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P&C Insurance Industry Crushes S&P 500: 4 Growth Picks

Tanuka De
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P&C Insurance Industry Crushes S&P 500: 4 Growth Picks

Banking on a favorable operating environment, P&C Insurance Industry outperforms the S&P 500 quarter to date. We shortlist four Growth stocks for better returns.

Sunny days seem to be back for the Property and Casualty insurance industry by the grace of Mother Nature. Given a benign catastrophe environment, the primary factor responsible for property casualty insurers’ profitability, the industry players should experience underwriting profit compared with losses incurred over the last few years. Shares of the industry have rallied nearly 12%, outperforming the Zacks S&P 500 Composite’s increase of 7.5%, banking on a favorable operating environment so far.

Combined ratio — a measure of underwriting profitability — is estimated to be 99% for 2018, an improvement of 450 basis points year over year, per S&P Global Market Intelligence. Lower claims costs due to a timid catastrophe environment have likely propelled the upside. Colorado State University (CSU) released its updated outlook for the 2018 Atlantic hurricane season earlier this month. The report forecasts a below-normal season with a total of 12 named storms, less than 14 predicted in June. A news of relief is that the third quarter of 2018 is projected to be not as devastating as last year.

In 2017, the U.S. property and casualty insurance industry suffered net underwriting loss of $29.3 billion, wider than $5.5 billion loss incurred in 2016 according to A.M. Best. A series of destructive hurricanes had induced disappointing results.

After a turbulent 2017, this year so far offered some respite to the industry players. The first quarter encountered the California mudslide and the northeast winter storms followed by a few cat events like rain storms in the United States and Canada during the second quarter. Notably, the third quarter to date escaped the vagaries of nature. Although last week, Hurricane Lane Hawaii stormed through, its magnitude weakened to classify it as a Category 3 Hurricane. Therefore, it is not expected to cause major damages.

On a positive note, due to massive cat loss, property and casualty insurers enjoyed higher prices that remained flat for quite some time. Better pricing should help insurers meet claims without denting profitability. 

Another component driving profitability for insurers is their investment income. They invest a portion of premiums they receive and thus, higher rate will boost investment income. Given the recovery in U.S. economy, the Fed has been active in raising interest rates that currently stands at 2% from the near-zero level when the recession hit the economy hard. There have been seven hikes in the rate since December 2015. Per current market speculations, there is a very high possibility of nearly 96% for a rate hike in September 2018, followed by 60% chance of another raise in December 2018.

Property and casualty insurance industry is currently ranked at #114, representing the top 45% of the Zacks Industry Ranks.

Growth Picks

It might be an uphill task to pick the right stocks for greater investment rewards. Here comes our handy Zacks Stock Screener to help identify the best bets.

We shortlisted four stocks backed by a bullish Zacks Rank, an impressive Growth Score and northbound estimates over the past 60 days. These stocks have also outperformed its industry as well as the Zacks S&P500 Composite quarter to date.

The Growth Score analyzes the growth prospects of a company and also evaluates its corporate financial statements. Backtested results show stocks with an attractive Growth Score of A or B combined with a solid Zacks Rank offers better investment returns.

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 stock sports a Zacks Rank #1 (Strong Buy) and a robust Growth Score of A. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 8.7% upward and moved 7.1% north for 2019 over the past 60 days. Progressive has an expected long-term earnings growth rate of 7.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Progressive have gained 13.6% quarter to date.

Selective Insurance Group, Inc. SIGI provides insurance products and services in the United States. The stock carries a Zacks Rank #2 (Buy) and a favorable Value Score of B. The Zacks Consensus Estimate has moved 3.8 % north for 2018 and 0.7% for 2019 over the past 60 days. Selective Insurance has an expected long-term earnings growth rate of 16.2%.

Shares of Selective Insurance have rallied 15.7% quarter to date.

Mercury General Corporation MCY engages in writing personal automobile insurance in the United States. The stock has a Zacks Rank of 2 and a strong Value Score of B. The consensus estimate for 2018 bottom line has been raised 11.1% over the past 60 days. Mercury General has an expected long-term earnings growth rate of 34.8%.

Shares of Mercury General have climbed 18.5% quarter to date.

NMI Holdings, Inc. NMIH provides private mortgage guaranty insurance services in the United States. The company is a Zacks #1 Ranked player and has a commendable Value Score of B. The consensus mark for 2018 has moved 6.2% north while for 2019 earnings, the estimates have been revised 8.3% upward over the past 60 days.

Shares of NMI Holdings have surged 31% quarter to date.

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The Progressive Corporation (PGR) : Free Stock Analysis Report
Mercury General Corporation (MCY) : Free Stock Analysis Report
NMI Holdings Inc (NMIH) : Free Stock Analysis Report
Selective Insurance Group, Inc. (SIGI) : Free Stock Analysis Report
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