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RE or CINF: Which Property & Casualty Insurer Has an Edge?
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The Zacks Property and Casualty Insurance industry has been benefiting from better pricing, prudent underwriting, increased exposure, an improving rate environment and a solid capital position. With the ongoing economic expansion, insurers remain well poised for growth. However, catastrophe losses might have weighed on P&C insurers.
The industry has lost 7.1% in the past year compared with the Zacks S&P 500 composite’s decline of 12.5% and the Finance sector’s 16.1% decline.
Image Source: Zacks Investment Research
Here we focus on two property and casualty insurers, namely Everest Re Group, Ltd. and Cincinnati Financial Corporation (CINF - Free Report) .
Cincinnati Financial, with a market capitalization of $18.6 billion, provides property casualty insurance products in the United States. Everest Re, with a market capitalization of $11.1 billion, provides reinsurance and insurance products in the United States, Bermuda, and internationally. Both the companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Per the Global Insurance Market Index by Marsh, Global commercial insurance prices increased 11% in the first quarter of 2022, which marked the 18th consecutive quarter of increases. Per Marsh, Global property insurance pricing increased 7% on average in the first quarter of 2022 while casualty pricing increased 4% on average. Pricing in financial and professional lines increased 26%. Per the Swiss Re Institute, global non-life premiums are expected to rise 3.7% in 2022. It also expects global insurance premiums to exceed $7 trillion by mid-2022.
Price hikes, operational strength, higher retention, strong renewal and the appointment of retail agents should help write higher premiums.
The insurance industry remains exposed to catastrophe loss stemming from natural disasters, which drag down underwriting profit. The second half of the year traditionally bears the brunt of hurricanes. The Colorado State University (CSU) expects above-normal activity during the 2022 hurricane season and there will be a total of 19 named storms, including nine hurricanes and four major hurricanes. Per CSU, hurricane activity in 2022 will be nearly 130% of the average season.
Exposure growth, improved pricing, prudent underwriting, favorable reserve development and a sturdy capital position will help to absorb catastrophe losses. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
Consolidation in the property and casualty industry is likely to expand players’ geographic reach, increase their scale and add new technology capabilities. With the reopening of the economy and solid capital position, the insurance industry has been witnessing a number of mergers, acquisitions and consolidations.
The insurers are well-poised to benefit from this improved interest rate environment as they are direct beneficiaries of rising rates. Currently, the interest rate stands at 0.75%-1%. A larger invested base and movement of funds to alternative investments like private equity, hedge funds, and real estate are expected to drive investment income. Property and casualty Insurance providers as well as life insurers are likely to gain from the improving rate environment.
The insurers have increased investment in emerging technologies in a bid to drive efficiency, enhance cybersecurity, upgrade policy administration and claims systems as well as expand automation capabilities across the organization. The adoption of technologies such as robotic process automation, Chatbot and RoboAdvisory, artificial intelligence and data analytics, insurtech solutions, telematics and cloud computing is gaining steam.
Let's delve deeper into specific parameters to ascertain which P&C Insurer is better positioned at the moment.
Price Performance
Everest Re has gained 7.2% in the past year versus the industry’s decrease of 6.9%. Cincinnati Financial shares have declined 3.3% in the said time frame.
Image Source: Zacks Investment Research
Return on Equity (ROE)
Everest Re, with a return on equity (ROE) of 12.9%, exceeds Cincinnati Financial’s ROE of 8.7% and the industry average of 5.7%.
Image Source: Zacks Investment Research
Valuation
The price-to-book value is the best multiple used for valuing insurers. Compared with Cincinnati Financial’s P/B ratio of 1.55, Everest Re is cheaper, with a reading of 1.41. The P&C insurance industry’s P/B ratio is 1.17.
Dividend Yield
Everest Re’s dividend yield of 2.4% betters Cincinnati Financial’s dividend yield of 2.3%. Thus, Everest Re has an advantage over Cincinnati Financial on this front.
Image Source: Zacks Investment Research
Debt-to-Capital
Everest Re’s debt-to-capital ratio of 24.48 is higher than the industry average of 19.1 and Cincinnati Financial’s reading of 6.86.
Image Source: Zacks Investment Research
Earnings Surprise History
Cincinnati Financial has a solid record of beating earnings estimates in six of the last seven quarters. Everest Re has a record of beating earnings estimates in five of the last seven quarters.
Hence, CINF has an edge in this regard over RE.
Growth Projection
The Zacks Consensus Estimate for 2022 earnings indicates 18.3% growth from the year-ago reported figure for Everest Re while the same for Cincinnati Financial indicates a decline of 10.3%.
VGM Score
VGM Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth, and most promising momentum. Everest Re has a VGM Score of A while Cincinnati Financial has a VGM Score of C. Everest Re thus is better placed.
Earnings Estimates
For 2022, the Zacks Consensus Estimate for CINF has moved 3.6% north to $5.75 in the past 60 days while the same for RE has been revised 7.1% upward to $34.27. Therefore, RE is in an advantageous position over CINF on this front.
To Conclude
Our comparative analysis shows that Everest Re is better positioned than Cincinnati Financial with respect to dividend yield, growth projection, VGM Score, valuation, price, return on equity and earnings estimates. Meanwhile Cincinnati Financial scores higher in terms of leverage and earnings surprise history. With the scale significantly tilted toward Everest Re, the stock appears to be better poised.
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RE or CINF: Which Property & Casualty Insurer Has an Edge?
The Zacks Property and Casualty Insurance industry has been benefiting from better pricing, prudent underwriting, increased exposure, an improving rate environment and a solid capital position. With the ongoing economic expansion, insurers remain well poised for growth. However, catastrophe losses might have weighed on P&C insurers.
The industry has lost 7.1% in the past year compared with the Zacks S&P 500 composite’s decline of 12.5% and the Finance sector’s 16.1% decline.
Image Source: Zacks Investment Research
Here we focus on two property and casualty insurers, namely Everest Re Group, Ltd. and Cincinnati Financial Corporation (CINF - Free Report) .
Cincinnati Financial, with a market capitalization of $18.6 billion, provides property casualty insurance products in the United States. Everest Re, with a market capitalization of $11.1 billion, provides reinsurance and insurance products in the United States, Bermuda, and internationally. Both the companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Per the Global Insurance Market Index by Marsh, Global commercial insurance prices increased 11% in the first quarter of 2022, which marked the 18th consecutive quarter of increases. Per Marsh, Global property insurance pricing increased 7% on average in the first quarter of 2022 while casualty pricing increased 4% on average. Pricing in financial and professional lines increased 26%. Per the Swiss Re Institute, global non-life premiums are expected to rise 3.7% in 2022. It also expects global insurance premiums to exceed $7 trillion by mid-2022.
Price hikes, operational strength, higher retention, strong renewal and the appointment of retail agents should help write higher premiums.
The insurance industry remains exposed to catastrophe loss stemming from natural disasters, which drag down underwriting profit. The second half of the year traditionally bears the brunt of hurricanes. The Colorado State University (CSU) expects above-normal activity during the 2022 hurricane season and there will be a total of 19 named storms, including nine hurricanes and four major hurricanes. Per CSU, hurricane activity in 2022 will be nearly 130% of the average season.
Exposure growth, improved pricing, prudent underwriting, favorable reserve development and a sturdy capital position will help to absorb catastrophe losses. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
Consolidation in the property and casualty industry is likely to expand players’ geographic reach, increase their scale and add new technology capabilities. With the reopening of the economy and solid capital position, the insurance industry has been witnessing a number of mergers, acquisitions and consolidations.
The insurers are well-poised to benefit from this improved interest rate environment as they are direct beneficiaries of rising rates. Currently, the interest rate stands at 0.75%-1%. A larger invested base and movement of funds to alternative investments like private equity, hedge funds, and real estate are expected to drive investment income. Property and casualty Insurance providers as well as life insurers are likely to gain from the improving rate environment.
The insurers have increased investment in emerging technologies in a bid to drive efficiency, enhance cybersecurity, upgrade policy administration and claims systems as well as expand automation capabilities across the organization. The adoption of technologies such as robotic process automation, Chatbot and RoboAdvisory, artificial intelligence and data analytics, insurtech solutions, telematics and cloud computing is gaining steam.
Let's delve deeper into specific parameters to ascertain which P&C Insurer is better positioned at the moment.
Price Performance
Everest Re has gained 7.2% in the past year versus the industry’s decrease of 6.9%. Cincinnati Financial shares have declined 3.3% in the said time frame.
Image Source: Zacks Investment Research
Return on Equity (ROE)
Everest Re, with a return on equity (ROE) of 12.9%, exceeds Cincinnati Financial’s ROE of 8.7% and the industry average of 5.7%.
Image Source: Zacks Investment Research
Valuation
The price-to-book value is the best multiple used for valuing insurers. Compared with Cincinnati Financial’s P/B ratio of 1.55, Everest Re is cheaper, with a reading of 1.41. The P&C insurance industry’s P/B ratio is 1.17.
Dividend Yield
Everest Re’s dividend yield of 2.4% betters Cincinnati Financial’s dividend yield of 2.3%. Thus, Everest Re has an advantage over Cincinnati Financial on this front.
Image Source: Zacks Investment Research
Debt-to-Capital
Everest Re’s debt-to-capital ratio of 24.48 is higher than the industry average of 19.1 and Cincinnati Financial’s reading of 6.86.
Image Source: Zacks Investment Research
Earnings Surprise History
Cincinnati Financial has a solid record of beating earnings estimates in six of the last seven quarters. Everest Re has a record of beating earnings estimates in five of the last seven quarters.
Hence, CINF has an edge in this regard over RE.
Growth Projection
The Zacks Consensus Estimate for 2022 earnings indicates 18.3% growth from the year-ago reported figure for Everest Re while the same for Cincinnati Financial indicates a decline of 10.3%.
VGM Score
VGM Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth, and most promising momentum. Everest Re has a VGM Score of A while Cincinnati Financial has a VGM Score of C. Everest Re thus is better placed.
Earnings Estimates
For 2022, the Zacks Consensus Estimate for CINF has moved 3.6% north to $5.75 in the past 60 days while the same for RE has been revised 7.1% upward to $34.27. Therefore, RE is in an advantageous position over CINF on this front.
To Conclude
Our comparative analysis shows that Everest Re is better positioned than Cincinnati Financial with respect to dividend yield, growth projection, VGM Score, valuation, price, return on equity and earnings estimates. Meanwhile Cincinnati Financial scores higher in terms of leverage and earnings surprise history. With the scale significantly tilted toward Everest Re, the stock appears to be better poised.