The Zacks Property and Casualty Insurance industry’s performance is affected by catastrophe events, both natural and man-made. Underwriting profitability is inversely related to the number of catastrophe occurrences.
Colorado State University (CSU) predicted a near-average Atlantic hurricane season in 2023 with 15 named storms. These include seven hurricanes and three major hurricanes.
For 2022, Aon had estimated a global economic loss of $313 billion from natural disasters, while insured losses were estimated to be more than $130 billion. Per a report published in Insurance Journal, net underwriting loss increased seven-fold to $26.9 billion in 2022. Per Verisk and APCIA, the combined ratio deteriorated 310 basis points year over year to 102.7% in 2022.
Amid this, players like The Travelers Companies, Inc. TRV, AXIS Capital Holdings Limited AXS, CNA Financial, Inc. CNA, American Financial Group AFG and First American Financial FAF, with an impressive dividend history, offer a respite.
Global commercial insurance prices rose for 22 straight quarters though the magnitude has slowed down, per Marsh Global Insurance Market Index. Improvement in pricing drives premiums and claims payment.
Also, the interest rate environment is improving. The Fed has already made two hikes in 2023, taking the tally to nine since March 2022. An improving rate environment is a boon for insurers, especially long-tail insurers. Also, investment income is an important component of insurers’ top line. However, concerns related to whether Fed will pause further hikes, given apprehensions over economic growth, stay.
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 continues to aid insurers in pursuing strategic mergers and acquisitions, investing in growth initiatives, engaging in share buybacks, and increasing dividends or paying out special dividends.
Dividend Stocks for Your Portfolio
In this volatile market, stocks that give regular dividends offer an attractive investment opportunity. Regular dividend hikes reflect confidence in operational strength, which, in turn, fuel earnings power.
With the help of the Zacks Stock Screener, we have selected five property and casualty insurers with dividend yield and five-year historical dividend growth of more than 2% each. These stocks have a payout ratio of less than 60, reflecting enough room for future dividend increases.
Travelers Companies, with a market capitalization of $39 billion, is one of the leading writers of auto and homeowners’ insurance plus commercial U.S. property-casualty insurance. TRV carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
TRV has increased dividends for 19 consecutive years with a compound annual growth rate of 8% over that period. Its current dividend of $3.72 yields 2.1%, better than the industry average of 0.4%. The insurer’s payout ratio is 30, with a five-year dividend growth rate of 4.4%. (Check Travelers Companies’ dividend history here)
Travelers’ comprehensive portfolio of coverages across nine lines of business is likely to help it maintain high levels of retention, improve pricing and increase new business while achieving a positive renewal premium change. TRV maintains a conservative balance sheet among its peers. At the end of the first quarter of 2023, statutory capital and surplus were nearly $23.7 billion. It aims to generate increased earnings and capital, in excess of growth needs, and maintain a balanced approach to rightsizing capital and growing book value per share over time as part of its long-term financial strategy.
The Travelers Companies, Inc. Dividend Yield (TTM)
The Travelers Companies, Inc. dividend-yield-ttm | The Travelers Companies, Inc. Quote
AXIS Capital, with a market capitalization of $4.6 billion, is a leading specialty insurer with a niche specialty reinsurance focus. AXS carries a Zacks Rank #2 (Buy).
AXS made 18 consecutive dividend raises at a nine-year CAGR (2015 – 2022) of 5%, driven by solid earnings. Its current dividend of $1.72 yields 3.3%, which is one of the highest dividend yields among its peers. The insurer’s payout ratio is 29, with a five-year dividend growth rate of 2.4%. (Check AXIS Capital’s dividend history here)
AXIS Capital continues to build on Specialty Insurance, Reinsurance plus Accident and Health portfolio, exit underperforming lines, invest in more attractive markets, and enter new markets, thus improving portfolio mix and underwriting profitability.
Axis Capital Holdings Limited Dividend Yield (TTM)
Axis Capital Holdings Limited dividend-yield-ttm | Axis Capital Holdings Limited Quote
CNA Financial, with a market capitalization of $10.3 billion, offers commercial P&C insurance products, mainly across the United States. CNA carries a Zacks Rank #3.
This title insurer has increased dividends at a 10-year CAGR of 7.7% and made six increases in the last five years. The insurer also paid special dividends for the last nine years. Its current dividend of $1.68 yields 4.4%. The insurer’s payout ratio is 43, with a five-year dividend growth rate of 4.7%. (Check CNA Financial’s dividend history here).
This insurer should continue to indulge in capital deployment, given its compelling product portfolio, better retention, improving pricing and new business growth resulting in strong underwriting results and confidence in future earnings performances.
CNA Financial Corporation Earnings Yield (TTM)
CNA Financial Corporation earnings-yield-ttm | CNA Financial Corporation Quote
American Financial Group, with a market capitalization of $9.9 billion, engages primarily in property and casualty insurance, focusing on specialized commercial products for businesses. AFG carries a Zacks Rank #3.
This insurer successfully increased its dividends in each of the last 14 years. The robust operating profitability at the P&C segment, stellar investment performance and effective capital management support shareholders’ return. The company expects its operations to generate significant excess capital in 2023 to the point that it could deploy an excess of $500 million of excess capital for share repurchases or additional special dividends through the end of 2023, in addition to the capital return to shareholders during the first quarter of 2023. Its current dividend of $2.52 yields 2.2%. The insurer’s payout ratio is 23, with a five-year dividend growth rate of 12.4%. (Check American Financial’s dividend history here).
American Financial Group, Inc. Dividend Yield (TTM)
American Financial Group, Inc. dividend-yield-ttm | American Financial Group, Inc. Quote
First American Financial, with a market capitalization of $5.9 billion, serves homebuyers and sellers, real estate professionals, loan originators and servicers, commercial property professionals, homebuilders and others involved in residential and commercial property transactions with products and services specific to their needs. FAF carries a Zacks Rank #3.
This insurer has been increasing dividend each year, hiking dividends at an eight-year CAGR of 9%. Its current dividend of $2.08 yields 3.7%. The insurer’s payout ratio is 38, with a five-year dividend growth rate of 6.5%. (Check First American Financial’s dividend history here).
Increased demand among millennials for first-time home purchases, improved rate environment and strength in commercial business should help it retain momentum.
First American Financial Corporation Dividend Yield (TTM)
First American Financial Corporation dividend-yield-ttm | First American Financial Corporation Quote
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