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Mergers, Casualty Losses Drive U.S. Insurers: 4 Picks

Nitish Marwah
A series of natural disasters, an aging American population and increased number of vehicles on the roads have led to an increase in prices of insurance premiums.

Insurance buyers have been facing extreme price pressure of late. Natural disasters, which ravaged parts of the United States in 2017 and 2018 so far, have not only resulted in increased number of insurance renewals but also higher premium pricing. What is rather a burden for buyers has proved to be a boon for insurance companies.

Also adding to the Insurance space’s fortunes is an increasing number of mergers in the pipeline. In such circumstances where the industry is poised for growth, adding insurance stocks to one’s portfolio seems prudent.

Insurance Renewals and Higher Prices a Boon

Per the latest report published by Willis Towers Watson WLTW in its 2019 Insurance Marketplace Realities, players in the insurance industry are poised for tremendous growth in the days to come.

The report attributes the growth to increasing pricing pressure on insurance buyers due to a spate of casualty losses. Not only have prices increased in the recent past, cataclysmic events in 2017 and 2018 so far have resulted in a higher number of insurance renewals. Such events have led to firming up of the industry.

Experts from Willis Towers Watson also expect auto liability premiums to increase in 2019, the third year on the trot. Auto rates are believed to surge to anything between 6% and 12% in 2019 as the automobile sector experiences deteriorating cost of loss. Such costs result from ever increasing number of vehicles on the roads, which has bumped up auto claims.

Looking into the property market, the recent spate of natural disasters has resulted in increased prices of claims. For non-catastrophe exposed programs, pricing is expected to increase 2.5%. Pricing for catastrophe-exposed programs are likely to surge between 2.5% and 7.5% in 2019. Also, catastrophe-exposed programs for heavy losses could witness an increase in prices by as much as 10%.

Finally, an increasing aging population within the United States has resulted in higher number of claims from long-term care and senior living facilities. The health insurance renewals are expected to increase between 5% and 30%.

Increased Number of Insurance Mergers in the Pipeline

Major insurance players have shown an increased desire to pursue inorganic growth. Further, benefits such as newer technologies and talent of the incumbent workforce has resulted in an increase in number of mergers and acquisitions (M&A) in the insurance industry.

According to a report published by PwC on Oct 24, 2018, the total value of merger and acquisition activity in America’s insurance sector increased to $8.1 billion in the third quarter of 2018. This was a steep increase from $1.9 billion in the same period in 2017.

Of the various high-profile mergers, the one that stands out is Apollo Global Management LLC’s APO acquisition of Aspen Insurance Holdings Ltd. for $2.6 billion. The deal was announced in August 2018 and is yet to be completed. In the same month, the $2.2 billion takeover of Navigators Group Inc. NAVG by Hartford Financial Services Group Inc. HIG was also announced. It is yet to be completed.

4 Hot Choices

A series of natural disasters, an aging American population and increased number of vehicles on the roads have led to an increase in prices of insurance premiums. Further, a number of mergers in the pipeline have resulted in firming up of the insurance industry.

In this context, we have selected four insurance stocks that are expected to gain from these factors. These four stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CignaCorporation CI is a provider of insurance and related products and services in the United States as well as across the globe. The company also provides healthcare policies to employers, unions and other groups and individuals.

The Zacks Rank #1 company is based out of Bloomfield, CT. The expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved 2.6% over the past 60 days.

The Progressive Corporation PGR provides personal and commercial auto insurance, residential property insurance and other specialty property-casualty insurance and related services, primarily in the United States.

The Zacks Rank #2 company is based out of Mayfield Village, OH. It has expected earnings growth rate for the current year of more than 100%. The Zacks Consensus Estimate for the current year has improved 6% over the past 60 days.

James River Group Holdings, Ltd. JRVR offers specialty insurance and reinsurance services in the United States.

The company is based out of Pembroke, Bermuda and carries a Zacks Rank #2. The company has expected earnings growth rate for the current year of 73.38%. The Zacks Consensus Estimate for the current year has improved 2.6% over the past 60 days.

American Equity Investment Life Holding Company AEL provides life insurance products and services in the United States.

The company is based out of West Des Moines, IA and carries a Zacks Rank #2. The company has expected earnings growth rate for the current year of more than 100%. The Zacks Consensus Estimate for the current year has improved 1.7% over the past 60 days.

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Apollo Global Management, LLC (APO) : Free Stock Analysis Report
 
Willis Towers Watson Public Limited Company (WLTW) : Free Stock Analysis Report
 
American Equity Investment Life Holding Company (AEL) : Free Stock Analysis Report
 
James River Group Holdings, Ltd. (JRVR) : Free Stock Analysis Report
 
Cigna Corporation (CI) : Free Stock Analysis Report
 
The Hartford Financial Services Group, Inc. (HIG) : Free Stock Analysis Report
 
The Navigators Group, Inc. (NAVG) : Free Stock Analysis Report
 
The Progressive Corporation (PGR) : Free Stock Analysis Report
 
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