6 Property and Casualty Insurance Stocks to Watch Amid Catastrophes
The 2020 hurricane season is expected to experience 190% more storms than the average season. Zacks' property and casualty (P&C) insurance industry is facing a difficult task. Even so, Berkshire Hathaway (BRK.B), Progressive Corporation (PGR), Allstate Corporation (ALL), Everest Re Group (RE), Fidelity National Financial (FNF), and First American Financial (FNF) should get better pricing , prudent underwriting and greater commitment benefit FAF).
While frequent natural disasters should accelerate the rate of policy renewal, the increasing adoption of technology and the advent of insurtech will help the industry function properly. However, pandemic-induced uncertainties weigh on merger and acquisition (M&A) activity and industry surplus.
About the industry
Zacks' property and casualty insurance industry includes companies that provide commercial and personal property, as well as casualty insurance products and services. Such insurance coverage helps protect property in the event of a natural or man-made disaster. Some industry players also offer liability insurance.
The insurance coverage offered by the companies also includes automobiles, occupational risks, sea vehicles, accidental damage, aviation, personal accidents, multiple commercial risks as well as professional liability and surety insurance.
Premiums are the main source of income for these insurers. These companies invest part of the premiums collected to meet their obligations to policyholders. A low interest rate environment is therefore a problem for P&C insurers (especially long-tail insurers).
4 trends shaping the future of the property and casualty insurance industry
Catastrophe loss weighs on underwriting profitability: The property and casualty insurance industry is vulnerable to catastrophic events that weigh on underwriting profit. According to reports from Aon, total economic damage in the first half of 2020 was $ 75 billion attributable to 207 catastrophic events around the world, while insured damage was $ 30 billion, 8% more than in the 20 year -Average. In fact, Colorado State University ("CSU") expects an "extremely active Atlantic hurricane season in 2020 and hurricane activity of about 190% of the average season". There will be 24 named storms per CSU, including 12 hurricanes and six major hurricanes. Still, the growth in exposure, better pricing, prudent underwriting, and favorable reserve development will help hold the blow. According to a report by Carrier Management, analysts at Fitch Ratings are forecasting an overall rate of 97 in 2020, a slight improvement from 98 in 2019. The frequent occurrence of natural disasters should also accelerate the rate of policy renewal.
Improved prices help manage claims payments: Although insurers are a problem due to the high level of claims, they are increasing prices to ensure uninterrupted claims payments. According to Willis Towers Watson's commercial line insurance price survey, US commercial insurance prices improved 10% in the second quarter of 2020. In 2020, a price increase is expected for 23 lines, while five lines show either an increase, a decrease or a flat-rate extension. Better prices help insurers pay for claims.
Mergers and Acquisitions: Consolidation in the property and casualty industry is likely to continue as players seek to diversify their operations into new businesses and regions. Buying companies in the same lines of business will continue as players try to gain market share and grow in their niche areas. Even non-traditional companies are gradually entering the insurance sector and combining insurance with their core products. According to a recent report from Willis Towers Watson, the global M&A market saw its first positive performance in three years for closed deals. However, business volume has decreased significantly due to the uncertainty surrounding the pandemic. The industry surplus has also decreased.
Increasing acceptance of technologies: Technologies such as blockchain, artificial intelligence, advanced analysis, telematics, cloud computing and automation of robotic processes are increasingly used in the industry, which accelerate business operations and save costs. The industry has also seen the emergence of insurtech - technology-driven insurers - creating competition for established players. Insurtech's main focus is on the property and casualty insurance industry. The adoption of technology has contributed to seamless underwriting and claims handling during the pandemic that led to social distancing norms. With insurers using the latest technology and concepts that incumbents are just beginning to experiment with, the market risk remains enormous.
Zacks' industry rank indicates dire prospects
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, suggests dire prospects in the short term. The Zacks property and casualty insurance industry, which is part of the broader Zacks Finance sector, currently has the Zacks Industry Rank # 210, placing it in the bottom 17% of more than 250 Zacks industries. Our research shows that the top 50% of Zacks industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the bottom 50% of the industries Zacks rated is the result of negative earnings outlook for individual companies as a whole. In a year's time, the industry's earnings estimates for the current year are down 18.8%.
Before we discuss some of the property and casualty stocks you might consider adding to your portfolio, let's take a look at recent stock market performance and the industry's valuation picture.
Industry outperforms the sector but lags the S&P 500
The property and casualty insurance industry lagged behind the Zacks S&P 500 Composite, but outperformed its own sector last year. Stocks in this industry lost a total of 1.8% over the past year, compared with the financial sector's 6.6% decline. Meanwhile, the Zacks S&P 500 composite is up 18.4%.
Annual price development
Based on the 12-month trailing price-to-book ratio (P / B) commonly used to value insurance stocks, the industry is currently trading at 1.29 times compared to the 5.94- times the S&P 500 and 2.54 times the sector.
Over the past five years, the industry has traded 1.67 times, 0.93 times and a median of 1.46 times.
Price-to-book ratio (P / B) (TTM)
Price-to-book ratio (P / B) (TTM)
6 Property And Casualty Insurance Stocks To Watch Out For
We recommend two Zacks Rank # 2 (Buy) stocks from the P&C Insurance industry. We also present four Zacks Rank 3 (Hold) stocks from the same industry. The full list of today's Zacks # 1 Rank stocks can be found here.
Fidelity National Financial: Based in Jacksonville, FL, is the nation's largest provider of property insurance and settlement services. With a leading market share in residential property purchase, refinancing and commercialization, the company is Zacks ranked 2. The company should continue to benefit from prudent acquisitions, strategic investments, effective cost management and a solid capital position. The estimates for the 2020 final result have increased 20.3% over the past 60 days, indicating a 15.6% increase over the previous year. The stock lost 24.5% last year.
Price and consensus: FNF
First American Financial: The Santa Ana, California-based title insurer provides deal / settlement services, property and casualty, trust, and asset management services, among others. Increased demand from millennials for first-time home purchases, better prices, and greater strength in business should boost performance. It bears a zack of rank 2. This company has seen its final 2020 results revised up 1.3% over the past 60 days. The stock lost 10% over the past year.
Price and consensus: FAF
Berkshire Hathaway: Berkshire, based in Omaha, NE, is a holding company that has more than 90 subsidiaries in the insurance, railways, utilities, manufacturing services, retail and housing sectors. The company is expected to benefit from its growing insurance business, manufacturing, service and retail, financial and financial products and strategic acquisitions. It is ranked 3rd. Expected long-term earnings growth is 7%. The share gained 4.1% last year.
Price and consensus: BRK.B
The Progressive Corporation: Headquartered in Mayfield Village, OH, is one of the largest auto insurers in the country. It's ready to grow on a robust portfolio, put solid policies in place, serve clients who choose a combination of home and auto insurance, be a leader in underwriting technology, and have quantitative analysis on pricing and risk selection as well apply solid market positioning. It carries a zack of rank 3. The estimates for the final result 2020 have increased by 6.2% in the last 60 days, indicating an increase of 2.1% over the previous year's figure. The expected long-term earnings growth is 6.2%. The stock lost 5% over the past year.
Price and consensus: PGR
The Allstate Corporation: Based in Northbrook, IL, the company offers the third largest property and casualty insurer and the largest public personal insurance provider in the United States, and also offers a range of life insurance and investment products. Allstate is poised to grow on its solid real estate and liability segments. It carries a Zacks rank 3. The Zacks consensus estimate for 2020 shows an increase of 6.8% over the previous year. The expected long-term earnings growth is 7.5%. The share lost 12.2% last year.
Price and consensus: ALL
Everest Re Group: Based in Hamilton, Bermuda, the company writes property and casualty, reinsurance, and insurance in the United States, Bermuda, and international markets. The company is poised to take advantage of massive insurance and reinsurance market share and traditional risk management skills. It is ranked 3rd. Expected long-term earnings growth is 10.4%, above the industry average of 8.8%. The share lost 18.5% last year.
Price and consensus: RE
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Everest Re Group, Ltd. (RE): Free Stock Analysis Report
The Progressive Corporation (PGR): Free Stock Analysis Report
Fidelity National Financial, Inc. (FNF): Free Stock Analysis Report
First American Financial Corporation (FAF): Free Stock Analysis Report
Berkshire Hathaway Inc. (BRK.B): Free Stock Analysis Report
The Allstate Corporation (ALL): Free Stock Research Report
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