Zacks Industry Outlook Highlights Chubb, Arch Capital Group, Cincinnati Financial, Axis Capital Holdings and ProAssurance
For Immediate Release
Chicago, IL – September 26, 2023 – Today, Zacks Equity Research discusses Chubb Ltd. CB, Arch Capital Group Ltd. ACGL, Cincinnati Financial Corp. CINF, Axis Capital Holdings Ltd. AXS and ProAssurance Corp. PRA.
Industry: Property & Casualty Insurance
Link: https://www.zacks.com/commentary/2155020/5-property-casualty-insurers-to-buy-with-improving-pricing
The Zacks Property and Casualty Insurance (P&C) industry is likely to benefit from better pricing, prudent underwriting and exposure growth. Industry players like Chubb Ltd., Arch Capital Group Ltd., Cincinnati Financial Corp., Axis Capital Holdings Ltd. and ProAssurance Corp. are poised to grow despite a rise in catastrophic activities. Given an active catastrophe environment, the policy renewal rate should accelerate. Also, the increasing adoption of technology and the emergence of insurtech will help in the smooth functioning of the industry players.
Though the industry is witnessing a rate increase, the magnitude has decreased in the last 10 quarters. Nonetheless, an improvement in surplus and accelerated economic activities set the stage for a better M&A environment.
About the Industry
The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property insurance, and casualty insurance products and services. Such insurance helps to safeguard property in case of any natural or man-made disasters. Liability coverages are also provided by some industry players. The insurance coverage offered also includes automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, and professional indemnity and surety.
Premiums are the primary source of revenues for these insurers. These companies invest a portion of premiums to meet their commitments to policyholders. Also, the Fed has already made four hikes in 2023, taking the tally to 11 since March 2022. An improving rate environment is a boon for insurers, especially long-tail insurers.
4 Trends Shaping the Future of the Property and Casualty Insurance Industry
Improved pricing to help navigate claims: Catastrophes are a concern for insurers due to the high degree of losses incurred. Insurers implement price hikes to ensure uninterrupted claims payment. Global commercial insurance prices rose for 23 straight quarters though the magnitude has slowed down over the last 10 quarters, per Marsh Global Insurance Market Index. Better pricing will help insurers write higher premiums and address claims payment prudently.
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 Deloitte Insights, gross premiums are estimated to increase sixfold to $722 billion by 2030. China and North America should account for more than two-thirds of the global market, per the report.
Analysts at Swiss Re Institute predict premiums to grow 7.5% in 2023 and 5.5% in 2024. Per reports published in Carrier Management, direct premiums written across the P&C business in 2023 are estimated to grow in double digits.
Catastrophe loss induces volatility in underwriting profits: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profits. 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 primarily due to soft performance in personal lines, which, in turn, are due to higher catastrophe losses per Insurance Information Institute and Milliman. However, exposure growth, better pricing, prudent underwriting and favorable reserve development will help withstand the blow. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
Merger and acquisitions: Consolidation in the property and casualty industry is likely to continue as players look to diversify their operations into new business lines and geography. Buying businesses along the same lines will also continue as players look to gain market share and grow in their niche areas. With a sturdy capital level, the industry is witnessing a number of mergers, acquisitions and consolidations.
Increased adoption of technology: The industry is witnessing increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation that expedite business operations and save cost. The industry has also witnessed the emergence of insurtech creating competition for incumbent players. Insurers continue to invest heavily in technology to improve basis points, scale and efficiencies. As insurtechs use the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains a huge market risk. The use of technology also poses cyber threats.
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 rosy 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 #62, which places it in the top 25% 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 a positive earnings outlook for the constituent companies in aggregate.
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 S&P 500 and Sector
The Property and Casualty Insurance industry has outperformed both the Zacks S&P 500 composite as well as its sector over the past year. The stocks in this industry have collectively risen 30.5% in a year compared with the Finance sector and the Zacks S&P 500 composite's increases of 12.5% and 18.4%, respectively.
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 1.42X compared with the S&P 500's 5.63X and the sector's 3.14X.
Over the past five years, the industry has traded as high as 1.56X, as low as 0.97X and at the median of 1.38X.
5 Property and Casualty Insurance Stocks to Add to Your Portfolio
We are recommending three Zacks Rank #1 (Strong Buy) stocks and two Zacks Rank #2 (Buy) stocks from the P&C Insurance industry. You can see the complete list of today's Zacks #1 Rank stocks here.
AXIS Capital Holdings: Bermuda-based-AXS is a leading specialty insurer and global reinsurer aiming for leadership in specialty risks. Rate increases, increased new business opportunities and focus on driving growth in its most attractive lines poise this Zacks Rank #1 insurer for growth.
The Zacks Consensus Estimate for 2023 and 2024 bottom line have moved 10.4% and 9.8% north in the past 30 days. The consensus estimate for 2023 and 2024 earnings indicates an improvement of 44.8% and 10.7% year over year, respectively. The expected long-term earnings growth rate is pegged at 5%.
Arch Capital Group: Pembroke, Bermuda-based Arch Capital Group offers insurance, reinsurance and mortgage insurance across the world. New business opportunities, rate increases, growth in existing accounts, growth in Australian single premium mortgage insurance and increases across most lines of business poise this Zacks Rank #1 insurer well for growth.
The Zacks Consensus Estimate for Arch Capital's 2023 and 2024 earnings suggests 37.4% and 11% year-over-year growth. The consensus estimate has moved up 7% and 6.6% in the past 60 days. ACGL's earnings surpassed estimates in each of the last four quarters, the average surprise being 26.83%. The expected long-term earnings growth rate is pegged at 10%.
ProAssurance: Birmingham, AL-based PRA, sporting a Zacks Rank #1, provides professional liability insurance products primarily to physicians, dentists, other healthcare providers and healthcare facilities through its subsidiaries. Rising investment returns, new business growth across business lines, disciplined inorganic growth strategy and cost-cutting efforts bode well for growth.
The Zacks Consensus Estimate for PRA's 2024 bottom line suggests a year-over-year increase of 143.5%. The consensus estimate for 2023 and 2024 has moved up 30.7% and 2.5% in the past 60 days.
Cincinnati Financial: This Fairfield, OH-based company markets property and casualty insurance. Several growth initiatives and price increases, a vital performing Commercial Lines segment, a higher level of insured exposures, rate increase, agent-focused business model, consistent cash flow generation and favorable reserve release poise it well for growth. This Zacks Rank #2 insurer has a solid track of raising dividends in the last 62 years.
The Zacks Consensus Estimate for 2023 and 2024 earnings has moved 12.1% and 1% north, respectively, in the past 60 days. The consensus estimate for 2023 and 2024 earnings indicates an improvement of 17.9% and 17.7% year over year, respectively. It has a Growth Score of B. The expected long-term earnings growth rate is 17.7%, better than the industry average of 12.1%.
Chubb : Based in Zurich, Switzerland, Chubb is one of the world's largest providers of P&C insurance and reinsurance. It has diversified through acquisitions into many specialty lines and also provides specialized insurance products. This Zacks Rank #2 insurer is poised to benefit from its focus on capitalizing on the potential of middle-market businesses and strategic initiatives, which pave the way for long-term growth.
The Zacks Consensus Estimate for 2023 and 2024 bottom line have moved north by 3.5% and 1.6%, respectively, in the past 30 days. The Zacks Consensus Estimate for 2023 and 2024 earnings indicates an improvement of 19.3% and 9.2% year over year, respectively. The expected long-term earnings growth rate is 10%.
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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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Chubb Limited (CB) : Free Stock Analysis Report
Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report
Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report
ProAssurance Corporation (PRA) : Free Stock Analysis Report
Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report
