AXS or SIGI: Which Property & Casualty Insurer Has an Edge?
The Zacks Property and Casualty (P&C) Insurance industry is likely to benefit from better pricing, prudent underwriting, increased exposure, an improving rate environment and a solid capital position. With the ongoing economic expansion, insurers remain well-poised for growth. However, catastrophe losses might have weighed on P&C insurers.
The industry has risen 22.7% in the past year, outperforming the Zacks S&P 500 composite’s increase of 17.6% and the Finance sector’s 8.9% growth.
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Here, we focus on two property and casualty insurers, namely Axis Capital Holdings Limited AXS and Selective Insurance Group, Inc. SIGI.
Axis Capital, with a market capitalization of $4.8 billion, provides various specialty insurance and reinsurance products worldwide. Selective Insurance, with a market capitalization of $6.4 billion, provides insurance products and services in the United States. AXS and SIGI carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Global commercial insurance prices rose 3% in the second quarter of 2023, per Marsh Global Insurance Market Index. This marked the 23rd consecutive quarter of composite price increase. Improvement in pricing drives premiums and claims payment.
Price hikes, operational strength, higher retention, strong renewal and the appointment of retail agents should help write higher premiums.
The P&C insurance industry remains exposed to catastrophe loss stemming from natural disasters, which drag down underwriting profit. Colorado State University predicted that 2023 hurricane activity will be about 130% of the average season. The team also predicted 18 named storms in 2023. In the first half of 2023, Aon had estimated a global economic loss of $194 billion from natural disasters, which was the fifth highest on record. Per Aon, in the first half of 2023, global insured losses from natural disaster events were 46%, which was above the 21st-century average.
Exposure growth, improved pricing, prudent underwriting, favorable reserve development and a sturdy capital position will help absorb catastrophe losses. Also, the frequent occurrences of natural disasters should accelerate the policy renewal rate.
With four rate hikes already in 2023, investment income is likely to have improved, as insurers are the beneficiaries of a rising rate environment. The Fed had raised its key interest rate by 0.25% and reached a target range of 5.25% to 5.5%, which marked the highest level in 22 years. An improving rate environment is a boon for insurers, especially long-tail insurers. Also, investment income is an important component of insurers’ top line.
While a solid policyholders’ surplus will help the P&C insurance industry absorb losses, a sturdy capital level continues to aid the P&C insurers in pursuing strategic mergers and acquisitions, investing in growth initiatives, engaging in share buybacks and increasing dividends or paying out special dividends.
Players are investing heavily in technology in a bid to drive efficiency, enhance cybersecurity, upgrade policy administration and claims systems and expand automation capabilities across their organizations.
Let’s delve deeper into specific parameters to ascertain which P&C insurer is better positioned at the moment.
Price Performance
Selective Insurance has gained 23.8% in the past year, outperforming Axis Capital’s increase of 9.7% and industry’s gain of 22.7%.
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Return on Equity (ROE)
Axis Capital, with a return on equity of 14%, exceeds Selective Insurance’s ROE of 12.8% and the industry average of 6.7%.
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Valuation
The price-to-book value is the best multiple used for valuing insurers. Compared with Selective Insurance’s P/B ratio of 2.59, Axis Capital is cheaper, with a reading of 1.08. The P&C insurance industry’s P/B ratio is 1.36.
Dividend Yield
Axis Capital’s dividend yield of 3.1% is better than Selective Insurance’s dividend yield of 1.1%. Thus, AXS has an advantage over SIGI on this front.
Debt-to-Capital
Axis Capital’s debt-to-capital ratio of 22.7 is higher than the industry average of 18.9 and Selective Insurance’s reading of 15.8. Therefore, SIGI has an advantage over AXS on this front.
Growth Projection
The Zacks Consensus Estimate for 2023 earnings indicates 44.7% growth from the year-ago reported figure for Axis Capital, while the same for Selective Insurance indicates an increase of 21.4%.
VGM Score
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. Axis Capital has a VGM Score of A, while Selective Insurance has a VGM Score of B. Thus, AXS is better placed.
Combined Ratio
AXS’ combined ratio was 91.2% in the first half of 2023, whereas that of SIGI was 98% in the said time frame. Thus, the combined ratio of Axis Capital is better than that of Selective Insurance.
Earnings Surprise History
Axis Capital has a solid record of beating earnings estimates in five of the last six quarters, while missing once. Selective Insurance beat earnings estimates in one of the last six quarters, while missed in three occasions and matched in two.
Hence, AXS has an edge in this regard over SIGI.
Earnings Estimates
For 2023, the Zacks Consensus Estimate for AXS’ earnings has moved 2.8% north to $8.41 in the past 60 days, while the same for SIGI has been revised 1.2% downward to $6.11. Therefore, AXS is in an advantageous position over SIGI on this front.
To Conclude
Our comparative analysis shows that Axis Capital is better positioned than Selective Insurance with respect to return on equity, valuation, dividend yield, growth projection, VGM Score, combined ratio, earnings estimates and earnings surprise history. Meanwhile, Selective Insurance scores higher in terms of leverage and price. With the scale majorly tilted toward Axis Capital, the stock appears to be better poised.
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Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report
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