TRV or ALL: Which P&C Insurance Stock Should You Hold Now?
Prudent pricing, an improving rate environment, exposure growth, prudent underwriting and solid capital position poise property and casualty (P&C) insurers well amid a volatile market. However, an active catastrophe environment could weigh on the upside.
Global commercial insurance prices rose for 23 straight quarters, though the magnitude has slowed down, per Marsh Global Insurance Market Index. Global commercial insurance prices increased 4% in the first quarter, followed by a 3% rise in the second quarter of 2023.
Improving pricing drives improved premiums and claims payment. Per Deloitte Insights, gross premiums are estimated to increase about sixfold to $722 billion by 2030. China and North America should account for more than two-thirds of the global market, per the report. Per Deloitte Insights, trends like commercial lines witnessing growth at a faster pace than personal lines and homeowners’ premiums improving better than personal auto are likely to continue in 2023. Per reports published in Carrier Management, direct premiums written across the P&C business in 2023 are estimated to grow in the double digit.
The insurance industry is rate sensitive. The Fed has already made three hikes in 2023, taking the tally to 11 since March 2022. An improving rate environment is a boon for insurers, especially long-tail insurers.
Amid the tailwinds, the unpredictable nature of catastrophic events weighs on the underwriting profitability of insurers. Swiss Re estimated a global economic loss of $120 billion in the first half of 2023 from natural disasters, while insured losses were estimated to be about $50 billion. Per a report in the Insurance Journal, the combined net ratio in 2023 is estimated to be 102.2. Underwriting losses are expected to be largely due to soft performance in personal lines, which, in turn, is driven by higher catastrophe losses per Insurance Information Institute and Milliman.
Nonetheless, the insurance industry continues to witness accelerated digitalization. Players are investing heavily in technology to improve scale and efficiencies.
While a solid policyholders’ surplus will help the industry absorb losses, a sturdy capital level supports insurers in strategic mergers and acquisitions, investing in growth initiatives, engaging in share buybacks, increasing dividends or paying out special dividends.
The industry has risen 11.5% year to date versus the Finance sector’s increase of 6.4%. The Zacks S&P 500 composite has witnessed an increase of 18.6% in the said time frame.
Here we focus on two P&C insurers, namely The Travelers Companies Inc. TRV and The Allstate Corporation ALL. Travelers Companies, with a market capitalization of $37.2 billion, is one of the leading writers of auto and homeowners’ insurance, commercial U.S. P&C insurer and the largest publicly-held personal lines carrier in the United States. Both companies carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s now see how these P&C insurers have fared in terms of some of the key metrics.
Price Performance
TRV has lost 13.5% year to date compared with ALL’s decline of 18.5%.
Return on Equity
TRV has a return on equity (ROE) of 10.8%, which exceeds ALL’s ROE of negative 14.7% and the industry average of 6.7%.
Dividend Yield
ALL has a dividend yield of 3.2%, which tops the industry average of 0.3% and TRV’s dividend yield of 2.5%.
Debt-to-Equity
Allstate’s debt-to-equity ratio of 51.7 is higher than the industry average of 23.4 and TRV’s reading of 36.7.
Growth Projection
The Zacks Consensus Estimate for 2023 earnings indicates a 3.3% decrease from the year-ago reported figure for TRV and 105.2% for ALL.
The consensus estimate for 2024 earnings indicates a 36.69% increase from the year-ago reported figure for TRV and 712.6% for ALL.
The expected long-term earnings growth for earnings is pegged at 10% for TRV and 7% for ALL, though both lag the industry average of 12.1%.
Valuation
The price-to-book multiple of TRV is 1.7 lower than ALL’s multiple of 2.16. The industry average is 1.42.
To Conclude
Our comparative analysis shows that TRV has the edge over ALL with respect to price performance, return on equity, growth projection, leverage and valuation. ALL outpaces TRV on dividend yield.
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The Travelers Companies, Inc. (TRV) : Free Stock Analysis Report
The Allstate Corporation (ALL) : Free Stock Analysis Report
