These 3 Insurance Losers of 2018 Could be Big Winners in 2019

The year 2018 has been mixed for the insurance industry. While catastrophic events took a toll on insurers’ profitability, an improving rate environment, better pricing and abundance of capital offered some relief.

The Tax Cuts and Jobs Act of 2017 provided additional boost to the bottom line. Courtesy of a drop in tax rate to 21% from 35% effective January 2018, tax incidences declined, aiding margin expansion.

Though the insurance industry underperformed the Zacks S&P 500 composite, it has fared better than its sector year to date. The insurance industry decreased 14% while the Finance sector declined 18.9% and the Zacks S&P 500 composite lost 12%. In fact, major indexes in 2018 failed to impress investors.

This year saw rate hikes in all the four quarters, first time since the nation was severely hit by recession. The federal fund rate now stands at 2.50%. Also, Fed officials now project two raises in 2019, anticipating moderating growth rate.

With GDP expected to rise 2.3% and unemployment at 3.5% for 2019, insured exposure should increase.

Workers compensation and international liability pricing that have been soft in 2018 should continue to be so in 2019 per excerpts from Insurance Marketplace Realities 2019 by Willis Towers Watson. Nonetheless, rates are expected to increase in low single-digit to low double-digit range across most insurance lines in 2019 per the report. Property and casualty insurers are also taking reinsurance covers to safeguard their profitability. Per Insurance Marketplace Realities 2018 by Willis Towers Watson, property insurance rates are estimated to move up 20-25% for catastrophe-exposed risks. The surplus capita level has been putting pressure on desired rate hikes.

Non-life insurers continue to suffer catastrophe loss, albeit at a slower rate. Catastrophes that affected insurers this year include California mudslide, northeast winter storms and rainstorms in the United States and Canada. Swiss Re estimated economic losses in the first half of 2018 to total $36 billion, a drop from $64 million incurred in the year-ago period and much below the 10-year average of $125 billion. Per ISO, a Verisk business, and the Property Casualty Insurers Association of America, private U.S. property and casualty insurers’ net income more than doubled to $34 billion in first-half 2018 from $15.5 billion in the year-ago period.

Nonetheless, the second half (that includes the hurricane season) had to bear the brunt of hurricanes Lane, Florence, Michael, Typhoon Jebi and California wildfire. In its recent release, CoreLogic estimated total losses from Camp Fire in the range of $11-$13 billion while loss from Woolsey Fire is projected in the $4-$6 billion range.

Stocks Poised to Record Big Gains in 2019

Despite several headwinds, increasing adoption of technologies like artificial intelligence (AI), robotic process automation (RPA), cognitive intelligence (CI) or blockchain should help insurers curb operational costs. Insurers thus are expected to continue making investment in technological platforms.

Some insurers stand a good chance of bouncing back next year after having taken a beating this year.

Using our proprietary Zacks Stock Screener, we have zeroed in on three stocks based on a bullish Zacks Rank, positive estimate revision and year-over-year growth.

Clearwater, FL-based Heritage Insurance Holdings, Inc. HRTG provides personal and commercial residential insurance products. Shares of this Zacks Rank #2 (Buy) insurer have lost 22.5% year to date. Nonetheless, the Zacks Consensus Estimate for 2019 has moved up 2.6% in the past 60 days. Also, the consensus mark for earnings and revenues indicates 65.3% and 6.7% year-over-year growth.

Pembroke, Bermuda based Athene Holding Ltd. ATH issues, reinsures, and acquires retirement savings products in the United States, the District of Columbia, and Germany. Though the stock has lost 26.4% year to date, the company sports a Zacks Rank #1. Also, the stocks has seen its 2019 estimates move north 4.8% in the last 60 days. The Zacks Consensus Estimate earnings projects increase of 17% on 22.6% higher revenues.

Shares of Toronto, Canada based Manulife Financial Corporation MFC have lost about 35% year to date. However, the provider of financial advice, insurance, and wealth and asset management solutions for individuals, groups, and institutions in Asia, Canada, and the United States has seen estimate for 2019 move north by 1% in the past 60 days. Also, the Zacks Consensus Estimate for earnings projects earnings growth of 6.3% on 19.3% higher revenues.

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Manulife Financial Corp (MFC) : Free Stock Analysis Report
 
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