Zacks Industry Outlook Highlights MetLife, American International, The Hartford Financial Services, Everest and MGIC Investment
For Immediate Release
Chicago, IL – October 9, 2023 – Today, Zacks Equity Research discusses MetLife Inc. MET, American International Group Inc. AIG, The Hartford Financial Services Group HIG, Everest Group, Ltd. EG and MGIC Investment Corp. MTG.
Industry: Insurance (Multi-line)
Link: https://www.zacks.com/commentary/2161629/5-multiline-insurers-worth-buying-despite-industry-challenges
Product diversification helps Zacks Multiline Insurance industry players lower concentration risk, ensure uninterrupted revenue generation and improve retention ratio. Better pricing, prudent underwriting, increased exposure, faster economic recovery on the receding impact of the pandemic and increased vaccinations should benefit MetLife Inc., American International Group Inc., The Hartford Financial Services Group, Everest Group, Ltd. and MGIC Investment Corp. Accelerated digitalization will help in the smooth functioning of the industry.
The solid capital level of the multiline insurers will fuel merger and acquisition (M&A) activities. With four rate hikes this year already, investment income should improve further as insurers are beneficiaries of a better rate environment.
About the Industry
The Zacks Multiline Insurance industry comprises companies that provide single insurance coverage, bundling automobile, homeowner, long-term care, and life and health insurance to individuals and businesses. The insured pays a single premium and is covered for many things through a single contract.
These companies cover commercial and personal properties, automobiles, marine, livestock, aviation, personal accident, life, including permanent and term insurance, supplemental accident and health insurance, workers' compensation, annuity products, private mortgage insurance, et al. The players also provide risk management services.
Since the companies offer single insurance coverage for multiple products, customer retention improves. The insured stands to benefit from lower premium payment compared to paying individual premiums for insuring varied products.
3 Trends Shaping the Future of the Multiline Insurance Industry
Diversified portfolio lowers concentration risk: Given the nature of the business, multiline insurers' product and service portfolios are diversified. This lowers concentration risk. Increased awareness, driving higher demand for protection products, should benefit sales and premiums of life insurance operations. Continued improvement in pricing and an increase in exposure should support premium growth.
Also, per Deloitte Insights, the transition to green energy and related insurance products, as well as exposure to intangible assets, offers growth opportunities. Per Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023 while non-life premiums are expected to increase 2.2%.
The report also stated that trends like commercial lines witnessing growth faster than personal lines and homeowners' premiums improving at a better rate than personal auto are likely to continue in 2023. However, underwriting losses are expected to persist, driven by challenging results in personal lines.
Merger and acquisitions: Consolidation in the multi-line insurance industry is expected to continue as players look to diversify their operations into new business lines and geographies. Buying businesses along the same lines is driven by the players' need to gain a fair market share and grow in their niche areas. However, with high inflation and a rise in interest rates (the Fed has already made one rate hike this year), momentum in the M&A environment is likely to slow down.
Increased adoption of technology: Digitalization has increased by leaps and bounds, especially amid pandemic-induced restrictions. The industry is witnessing greater use of technology like blockchain, AI, advanced analytics, telematics, cloud computing and robotic process automation to expedite business operations and save costs.
Many life insurers have started selling policies online that appeal to the tech-savvy population. At the same time, the use of real-time data is making premium calculation easier and reducing risk.
The P&C industry, in particular, also witnessed the emergence of insurtech — technology-led insurers — sparking competition for incumbent players. Insurers remain focused on ramping up data and analytics capabilities as well as realizing the benefit of the technological infrastructure per Deloitte Insights. Moreover, the adoption of technology has helped in seamless underwriting and claims processing. However, the adoption of technology comes with the risk of cyber threats.
Zacks Industry Rank Indicates Weak Prospects
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dismal prospects in the near term. The Zacks Multiline Insurance industry, housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #165, which places it in the bottom 34% of 255 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 bottom 50% of the Zacks-ranked industries is the result of a positive earnings outlook for the constituent companies in aggregate. The bleak outlook reflects that the industry's earnings estimates have been revised downward by analysts for the current year. Earnings estimates for the current year have moved 6.3% south in the past year.
Before we present a few multiline insurance 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 Sector and S&P 500
The Multiline Insurance industry has underperformed both the Zacks S&P 500 composite and its sector over the past six months. The stocks in this industry have collectively gained 6.3% in the past year compared with the Finance sector's increase of 9% and the Zacks S&P 500 composite rise of 17.7% in the same time frame.
Current Valuation
On the basis of its trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 2.32X compared with the S&P 500's 5.57X and the sector's 3.03X.
Over the past five years, the industry has traded as high as 2.74X, as low as 0.69X and at the median of 1.46X.
5 Multiline Insurance Stocks to Keep an Eye On
We are presenting five Zacks Rank #2 (Buy) stock from the Multiline Insurance industry.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Everest Group: Headquartered in Hamilton, Bermuda, Everest Group is the fourth-largest global property and casualty reinsurer. New business growth, strong renewal retention, continued favorable rate increases and a solid capital position continue to augur well for the growth of this insurer. Everest Group focuses on having a mix of product lines with better rate adequacy and higher long-term margins. Its diversified income streams ensure profitability.
The Zacks Consensus Estimate for 2023 and 2024 indicates a year-over-increase of 76.3% and 21.3%, respectively. The consensus estimate for 2023 and 2024 has moved 1.5% and 2.7% north, respectively, in the past 60 days. The expected long-term earnings growth rate is pegged at 30.5%, better than the industry average of 12.5%. EG delivered a three-quarter average earnings surprise of 17.36%.
MGIC Investment Corp.: Based in Milwaukee, WI, MGIC Investment Corp. is the parent company of Mortgage Guaranty Insurance Corporation, the largest private mortgage insurer in the United States. higher insurance in force, a decline in loss and claims payments, lower delinquency, better housing market fundamentals and prudent capital deployment bode well for the growth of this insurer.
The Zacks Consensus Estimate for 2023 and 2024 has moved 3.5% and 0.4% north, respectively, in the past 60 days. The expected long-term earnings growth rate is pegged at 9%. MTG delivered a four-quarter average earnings surprise of 23.59%.
American International Group: Headquartered in New York, AIG provides insurance products for commercial, institutional, and individual customers in North America and internationally. Strategic business de-risking, acquisitions, cost-control efforts and accelerated capital deployment will drive AIG's growth.
The Zacks Consensus Estimate for 2023 and 2024 indicates a year-over-increase of 47.9% and 19.6%, respectively. The expected long-term earnings growth rate is pegged at 10%. The consensus estimate has moved 1.7% and 2% north for 2023 and 2024, respectively, in the past 60 days. AIG delivered a four-quarter average earnings surprise of 13.45%.
MetLife: This New York-based insurance-based global financial services company provides protection and investment products to a range of individual and institutional customers. MetLife's focus on businesses with growth potential and strategies to control costs and increase efficiency bodes well for growth.
The Zacks Consensus Estimate for 2023 and 2024 indicates a year-over-increase of 13.6% and 19.1%, respectively. Its expected long-term earnings growth rate is pegged at 13.1%. The consensus estimate has moved 1.2% and 0.8% north, respectively, in the past 60 days.
The Hartford Financial Services Group: Headquartered in Hartford, CT, The Hartford Financial Services Group is one of the major multi-line insurance and investment companies in the country. It is poised to grow on improvement in the quality and size of mortgage insurance in force, a decline in claim payments, given the strong credit characteristics of the new loans insured, maintenance of capital in compliance with regulations and its solid capital position.
The Zacks Consensus Estimate for 2023 and 2024 indicates a year-over-increase of 3.3% and 21.6%, respectively. Its expected long-term earnings growth rate is pegged at 7%. AIG delivered a four-quarter average earnings surprise of 9.36%. The consensus estimate has moved 0.3% and 0.5% north, respectively, in the past 60 days.
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The Hartford Financial Services Group, Inc. (HIG) : Free Stock Analysis Report
American International Group, Inc. (AIG) : Free Stock Analysis Report
MGIC Investment Corporation (MTG) : Free Stock Analysis Report
MetLife, Inc. (MET) : Free Stock Analysis Report
Everest Group, Ltd. (EG) : Free Stock Analysis Report
