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The Zacks Analyst Blog Highlights W. R. Berkley, Unum Group, Arch Capital Group, Everest Re Group and Berkshire Hathaway

For Immediate Release

Chicago, IL – September 19, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: W. R. Berkley Corp. WRB, Unum Group UNM, Arch Capital Group Ltd. ACGL, Everest Re Group Ltd. RE and Berkshire Hathaway Inc. (BRK.B).

Here are highlights from Friday’s Analyst Blog:

Top 5 Insurance Stocks to Play a Higher Interest Rate Regime

U.S. stock markets have been facing extreme volatility in 2022 barring a short summer rally from mid-June to mid-August. The inflation rate has refused to decline from a 40-year high even though the Fed raised the benchmark interest rate from 0-0.25% in early March to 2.25-2.5% in July.

The central bank hiked the benchmark interest rate by 75 basis points in back-to-back FOMC meetings in June and July. This happened for the first time since 1994. Market participants have already factored in another 75-basis-point rate hike in the upcoming FOMC meeting in September. A section of economists and financial researchers are expecting even a 1% raise in the short-term lending rate this month.

As a result, chances of a recession in the U.S. economy in the near future loom large. Several major retailers, transporters and social media companies have warned of a global slowdown in late 2022 or early 2023. Last month, Fed Chairman Jerome Powell said at the Jackson Hole Symposium that the economy might face some hardship in the near term in terms of combating mounting inflationary pressure.

The continuation of the Fed’s hawkish monetary stances is expected to benefit the overall financial sector. We have selected five insurance stocks with a favorable Zacks Rank that are likely to gain from a higher market interest rate. These are — W. R. Berkley Corp., Unum Group, Arch Capital Group Ltd., Everest Re Group Ltd. and Berkshire Hathaway Inc.

Insurance Industry to Gain

A major part of the financial sector is the insurance industry. It consists of life insurers, property and casualty insurers, accident and health insurers, multiline insurers, and insurance brokerage firms.

A massive rise in the market interest rate will raise the cost of funds, enabling financial companies to widen the spread between longer-term assets, such as loans, with shorter-term liabilities, thus boosting the financial sector’s profit margin.

Insurance providers are generally compelled to hold lots of long-term safe bonds to back the policies that are written. A higher interest rate will benefit insurance companies. The spread between the longer-term assets and shorter-term liabilities will increase the spread of insurers. Moreover, the insurance industry's profitability has risen historically during period of rising interest rates.

Our Top Picks

We have narrowed our search to five insurers that saw positive earnings estimate revisions within the last 60 days. These insurers have strong growth potential for the rest of 2022. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

W. R. Berkley has been benefiting from its insurance business, performing well on the increase in premiums written over the past many years. W. R. Berkley has been investing in numerous startups since 2006 and has established new units in growing international markets.

W. R. Berkley’s international business is poised for growth supported by the emerging markets. WRB’s solid capital position enables capital deployment. Investment in alternative assets should help improve investment income going forward.

Zacks Rank #1 W. R. Berkley has an expected earnings growth rate of 20.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.8% over the last 60 days.

Unum Group’s conservative pricing and reservation practices have contributed to overall profitability. The sustained increase in premiums is being fueled by high persistency levels in core business lines and strong sales volume along with solid benefits experience.

The continued rollout of dental products and geographic expansion have been paying off for UNM as its acquired dental insurance businesses are growing in the United States and the U.K. UNM has consistently enhanced shareholders’ value. Unum Group expects 2022 premiums to grow about 2%. Adjusted operating EPS is expected to grow 15-20%.

Zacks Rank #1 Unum Group has an expected earnings growth rate of 40.5% for the current year. The Zacks Consensus Estimate for current-year earnings improved 1.3% over the last 7 days.

Berkshire Hathaway is one of the largest property and casualty insurance companies measured by premium volume. BRK.B’s inorganic growth story remains impressive with strategic acquisitions. A strong cash position supports earnings-accretive bolt-on buyouts and indicates Berkshire Hathaway’s financial flexibility.

Continued insurance business growth fuels an increase in float, drives earnings and generates maximum return on equity. The non-insurance businesses of BRK.B are delivering improved results with increased revenues over the past few years. A sturdy capital level provides further impetus.

Zacks Rank #1 Berkshire Hathaway has an expected earnings growth rate of 14.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7.6% over the last 60 days.

Arch Capital boasts a strong product portfolio and has been maintaining an exemplary track record of premium growth. Premiums should benefit ACGL from new business opportunities, rate increases, growth in existing accounts and growth in Australian single premium mortgage insurance.

This apart, Arch Capital has been diversifying its Mortgage Insurance business via strategic acquisitions that complement the strength in the specialty insurance and reinsurance businesses. A solid capital position shields ACGL from market volatility. It effectively deploys capital to pursue growth initiatives. Strategic buyouts strengthen the portfolio of Arch Capital and offer geographic diversification.

Zacks Rank #1 ACGL has an expected earnings growth rate of 29.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9.4% over the last 60 days.

Everest Re’s global presence, product diversification and capital adequacy bode well. Higher premiums earned by the Insurance segment will likely improve the expense and loss ratio. The Reinsurance segment of RE remains well-poised for leveraging opportunities, stemming from the continued disruption and evolution of the reinsurance market.

A strong capital position, with sufficient cash generation capabilities support effective capital deployment. Everest RE is lowering exposure to areas not meeting the right risk-return profile, building a portfolio with a mix of product lines, better rate adequacy and higher long-term margins and repositioning its portfolio by moving up fixed-income credit quality.

Zacks Rank #2 Everest RE has an expected earnings growth rate of 14.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the last 60 days.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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W.R. Berkley Corporation (WRB) : Free Stock Analysis Report
Berkshire Hathaway Inc. (BRK.B) : Free Stock Analysis Report
Unum Group (UNM) : Free Stock Analysis Report
Everest Re Group, Ltd. (RE) : Free Stock Analysis Report
Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report
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