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Will P&C Insurers Recover in 2021 From the COVID-Led Slump?

The Property and Casualty Insurance industry was hit hard by the COVID-19 pandemic in 2020. An active hurricane season, civil unrest, wildfires, explosion, among others added to the woes. The industry lost 1.5% last year against Zacks S&P 500 composite’s rise of 17.9%.

Per Verisk and the American Property Casualty Insurance Association (APCIA), net income of the private U.S. property/casualty insurance industry declined 26% in the first half of 2020, largely attributable to the pandemic. However, since the third quarter of 2020, insurers have been witnessing a turnaround owing to reopening of the economy.

Is a Revival in the Cards?

Optimism over vaccination should definitely set the stage for an economic turnaround. Premiums of the insurers depend largely on the health of the economy. Nonetheless, concerns remain over rise in new coronavirus cases. However, per a report in Reinsurance News, for 2021, Moody’s provided a stable outlook for the US Property & Casualty commercial insurance sector.

Despite a roller-coaster ride in 2020, the P&C Insurance industry is still well capitalized. Though surplus suffered badly, a solid capital position should help it absorb unforeseen losses.

Pricing plays a crucial role in revenue generation through premiums for insurers. The P&C insurers have been witnessing improving pricing over the last several quarters. Notably, net written premiums increased in the first half of 2020, per APCIA.

Frequent catastrophes hasten the policy renewal rate and aid in firming up prices.  Per Colorado State University, 2020 Atlantic hurricane season was expected to be extremely active with hurricane activity being about 190% of the average season. This year should also witness improvement in pricing. 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.

The insurance industry is increasingly adopting technology to ensure smooth functioning while maintaining social distancing norms. The property and casualty insurance industry in particular is witnessing the emergence of insurtech — technology-led insurers.

P&C Insurers Poised for Turnaround

The P&C Insurance industry has gained 20.3% in the last six months, outperforming the Zacks S&P 500 composite’s rise of 19%, owing to reopening of the economy as mentioned earlier.

We have shortlisted four stocks that have the potential to beat the odds riding on their fundamental strength. These stocks have seen positive estimate revision and have   outperformed the industry as well as the Zacks S&P 500 composite in the last six months.

Headquartered in New York, Alleghany Corporation Y engages in property and casualty reinsurance and insurance businesses in the United States and internationally. This Zacks Rank #1 (Strong Buy) insurer has seen its 2021 estimates move 15.1% higher in the past 60 days. The consensus estimate for 2021 indicates 187.6% growth over 2020. Strong underwriting performances by TransRe and RSUI, CapSpecialty, and PacificComp poise it well. You can see the complete list of today’s Zacks #1 Rank stocks here.  

Headquartered in Cincinnati, OH, American Financial Group AFG is a holding company which, through its subsidiaries, engages primarily in property and casualty insurance, with focus on specialized commercial products for businesses. This Zacks Rank #2 (Buy) insurer has seen its 2021 estimates move up 4.9% in the past 60 days. The consensus estimate for 2021 indicates 18.1% growth over 2020. Consistent price increase in property and casualty business, small-to-medium sized acquisitions, and product launches poise it well.

Jacksonville, FL-based Fidelity National Financial FNF provides various insurance products in the United States. This Zacks Rank #1 insurer has seen its 2021 estimates move 11.1% higher in the past 60 days. The consensus estimate for 2021 indicates 0.4% growth over 2020. Leading market share in the residential purchase, refinance, and commercial markets, efforts to diversify from core title insurance business, industry-leading margins and solid capital position continue to drive Fidelity National.

Pembroke, Bermuda, Arch Capital Group ACGL offers insurance, reinsurance and mortgage insurance across the world. This Zacks Rank #2 insurer has seen its 2021 estimates move 2.8% higher in the past 60 days. The consensus estimate for 2021 indicates 126% growth over 2020. Strength in the specialty insurance and reinsurance businesses and diversification in Mortgage Insurance business poise it well.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>

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Fidelity National Financial, Inc. (FNF) : Free Stock Analysis Report
Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report
American Financial Group, Inc. (AFG) : Free Stock Analysis Report
Alleghany Corporation (Y) : Free Stock Analysis Report
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