The insurance industry has performed well so far this year, riding on better pricing, prudent underwriting, increased exposure, streamlined operations, global presence and a solid capital position. The industry has gained 4.8% year to date.

Banking on strong fundamentals, Kinsale Capital Group, Inc. (KNSL Quick QuoteKNSL - Free Report) , NMI Holdings (NMIH Quick QuoteNMIH - Free Report) and Primerica, Inc. (PRI Quick QuotePRI - Free Report) have not only outperformed the industry but have also crushed the market and the Finance sector.

What Helped Insurers Sail Through This Year?

The economy has been growing, albeit slowly. GDP increased at an annualized rate of 2.1% in the second quarter and 2% in the first quarter of 2023. Notably, at the latest FOMC meeting, the Fed estimated GDP growth of 2.1% in 2023 from 1% expected at its June meeting. The unemployment rate is expected to be 3.8%, an improvement from 4.1%.

Despite an above-average hurricane season, continued increases in pricing, reinsurance programs and favorable reserve development helped non-life insurers sail through. Swiss Re estimated a global economic loss of $120 billion in the first half of 2023 from natural disasters, while insured losses were estimated to be about $50 billion. Per a report in the Insurance Journal, the combined net ratio in 2023 is estimated to be 102.2. Underwriting losses are expected to be primarily due to soft performance in personal lines, which, in turn, is driven by higher catastrophe losses per Insurance Information Institute and Milliman.

Nonetheless, global commercial insurance prices rose for 23 straight quarters though the magnitude has slowed down over the last 10 quarters, per Marsh Global Insurance Market. Per reports published in Carrier Management, direct premiums written across the P&C business in 2023 are estimated to grow in double digits.

The insurance industry is rate sensitive. An improving rate environment is a boon for insurers, especially long-tail non-life insurers and life insurers. The Fed has already made three hikes in 2023, taking the tally to 11 since March 2022. Investment income, an important component of an insurer’s top line, is poised for continuous improvement.

Better economic conditions continue to support the life insurance industry. Policy count rose 4% in the second quarter of 2023, marking the second consecutive quarter of policy sales growth per preliminary results from LIMRA’s U.S. Retail Individual Life Insurance Sales surveys and estimates. The survey also found total that U.S. life insurance new annualized premium was $4.04 billion in the second quarter, up 2%. Premiums grew in the second quarter after three straight quarters of declines, per the findings.

Nevertheless, a solid capital level supports insurers in pursuing strategic mergers and acquisitions to gain market share, expand in niche areas, and diversify operations into new business lines and geography as well as increase dividends, pay special dividends and buyback shares.

The industry is undergoing accelerated digitalization. Players are investing heavily in technology to improve scale and efficiencies.

Picks for Better Returns

With the help of the Zacks Stock Screener, we have selected three insurance stocks that have rallied more than 25% year to date. These stocks have delivered earnings surprises in each of the last four reported quarters and witnessed northbound estimate revisions.

Richmond, VA-based Kinsale Capital offers various insurance and reinsurance products, typically providing coverage for risks that are unique and difficult to find in the standard insurance market. It sports a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

With an extensive focus on clients with small and medium-sized accounts, which have better pricing and are less prone to competition, it focuses only on the excess and surplus lines market in the United States. KNSL expects 2023 to be the sixth calendar year in a row with double-digit industry-wide E&S premium growth.

Kinsale Capital is well-poised to deliver improved margins, lower loss and expense ratios and estimates low double-digit rate increases across the book of business. The insurer enjoys the best combination of high growth and low combined ratio among its peers and targets a combined ratio in the mid-80s range over the long term.

The Zacks Consensus Estimate for Kinsale’s 2023 earnings suggests 48.5% growth from the year-ago reported figure on 48.4% higher revenues. The consensus estimate has moved up 1 cent in the past seven days. Year to date, shares have rallied 57.3%.

Headquartered in Emeryville, CA, NMI Holdings provides private mortgage insurance (MI). The mortgage insurer should continue to benefit from a strong mortgage origination market, robust growth in high-quality and short portfolios and increased private mortgage insurance penetration rates. It carries a Zacks Rank #2 (Buy).

NMIH continues to build on its position in the private MI market, expand its customer base and grow its insured portfolio of high-quality residential loans by focusing on long-term customer relationships, financial strength and profitability.

NMI Holdings has a comprehensive reinsurance program in place for nearly the entirety of its in-force portfolio. This in turn enhances its return profile, absorbs loss, provides efficient growth capital and mitigates the impact of credit volatility.

The Zacks Consensus Estimate for NMIH’s 2023 earnings suggests 8.6% year-over-year growth on 9.5% higher revenues. The consensus estimate has moved up 3 cents in the past 30 days. Year to date, shares have surged 25.1%.

Duluth, GA-based Primerica is the second-largest issuer of term-life insurance coverage in North America. It aims to be a successful senior health business while continuing to enhance its shareholders’ value. It carries a Zacks Rank #2.

Strong demand for protection products drives sales growth and policy persistency benefits for this insurer. A strong business model makes Primerica well-poised to cater to the middle market's increased demand for financial security.

PRI expects Term Life insurance issued policy growth in the range of 4-6% in 2023. The company noted that new rate classes through new products should accelerate growth. Inflationary pressure, however, is likely to weigh on the upside. The company expects adjusted direct premiums to grow 6% in 2023. It also expects net investment income of $34 million in each quarter for the remainder of 2023.

The Zacks Consensus Estimate for PRI’s 2023 earnings suggests 36.6% year-over-year growth on 3.1% higher revenues. The expected long-term earnings growth rate is pegged at 5%.  The Zacks Consensus Estimate 2023 earnings has moved up 2% in the past 60 days. Year to date, its shares have gained 33.2%.