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5 Property & Casualty Insurers to Gain From Better 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 Berkshire Hathaway Inc. (BRK.B), Chubb Limited CB, The Progressive Corporation PGR, Everest Re Group RE and Kinsale Capital Group Limited KNSL 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 seven 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. The interest rate environment has started to improve. The Fed has already made seven hikes in 2022 and one in 2023 so far. 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 21 straight quarters though the magnitude has slowed down over the last eight 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.

Catastrophe loss induces volatility in underwriting profits: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profit. Catastrophic events weigh on the underwriting profitability of insurers. Aon estimated global economic loss of $313 billion in 2022 from natural disasters while insured losses were estimated to be more than $130 billion. Net underwriting loss increased seven-fold to $26.9 billion in 2022 per a report published in Insurance Journal. Per Verisk and APCIA, the combined ratio deteriorated 310 basis points year over year to 102.7% in 2022. 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 — technology-led insurers — creating competition for incumbent players. The focus of insurtech is mainly on the property and casualty insurance industry. Accelerated digitalization has become the need of the hour and 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. Also, it 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 bright 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 #103, which places it in the top 41% 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. Earnings estimates increased 9.3% in a year’s time.

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 lost 5.9% in the past year against the Finance sector and the Zacks S&P 500 composite’s decline of 10.9% and 6.3%, respectively.

One-Year Price Performance

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 1.48X compared with the S&P 500’s 5.69X and the sector’s 3.27X.

Over the past five years, the industry has traded as high as 1.56X, as low as 1.19X and at the median of 1.41X.

Price-to-Book (P/B) Ratio (TTM)

Price-to-Book (P/B) Ratio (TTM)

5 Property and Casualty Insurance Stocks to Keep an Eye on

We are recommending one Zacks Rank #1 (Strong Buy) stock, one Zacks Rank #2 (Buy) stock and three Zacks Rank #3 (Hold) stocks from the P&C Insurance industry. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinsale Capital Group: Richmond, VA-based Kinsale Capital offers various insurance and reinsurance products across all 50 states of the United States, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands. Its focus on the E&S market that has been performing well due to improved margins and lower loss ratios, improving revenues, solid underwriting results, a proprietary technology platform and effective capital deployment poise this Zacks Rank #1 insurer well for growth.

The Zacks Consensus Estimate for KNSL’s 2023 bottom line suggests a year-over-year increase of 27.2% and has moved 0.6% up in the past 30 days. It has a Growth Score of B. KNSL delivered a four-quarter average earnings surprise of 13.83%.

Price and Consensus: KNSL

Everest Re Group: Hamilton, Bermuda-based Everest Re Group is the seventh-largest global property and casualty reinsurer. This Zacks Rank #2 insurer is poised to grow on the strength of new business growth, strong renewal retention, continued favorable rate increases and a solid capital position.

The Zacks Consensus Estimate for RE’s 2023 and 2024 bottom line suggests a year-over-year increase of 64.7% and 19.5%, respectively. The expected long-term earnings growth rate is 30.3%, better than the industry average of 14.6%. It has a VGM Score of B. RE delivered a four-quarter average earnings surprise of 18.41%.

Price and Consensus: RE

Berkshire Hathaway: Omaha, NE-based Berkshire Hathaway owns more than 90 subsidiaries in insurance, railroads, utilities, manufacturing services, retail and homebuilding. BRK.B boasts one of the largest property and casualty insurance companies measured by premium volume. BRK.B, carrying a Zacks Rank #3, should continue to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments. Continued insurance business growth fuels an increase in float, drives earnings and generates maximum return on equity. With Warren Buffett at its helm, Berkshire continues to create tremendous value for shareholders.

The Zacks Consensus Estimate for Berkshire’s 2023 bottom line suggests a year-over-year increase of 35.8% and has moved 14.1% north in the past 60 days. The expected long-term earnings growth rate is 7%. BRK.B delivered a four-quarter average earnings surprise of 15.92%.

Price and Consensus: BRK.B

Progressive: This Mayfield, OH-based company is a leading auto insurer in the United States and has one of the largest auto insurance groups. PGR is the largest seller of motorcycle policies, a market leader in commercial auto insurance and one of the top 15 homeowner carriers based on premiums written. PGR’s compelling product portfolio, leadership position, strength in both Vehicle and Property businesses, healthy policies in force and retention continue to bode well for growth. PGR carries a Zacks Rank #3.

The Zacks Consensus Estimate for Progressive’s 2023 and 2024 bottom line suggests a year-over-year increase of 59.6% and 24.6. The expected long-term earnings growth rate is 23.9%, better than the industry average.

Price and Consensus: PGR

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 #3 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 Chubb’s 2023 and 2024 bottom line suggests a year-over-year increase of 14.4% and 9.7%, respectively. The expected long-term earnings growth rate is 10%. It has a VGM Score of B. CB delivered a four-quarter average earnings surprise of 6.61%.

Price and Consensus: CB

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Berkshire Hathaway Inc. (BRK.B) : Free Stock Analysis Report

Chubb Limited (CB) : Free Stock Analysis Report

Everest Re Group, Ltd. (RE) : Free Stock Analysis Report

The Progressive Corporation (PGR) : Free Stock Analysis Report

Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report

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