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P&C Insurance Industry's Near-Term Prospects Encouraging

Tanuka De

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, 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 industry is witnessing an increase in premium pricing after having suffered due to low prices for several years. In the second quarter of 2019, U.S. commercial insurance prices increased about 4%. Property, excess/umbrella, and directors and officers saw near double-digit rate increase. Commercial Auto saw a near or above double-digits rate increase, per Willis Towers Watson’s Commercial Lines Insurance Pricing Survey. A rise in premium rates should lead to top-line growth.  Per Willis Towers Watson Insurance Marketplace Realities, 14 commercial lines should see rate increase while two are expected to see rate decline. However, two rate cuts by the Fed of 25 basis points each and expectations of one more by 2019 end might put pressure on insurers’ net investment income, another important component of total revenues.
     
  • The property and casualty insurance industry boasts good policyholders’ surplus ($779.5 billion at first quarter 2019 end, up 5% year over year), which is insurers’ excess of assets over liabilities. The ratio of new premiums written to surplus was 0.83 and 0.78 at year-end 2018 and end of first quarter 2019, respectively (lower numbers are stronger), per a report from Insurance Information Institute. In the second quarter of 2019 too, policyholders’ surplus remained strong. This indicates that the industry remains well capitalized and financially prepared to pay for large-scale losses in 2019 and beyond. This surplus capital should also fuel increased consolidation in the industry as players seek to increase market share, achieve geographical diversification, change product mix and grow in niche areas.

 

  • 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 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 #33, which places it in the top 13% 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 3.3%.

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 Underperforms S&P 500 and Sector

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 decreased 3.6% in the past year while the Finance sector has dipped 3%. Meanwhile, the Zacks S&P 500 composite has increased 1.6%.

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 1.4X compared with the S&P 500’s 4.06X and the sector’s 2.69X.

Over the past five years, the industry has traded as high as 1.66X, as low as 1.25X and at the median of 1.48X.

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) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

New York based Alleghany (Y) provides property and casualty reinsurance and insurance products in the United States and internationally. The Zacks Consensus Estimate for 2019 EPS has moved 13.1% north over the past 60 days. The stock currently sports a Zacks Rank #1.

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 2019 EPS has increased 8.7% over the past 60 days.

Price and Consensus: WRB



Allstate (ALL), based in Northbrook, IL, provides property and casualty, and other insurance products in the United States and Canada. The Zacks Consensus Estimate for 2019 EPS has moved 11.1% north over the past 60 days. The stock currently carries a Zacks Rank #2.

Price and Consensus: ALL



Cincinnati Financial (CINF) is a Fairfield, OH-based property casualty insurance provider with a Zacks Rank #2. The Zacks Consensus Estimate for 2019 EPS has increased 7.1% over the past 60 days.

Price and Consensus: CINF



Zurich, Switzerland based Chubb (CB) provides insurance and reinsurance products worldwide. The Zacks Consensus Estimate for 2019 EPS has moved 0.2% north over the past 60 days. The stock currently carries a Zacks Rank #3.

Price and Consensus: CB



Progressive Corporation (PGR), a Mayfield, OH-based provider of personal and commercial auto insurance, residential property insurance, and other specialty property-casualty insurance and related services primarily in the United States, carries a Zacks Rank of 3. The consensus mark for 2019 EPS has increased 0.6% over the past 60 days.

Price and Consensus: PGR



Hamilton, Bermuda based Everest Re Group (RE) provides reinsurance and insurance products in the United States, Bermuda, and internationally. The Zacks Consensus Estimate for 2019 EPS has moved 1.8% north over the past 60 days. The stock currently carries a Zacks Rank #3.

Price and Consensus: RE



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Alleghany Corporation (Y) : Free Stock Analysis Report
 
W.R. Berkley Corporation (WRB) : Free Stock Analysis Report
 
Everest Re Group, Ltd. (RE) : Free Stock Analysis Report
 
The Progressive Corporation (PGR) : Free Stock Analysis Report
 
Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report
 
Chubb Limited (CB) : Free Stock Analysis Report
 
The Allstate Corporation (ALL) : Free Stock Analysis Report
 
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