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The Federal Reserve kept interest rate unchanged at 0-0.25% in its two-day FOMC meeting that concluded on Jun 16. However, officials are optimistic about a rate rise by 2023. Reopening of the economy, decline in coronavirus cases, increased vaccination, and a lower unemployment rate are some of the likely indicators of an improved rate environment in the horizon.
In fact, 13 of the18 officials are in favor of increasing the rate at least once by 2023, while 11 officials expect at least two by 2023. On a brighter note, seven officials expect a rate rise in 2022. However, per Fed chairman Powell “that’s far from a certainty.”
Also, to continue with its impetus to support the economy, the central bank will carry on its $120 billion monthly asset purchase program to ensure credit flow to households and businesses.
The Fed also remains upbeat about growth. It now expects GDP growth of 7% in 2021, up from 6.5% expected in the March meeting. Unemployment rate is expected to fall to 4.5% while inflation is expected to reach 3.4%.
Impact on Insurers
Insurers are major beneficiaries of rising rates. A low rate adversely impacts 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).
Insurers invest a portion of premiums collected to meet their commitments to policyholders. Thus, a low rate reduces income from investments, an important component in insurers’ top line.
To maintain profitability amid low rate, 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. Higher invested asset base is also helping to limit the downside.
Nonetheless, better pricing, exposure growth, business streamlining, sturdy policyholders’ surplus, and increased use of technology should help insurers deliver solid numbers. The insurance industry’s earnings estimate for the current year has increased 4.6% in a year’s time.
7 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 a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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. This Zacks Rank #2 insurer is poised to grow on the back of its solid property and liability segment.
New York, NY -based MetLife, Inc. MET, a financial services company, provides insurance, annuities, employee benefits, and asset management services worldwide. The stock has a VGM Score of A and carries a Zacks Rank #2. The insurer is set to grow on the strength of its strong international operations and business streamlining.
Louisville, KY -based Humana Inc. HUM operates as a health and well-being company in the United States. The stock has a VGM Score of A and sports a Zacks Rank #2. Strong Medicare as well as Medicaid business positions it for long-term gains.
Toronto, Canada based Manulife Financial Corporation MFC is one of the three dominant life insurers within its domestic market and has rapidly growing operations in the United States and several Asian countries. The stock has a VGM Score of B. Its strong Asia business and expanding wealth and asset management business poise this Zacks Rank #2 insurer well for growth.
Chicago, IL based Old Republic International Corporation ORI engages in the insurance underwriting and related services business primarily in the United States and Canada. The stock has a VGM Score of A and carries a Zacks Rank # 2. Niche focus, low property catastrophe exposure and expanding presence in commercial real estate market poise it well for growth.
Tampa, FL based HCI Group, Inc. HCI engages in the property and casualty insurance, reinsurance, real estate, and information technology businesses. The stock has a VGM Score of B and carries a Zacks Rank #2. Its well performing Homeowners Choice and TypTap coupled with conservative reserving practice should drive growth.
Houston, TX-based Stewart Information Services Corporation STC provides title insurance and real estate transaction services. The stock has a VGM Score of A and carries a Zacks Rank #2. Its solid Title insurance business should aid long-term growth.
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MetLife, Inc. (MET) : Free Stock Analysis Report
Humana Inc. (HUM) : Free Stock Analysis Report
The Allstate Corporation (ALL) : Free Stock Analysis Report
Manulife Financial Corp (MFC) : Free Stock Analysis Report
Stewart Information Services Corporation (STC) : Free Stock Analysis Report
Old Republic International Corporation (ORI) : Free Stock Analysis Report
HCI Group, Inc. (HCI) : Free Stock Analysis Report
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