Buy These 4 Top-Ranked Insurance Stocks for Better Returns
The insurance industry is well poised to benefit from better pricing, prudent underwriting, increased adoption of technology, and increased exposure despite coronavirus-induced challenges. Year to date, the industry has gained 7.4%, outperforming the Zacks S&P 500 composite’s rise of 4.5%.
In fact, at its last FOMC meeting, the central bank was upbeat about its economic projections. The U.S. economy is estimated to grow at a rate of 6.5% in 2021, up from the December expectation of 4.2%. Unemployment rate is expected to improve to 4.5% from 5% expected in December 2020. Though increased vaccinations raise hope, emergence of new coronavirus strains concerns.
To continue with its impetus to support the economy, the central bank stated that it will continue with its asset purchase program to ensure credit flow to households and businesses.
However, interest rate continues to remain at near-zero level with rate recovery unlikely until 2023. A low rate is a concern 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).
Nonetheless, increasing adoption of technologies like artificial intelligence, robotic process automation, cognitive intelligence, advanced analytics, telematics, blockchain and cloud computing should help insurers manage costs and provide uninterrupted service while maintaining social distancing norms.
Last year, the insurance industry, like any other industry, suffered due to the pandemic that weighed on sales and profitability. Per a report published by Swiss Re Institute, global insured catastrophe losses incurred in 2020 were $83 billion, which made it the fifth-costliest year.
Nevertheless, exposure growth, better pricing, prudent underwriting and favorable reserve development will help withstand the blow. Per Willis Towers Watson’s 2021 Insurance Marketplace Realities report, except for one, 29 lines of business are expected to witness price rise this year.
Insurers remain focused on streamlining operations, diversifying business and expanding global presence to ensure growth, both organic and inorganic. Life insurers are refraining from selling long duration term life insurance. The companies also made changes to their product portfolio by moving away from guaranteed savings products toward protection products of unit-linked savings products, which pass the investment risks to policyholders. A low rate environment, improvement in surplus, and reopening of economic activities should lead to a better M&A environment in 2021.
Insurers Poised to Offer Solid Returns
With the help of the Zacks Stock Screener, we have selected four insurance stocks that are well poised for growth riding on operational strength. Moreover, these stocks carry a Zacks Rank #2 (Buy) and outperformed the insurance industry’s increase year to date. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cincinnati Financial Corporation CINF markets property and casualty insurance. Shares of the company have gained 19.8% year to date. The Zacks Consensus Estimate for 2021 earnings indicates year-over-year growth of 21.4%. Strong performance at Commercial Lines segment, expansion of Cincinnati Re, agent-centered business model, rate increases, consistent cash flow generation, and favorable reserve release poise this insurer well.
W.R. Berkley Corp. WRB is one of the nation’s largest commercial lines property casualty insurance providers. The Zacks Consensus Estimate for 2021 earnings indicates year-over-year growth of 58.2%. Moreover, this Zacks Rank #2 insurer has an impressive VGM Score of B. Increasing contribution from Insurance business, expanding international business, rate increases, and reserve discipline poise it well for growth.
Athene ATH offers various insurance and reinsurance retirement products across the United States and Bermuda. Shares of this insurer have gained 20.7% year to date. The Zacks Consensus Estimate for 2021 earnings indicates year-over-year growth of 30.4%. The consensus estimate for 2021 has moved 1.3% north in the past 30 days. Strategic relationship with Apollo, several buyouts and block reinsurance transactions poise it well for growth
Sun Life Financial SLF is the third largest insurer in Canada. Shares of the company have rallied 14.1% year to date. The consensus estimate for 2021 of this company has moved north by 4% in the past 60 days. The Zacks Consensus Estimate for 2021 earnings indicates year-over-year growth of 7.3%. Its focus on strengthening Asian presence, expanding global asset management business, favorable business mix, and strategic acquisitions bode well.
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W.R. Berkley Corporation (WRB) : Free Stock Analysis Report
Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report
Sun Life Financial Inc. (SLF) : Free Stock Analysis Report
Athene Holding Ltd. (ATH) : Free Stock Analysis Report
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