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3 Insurance Stocks That Hit 52-Week High and Are Still a Buy
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Insurance stocks caught investors’ attention as the sector rides on economic strength. Shares of insurers like Chubb Limited (CB - Free Report) , First American Financial Corp. (FAF - Free Report) hit their 52-Week high on Aug 18 and American International Group Inc. (AIG - Free Report) hit its 52-week high on Aug 17 reflecting investors’optimism on the industry that suffered COVID-led lockdowns last year. Demand for insurance took a back seat when businesses shuttered down, and people parked their cars and got confined to homes.
Now with businesses running on full steam and people venturing out, demand for commercial, auto and other kind of insurance shot up. This was reflected in a strong earnings performance for the overall sector.
Along with buoyant demand, the rising insurance premium rate, which in insurance parlance is called hardening of rates, bodes well for insurers.
While business is gaining momentum, the low interest rate environment is weighing on the fixed investment income. Prompted by the nature of their business, insurers are inclined to invest the collected premium in safe bonds so as to accumulate funds and pay when required. Nonetheless, they are navigating this challenge by pumping their resources into alternative investments like private equity, hedge funds, real estate etc.
Overall bullishness in the sector can be seen through the performances of the iShares U.S. Insurance ETF (IAK), which has rallied 21.75% year to date compared with the S&P 500 Index’s gain of 19%. This index consists of insurers that provide life, property and casualty (P&C), and full-line insurance. Chubb has the greatest holding with 11.58% weightage followed by AIG (6.46%). First American Financial comprises 1.09% of the fund.
Let’s discuss these stocks in detail here that appear attractive investment bets.
AIG is currently getting noticed after remaining an underdog for long. Its most recent earnings performance delivered a beat for the second straight quarter, reflecting improvements in its property/casualty operations since 2017. In the first half of 2021, revenue growth was registered at 5.4% versus a decline of 12% in the comparable period of 2020.
The company withstood a tough operating environment with revenues shrinking annually since 2013 (except in 2019) due to low insurance rates, and stiff competition and several asset divestitures that trimmed its revenue sources.
Thus the company kept shedding its numerous non-core businesses that produced little synergies. Other operational measures taken since 2017 under the tenure of the then CEO Brian Dupperault are now reaping gains. This year, the company should gain traction from a better insurance premium rate in a hardening market along with a lower expense base, aided by its AIG 200 initiative. This, in turn, will likely boost premiums and underwriting profits.
It is also divesting its Life and Retirement business via an IPO. Though this strategic move will stifle the diversification benefits, management believes that it is the “optimal path forward”.
We believe, these discreet efforts will spur growth ahead. With its current price-to-book value of 0.72 compared with the industry average of 1.58, the stock looks cheaply priced and a good buy.
Chubb occupies the number one position in the Commercial Lines Insurance industry followed by Travelers Companies Inc. (TRV - Free Report) with a market share of 5.5% on the basis of the 2020 direct premium written. It also holds eight position in the property and casualty market.
In the recently reported quarter, its earnings topped estimates by 22.3% for the third time in a row. Improving economy supported results. Management stated that net premiums written in its consumer lines remain subdued by the pandemic’s effects on travel and other business plus consumer-related activity. However, the same began to improve of late and already increased 5.6% in the said quarter.
Per management, the company is capitalizing on a strong commercial P&C pricing environment in all important regions of the world. With nearly 70% of its business portfolio lying in commercial lines, this favorable condition represents a major growth opportunity.
The chairman at its recent earnings conference stated that “From everything we see today, I am confident these market conditions will continue. Our company is firing on all cylinders – we are growing our business while we continue to expand underwriting margins. We will continue to outperform and deliver strong, sustainable shareholder value.”
Chubb has a stellar earnings history to fall back on. It has long shown its underwriting discipline and a willingness to trade market share for underwriting profitability. It is one of the most profitable insurers with a combined ratio averaging 91.2% over the last 10 years, which has outperformed its competitors by 7.7%. Combined ratio shows the total expense and loss as a percentage of premium. The lower the ratio, the better it is.
The insurer also produced the best P&C premium revenue growth, globally, in more than 15 years, powered by its commercial P&C businesses and backed by a continued robust commercial P&C pricing.
Chubb holds an edge in the industry, given its geographically well-diversified presence in 54 countries, which provides its business with stability. Its international consumer P&C businesses have been its crucial growth engines to date and will remain so in years to come, especially among the rising middle classes of developing Asia and Latin America.
Chubb’s balance sheet strength is another positive. Its consistent cash flows allowed it to share a part of profits with its equity stakeholders in the form of dividend payments, which have grown over the past 28 years. Its carries a dividend yield of 1.73%. The insurer is sure to continue rewarding its investors with dividend raises, led by solid business growth.
In a nutshell, its expanding geographies, a broad product portfolio, underwriting skills, judicious expense management, consistency of risk appetite and strong finances will help it ride the growth tide forward.
First American Financial is a leader in the Title and Settlement Services Industry, holding 23.3% of the Title market share. A general improvement in economy provides a tailwind to its business. It is primarily focused on the real estate market while 92% of its revenues comes from providing title insurance.
In the last reported quarter, the company’s bottom line beat estimates by 30.7% for the third consecutive quarter. Title segment revenues were up 44% year over year owing to the strength of the purchase and commercial markets. This year, the company expects to achieve a record in its commercial business.
A hot real estate market works in favor of the company given its drives demand for title insurance products. Housing purchase market saw a V-shaped recovery, led by low mortgage rates, favorable demographics, appreciation in home price.
The company is also developing next-generation cloud-based technology to make its business more customer-friendly.
First American also made investments worth $260 million in venture-backed companies, which should yield investment gains.
The company is streamlining its business and to this end, it is divesting its property and casualty business. Growth of international operations in Canada, Europe and Australia is one of its focus areas.
Its strong balance sheet with ample liquidity and financial flexibility bolsters its strategic initiatives and dividend payments. Since 2015, its dividend payments witnessed a CAGR of 10.7%. Its dividend payout ratio of 29% provides room for further growth. Its dividend yield of 2.8% is another enticement for income investors.
Overall, a positive real estate market and strategic investments facilitated by a solid financial footing are key levers for First American Financial.
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3 Insurance Stocks That Hit 52-Week High and Are Still a Buy
Insurance stocks caught investors’ attention as the sector rides on economic strength. Shares of insurers like Chubb Limited (CB - Free Report) , First American Financial Corp. (FAF - Free Report) hit their 52-Week high on Aug 18 and American International Group Inc. (AIG - Free Report) hit its 52-week high on Aug 17 reflecting investors’optimism on the industry that suffered COVID-led lockdowns last year. Demand for insurance took a back seat when businesses shuttered down, and people parked their cars and got confined to homes.
Now with businesses running on full steam and people venturing out, demand for commercial, auto and other kind of insurance shot up. This was reflected in a strong earnings performance for the overall sector.
Along with buoyant demand, the rising insurance premium rate, which in insurance parlance is called hardening of rates, bodes well for insurers.
While business is gaining momentum, the low interest rate environment is weighing on the fixed investment income. Prompted by the nature of their business, insurers are inclined to invest the collected premium in safe bonds so as to accumulate funds and pay when required. Nonetheless, they are navigating this challenge by pumping their resources into alternative investments like private equity, hedge funds, real estate etc.
Overall bullishness in the sector can be seen through the performances of the iShares U.S. Insurance ETF (IAK), which has rallied 21.75% year to date compared with the S&P 500 Index’s gain of 19%. This index consists of insurers that provide life, property and casualty (P&C), and full-line insurance. Chubb has the greatest holding with 11.58% weightage followed by AIG (6.46%). First American Financial comprises 1.09% of the fund.
Despite trading at their respective 52-week highs, Chubb, First American Financial and American International presently hold a Zacks Rank of #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
Let’s discuss these stocks in detail here that appear attractive investment bets.
AIG is currently getting noticed after remaining an underdog for long. Its most recent earnings performance delivered a beat for the second straight quarter, reflecting improvements in its property/casualty operations since 2017. In the first half of 2021, revenue growth was registered at 5.4% versus a decline of 12% in the comparable period of 2020.
The company withstood a tough operating environment with revenues shrinking annually since 2013 (except in 2019) due to low insurance rates, and stiff competition and several asset divestitures that trimmed its revenue sources.
Thus the company kept shedding its numerous non-core businesses that produced little synergies. Other operational measures taken since 2017 under the tenure of the then CEO Brian Dupperault are now reaping gains.
This year, the company should gain traction from a better insurance premium rate in a hardening market along with a lower expense base, aided by its AIG 200 initiative. This, in turn, will likely boost premiums and underwriting profits.
It is also divesting its Life and Retirement business via an IPO. Though this strategic move will stifle the diversification benefits, management believes that it is the “optimal path forward”.
We believe, these discreet efforts will spur growth ahead. With its current price-to-book value of 0.72 compared with the industry average of 1.58, the stock looks cheaply priced and a good buy.
Chubb occupies the number one position in the Commercial Lines Insurance industry followed by Travelers Companies Inc. (TRV - Free Report)
with a market share of 5.5% on the basis of the 2020 direct premium written. It also holds eight position in the property and casualty market.
In the recently reported quarter, its earnings topped estimates by 22.3% for the third time in a row. Improving economy supported results. Management stated that net premiums written in its consumer lines remain subdued by the pandemic’s effects on travel and other business plus consumer-related activity. However, the same began to improve of late and already increased 5.6% in the said quarter.
Per management, the company is capitalizing on a strong commercial P&C pricing environment in all important regions of the world. With nearly 70% of its business portfolio lying in commercial lines, this favorable condition represents a major growth opportunity.
The chairman at its recent earnings conference stated that “From everything we see today, I am confident these market conditions will continue. Our company is firing on all cylinders – we are growing our business while we continue to expand underwriting margins. We will continue to outperform and deliver strong, sustainable shareholder value.”
Chubb has a stellar earnings history to fall back on. It has long shown its underwriting discipline and a willingness to trade market share for underwriting profitability. It is one of the most profitable insurers with a combined ratio averaging 91.2% over the last 10 years, which has outperformed its competitors by 7.7%. Combined ratio shows the total expense and loss as a percentage of premium. The lower the ratio, the better it is.
The insurer also produced the best P&C premium revenue growth, globally, in more than 15 years, powered by its commercial P&C businesses and backed by a continued robust commercial P&C pricing.
Chubb holds an edge in the industry, given its geographically well-diversified presence in 54 countries, which provides its business with stability. Its international consumer P&C businesses have been its crucial growth engines to date and will remain so in years to come, especially among the rising middle classes of developing Asia and Latin America.
Chubb’s balance sheet strength is another positive. Its consistent cash flows allowed it to share a part of profits with its equity stakeholders in the form of dividend payments, which have grown over the past 28 years. Its carries a dividend yield of 1.73%. The insurer is sure to continue rewarding its investors with dividend raises, led by solid business growth.
In a nutshell, its expanding geographies, a broad product portfolio, underwriting skills, judicious expense management, consistency of risk appetite and strong finances will help it ride the growth tide forward.
First American Financial is a leader in the Title and Settlement Services Industry, holding 23.3% of the Title market share. A general improvement in economy provides a tailwind to its business. It is primarily focused on the real estate market while 92% of its revenues comes from providing title insurance.
In the last reported quarter, the company’s bottom line beat estimates by 30.7% for the third consecutive quarter. Title segment revenues were up 44% year over year owing to the strength of the purchase and commercial markets. This year, the company expects to achieve a record in its commercial business.
A hot real estate market works in favor of the company given its drives demand for title insurance products. Housing purchase market saw a V-shaped recovery, led by low mortgage rates, favorable demographics, appreciation in home price.
The company is also developing next-generation cloud-based technology to make its business more customer-friendly.
First American also made investments worth $260 million in venture-backed companies, which should yield investment gains.
The company is streamlining its business and to this end, it is divesting its property and casualty business. Growth of international operations in Canada, Europe and Australia is one of its focus areas.
Its strong balance sheet with ample liquidity and financial flexibility bolsters its strategic initiatives and dividend payments. Since 2015, its dividend payments witnessed a CAGR of 10.7%. Its dividend payout ratio of 29% provides room for further growth. Its dividend yield of 2.8% is another enticement for income investors.
Overall, a positive real estate market and strategic investments facilitated by a solid financial footing are key levers for First American Financial.