
Reinsurance Group of America Inc. RGA steadily benefits from a mix of organic and transactional opportunities. RGA’s niche position in reinsurance markets and expansion of its international footprint are positives. Individual mortality has matured and provides a base for stable earnings.
Significant value embedded in in-force business should generate predictable long-term earnings. RGA is poised to benefit from improving life reinsurance pricing environment and higher investment income. A solid solvency position reflects its ability to make interest payments.
Reinsurance Group of America has expected revenue and earnings growth rates of 5.6% and 23.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days.
RLI Corp. RLI is one of the industry’s most profitable property and casualty writers with an impressive record of underwriting profits. A strong local branch-office network, a broad range of product offerings and its focus on specialty insurance lines contribute to RLI’s profits.
Maintaining the combined ratio at favorable levels even in the toughest operating environment reflects superior underwriting discipline. RLI’s decision to drop underperforming products from its property business also bodes well. Its strong capital position provides financial flexibility to operating subsidiaries.
RLI has expected revenue and earnings growth rates of 1.7% and 7.9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.7% over the last seven days.
Corebridge Financial Inc. CRBG provides retirement solutions and insurance products in the United States. CRBG operates through the Individual Retirement, Group Retirement, Life Insurance, and Institutional Markets segments. The Individual Retirement segment provides fixed annuities, fixed index annuities, variable annuities and retail mutual funds.
The Group Retirement segment offers record-keeping services, plan administration and compliance services, and financial planning and advisory solutions to employer-defined contribution plans and their participants, as well as proprietary and non-proprietary annuities, advisory services, and brokerage products. The Life Insurance segment offers term life and universal life insurance in the United States, as well as issues individual life, whole life, and group life insurance in the United Kingdom; and distributes medical insurance in Ireland.
Corebridge Financial has expected revenue and earnings growth rates of 14.8% and 38.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.5% over the last seven days.
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RLI Corp. (RLI) : Free Stock Analysis Report
Unum Group (UNM) : Free Stock Analysis Report
Reinsurance Group of America, Incorporated (RGA) : Free Stock Analysis Report
Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report
Corebridge Financial, Inc. (CRBG) : Free Stock Analysis Report
