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P&C Insurance Industry Outlook Buoyant on Multiple Tailwinds

Sapna Bagaria

The Zacks Property and Casualty Insurance (P&C) industry comprises companies that provide commercial and personal property, and casualty insurance products and services. Such insurance coverage helps to safeguard property in case of any natural or man-made disaster. Liability coverages are also provided by some industry players.

Insurance coverages provided by the companies include commercial and personal properties, automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, and professional indemnity and surety, among others.

Premiums are the primary source of revenues for these insurers. These companies invest a portion of premiums collected to meet their commitments to policyholders. Thus, a rising rate environment is a boon for P&C insurers.

Here are the industry’s three major themes:


•    The U.S. property and casualty insurance sector should remain stable in 2020 on economic growth, solid capitalization and increased insurance prices. Available results for the first nine months of 2019 reflect a rise in after-tax income, underwriting gains, net earned premiums along with a decline in catastrophe losses. Net earned premiums also grew in the first three quarters of 2019 driven by exposure growth and rate activity. Exposure growth is basically an increase in the number and value of insurable interests (such as property and liability risks) driven mainly by economic, and demographic growth and development. The industry’s policyholders’ surplus also remains at the highest levels ever ($812.2 billion as of Sep 30, 2019). The bottom line is that the industry is and for the foreseeable future will remain extremely well capitalized and financially prepared to pay off very large-scale losses in 2020 and beyond.


•    Consolidation in the property and casualty industry would continue as players look to diversify their operations into new business lines and geography. Buying businesses in the same lines would continue as players look to gain market share and grow in their niche areas. Also, a low interest rate environment makes mergers and acquisitions conducive, since funding purchases becomes more affordable. However, in 2019 there was a slowdown in volume as well as value of U.S. property and casualty mergers and acquisitions.


•    The industry is witnessing increased use of technology, like blockchain, artificial intelligence, advanced analytics, telematics, cloud-computing and robotic process automation, to expedite business operations and save cost.  The industry has also witnessed the emergence of insurtech — technology-led insurers — creating competition for incumbent players. The focus of insurtech is mainly on the property and casualty insurance industry. As insurtechs use the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains huge market risk.

Zacks Industry Rank Indicates Bright Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid prospects in the near term. The Zacks Property and Casualty Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #74, which places it in the top 29% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. In a year’s time, the industry’s earnings estimates for the current year have gone up by 23.4%.

Before we present a few property and casualty stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms the Sector but Lags S&P 500

The Property and Casualty Insurance industry has underperformed the Zacks S&P 500 composite and its own sector over the past year. The stocks in this industry have collectively increased 9.6% in the past year compared with the Finance sector’s rise 8.5%. Meanwhile, the Zacks S&P 500 composite has increased 21.41%.

One-Year Price Performance


 
Current Valuation

On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.41X compared with the S&P 500’s 4.48X and the sector’s 2.79X.

Over the past five years, the industry has traded as high as 1.67X, as low as 1.26X and at the median of 1.47X.

Price-to-Book (P/B) Ratio (TTM)


 
Price-to-Book (P/B) Ratio (TTM)


 
Bottom Line

Prudent underwriting practices, competitive pricing and a compelling product portfolio should continue to drive the bottom line for P&C insurers. Moreover, a sturdy capital level should place insurers well to pursue mergers and acquisitions, invest in technologies and return capital to shareholders.

Nonetheless, exposure to unforeseen catastrophe events and unpredictable losses remain concerns for P&C insurers.

Now we present a few stocks from the industry that carry a Zacks Rank #1 (Strong Buy), or 2 (Buy).

 You can see the complete list of today’s Zacks #1 Rank stocks here.

New York based Alleghany Corporation (Y) provides property and casualty reinsurance and insurance products in the United States and internationally. The company surpassed earnings estimates in  the past four quarters by 25.37%, on average. It currently carries a Zacks Rank #2.

Price and Consensus: Y

W. R. Berkley Corporation (WRB), a Greenwich, CT based commercial lines writer in the United States and internationally, sports a Zacks Rank of 1. The consensus mark for 2020 EPS has increased 1% over the past 30 days.

Price and Consensus: WRB

NMI Holdings, Inc. (NMIH) through its subsidiaries, provides private mortgage insurance in the United States. The Zacks Consensus Estimate for 2020 EPS has moved 1.9% north over the past 30 days. The stock currently carries a Zacks Rank #2.

Price and Consensus: NMIH

RenaissanceRe Holdings Ltd. (RNR) primarily provides property-catastrophe reinsurance to insurers and reinsurers globally on the basis of excess of loss (coverage of losses over a specified limit). The Zacks Consensus Estimate for 2020 earnings has moved 7.4% north over the past 30 days. The stock currently carries a Zacks Rank #2.

Price and Consensus: RNR

RLI Corp. (RLI) is a specialty P&C underwriter that caters primarily to niche markets through its main operating subsidiary, RLI Insurance Company.  The consensus mark for 2019 EPS has increased 2% over the past seven days.

Price and Consensus: RLI




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Alleghany Corporation (Y) : Free Stock Analysis Report
 
W.R. Berkley Corporation (WRB) : Free Stock Analysis Report
 
RenaissanceRe Holdings Ltd. (RNR) : Free Stock Analysis Report
 
RLI Corp. (RLI) : Free Stock Analysis Report
 
NMI Holdings Inc (NMIH) : Free Stock Analysis Report
 
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