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WRB or CINF: Which P&C Stock Should You Buy for Higher Returns?
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The Zacks Property and Casualty Insurance industry rose 11.5% last year. Increased exposure, streamlined operations, global presence, better pricing, solid underwriting and a strong capital position likely helped the industry perform well. Per Fitch Ratings, the industry is poised to perform well going ahead, banking on improved personal auto, lower claims and an increase in investment.
The performance of non-life insurers is measured by underwriting profitability. According to AM Best, total net underwriting loss was $32.2 billion in the first nine months of 2023, higher than $24.6 billion incurred in the year-ago period. Rising loss costs, above-average catastrophe activity and adverse trends in personal auto resulted in the wider losses. The combined ratio was 103.5 for the same time frame, per the credit rating giant, to which catastrophe losses added 980 basis points. Underwriting profitability is affected by occurrences of catastrophes. Per a report in Munich RE, losses from natural disasters in 2023 were $250 billion. Fitch estimates the combined ratio to remain above 100 in 2024
Catastrophes also impact pricing in the space. Global commercial insurance prices rose for 24 straight quarters, though the magnitude has slowed down, per Marsh Global Insurance Market Index. Improved pricing drives higher premiums, ensuring smooth claims settlement.
Per Deloitte Insights, gross premiums are estimated to increase about six-fold to $722 billion by 2030. China and North America should account for more than two-thirds of the global market, per the report. Per Fitch Ratings, personal auto is likely to deliver better performance in 2024. This, coupled with better investment results and lower claims, should fuel insurers' performance this year, per Fitch Ratings.
The insurance industry benefits from a rising rate environment. The Fed paused rate hikes in its last three meetings in 2023 and there remains a high probability of rate cuts in 2024. The interest rate currently stands at 5.25-5.50%.
Accelerated digitalization continues to improve scale and efficiency. While a solid policyholders’ surplus helps the industry absorb losses, a sturdy capital level supports inorganic expansion, investment in growth initiatives and capital payout to shareholders.
Here, we focus on two property and casualty insurers, namely W.R. Berkley Corporation (WRB - Free Report) and Cincinnati Financial Corporation (CINF - Free Report) . W.R. Berkley, with a market capitalization of $18.6 billion, is one of the nation’s largest commercial lines property casualty insurance providers. Cincinnati Financial, with a market capitalization of $16.7 billion, markets property and casualty insurance. The companies carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s now see how these P&C insurers fare in terms of some of the key metrics.
Price Performance
Cincinnati Financial has gained 1% against W.R. Berkley’s decline of 2.6% in 2023. The industry has risen 11.5%.
Return on Equity
W.R. Berkley has a return on equity (“ROE”) of 18.5%, which exceeds Cincinnati Financial’s ROE of 7.4% and the industry average of 7.2%. ROE measures how efficiently a company is utilizing its shareholders’ funds.
Return on Invested Capital
Return on invested capital (ROIC) is a profitability or performance ratio that aims to measure the percentage return that a company earns on invested capital. The ratio shows how efficiently a company is using investors' funds to generate income.
W.R. Berkley has an ROIC of 9.3%, which exceeds Cincinnati Financial’s ROIC of 2.6% and the industry average of 5.5%.
Dividend Yield
Cincinnati Financial’s dividend yield of 2.9% exceeds W.R. Berkley’s dividend yield of 0.7% and the industry average of 0.3%.
Debt-to-Equity Ratio
W.R. Berkley's reading of 40.9 is higher than the industry average of 24 as well as Cincinnati Financial’s debt-to-equity ratio of 8.2.
Growth Projection
The Zacks Consensus Estimate for CINF’s 2024 earnings indicates an 8.5% increase from the year-ago estimated figure, while that for WRB implies a year-over-year increase of 20.1%.
WRB has a Growth Score of A while CINF has a Growth Score of C.
Combined Ratio
The combined ratio represents the underwriting profitability of an insurer. CINF’s combined ratio for the first nine months of 2023 was 97.5, while the same for WRB was 90.1.
Net Margin
WRB’s proforma net margin for the trailing 12 months was 10.7%, higher than CINF’s reading of 8.1%.
Valuation
CINF shares are trading at a price-to-book value multiple of 1.53, lower than WRB’s reading of 2.63. The industry average is 1.46.
To Conclude
Our comparative analysis shows that WRB outpaces CINF in terms of ROE, ROIC, growth projection, combined ratio and net margin. CINF has the edge over WRB with respect to price performance, dividend yield, leverage and valuation.
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WRB or CINF: Which P&C Stock Should You Buy for Higher Returns?
The Zacks Property and Casualty Insurance industry rose 11.5% last year. Increased exposure, streamlined operations, global presence, better pricing, solid underwriting and a strong capital position likely helped the industry perform well. Per Fitch Ratings, the industry is poised to perform well going ahead, banking on improved personal auto, lower claims and an increase in investment.
The performance of non-life insurers is measured by underwriting profitability. According to AM Best, total net underwriting loss was $32.2 billion in the first nine months of 2023, higher than $24.6 billion incurred in the year-ago period. Rising loss costs, above-average catastrophe activity and adverse trends in personal auto resulted in the wider losses. The combined ratio was 103.5 for the same time frame, per the credit rating giant, to which catastrophe losses added 980 basis points. Underwriting profitability is affected by occurrences of catastrophes. Per a report in Munich RE, losses from natural disasters in 2023 were $250 billion. Fitch estimates the combined ratio to remain above 100 in 2024
Catastrophes also impact pricing in the space. Global commercial insurance prices rose for 24 straight quarters, though the magnitude has slowed down, per Marsh Global Insurance Market Index. Improved pricing drives higher premiums, ensuring smooth claims settlement.
Per Deloitte Insights, gross premiums are estimated to increase about six-fold to $722 billion by 2030. China and North America should account for more than two-thirds of the global market, per the report. Per Fitch Ratings, personal auto is likely to deliver better performance in 2024. This, coupled with better investment results and lower claims, should fuel insurers' performance this year, per Fitch Ratings.
The insurance industry benefits from a rising rate environment. The Fed paused rate hikes in its last three meetings in 2023 and there remains a high probability of rate cuts in 2024. The interest rate currently stands at 5.25-5.50%.
Accelerated digitalization continues to improve scale and efficiency. While a solid policyholders’ surplus helps the industry absorb losses, a sturdy capital level supports inorganic expansion, investment in growth initiatives and capital payout to shareholders.
Here, we focus on two property and casualty insurers, namely W.R. Berkley Corporation (WRB - Free Report) and Cincinnati Financial Corporation (CINF - Free Report) . W.R. Berkley, with a market capitalization of $18.6 billion, is one of the nation’s largest commercial lines property casualty insurance providers. Cincinnati Financial, with a market capitalization of $16.7 billion, markets property and casualty insurance. The companies carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s now see how these P&C insurers fare in terms of some of the key metrics.
Price Performance
Cincinnati Financial has gained 1% against W.R. Berkley’s decline of 2.6% in 2023. The industry has risen 11.5%.
Return on Equity
W.R. Berkley has a return on equity (“ROE”) of 18.5%, which exceeds Cincinnati Financial’s ROE of 7.4% and the industry average of 7.2%. ROE measures how efficiently a company is utilizing its shareholders’ funds.
Return on Invested Capital
Return on invested capital (ROIC) is a profitability or performance ratio that aims to measure the percentage return that a company earns on invested capital. The ratio shows how efficiently a company is using investors' funds to generate income.
W.R. Berkley has an ROIC of 9.3%, which exceeds Cincinnati Financial’s ROIC of 2.6% and the industry average of 5.5%.
Dividend Yield
Cincinnati Financial’s dividend yield of 2.9% exceeds W.R. Berkley’s dividend yield of 0.7% and the industry average of 0.3%.
Debt-to-Equity Ratio
W.R. Berkley's reading of 40.9 is higher than the industry average of 24 as well as Cincinnati Financial’s debt-to-equity ratio of 8.2.
Growth Projection
The Zacks Consensus Estimate for CINF’s 2024 earnings indicates an 8.5% increase from the year-ago estimated figure, while that for WRB implies a year-over-year increase of 20.1%.
WRB has a Growth Score of A while CINF has a Growth Score of C.
Combined Ratio
The combined ratio represents the underwriting profitability of an insurer. CINF’s combined ratio for the first nine months of 2023 was 97.5, while the same for WRB was 90.1.
Net Margin
WRB’s proforma net margin for the trailing 12 months was 10.7%, higher than CINF’s reading of 8.1%.
Valuation
CINF shares are trading at a price-to-book value multiple of 1.53, lower than WRB’s reading of 2.63. The industry average is 1.46.
To Conclude
Our comparative analysis shows that WRB outpaces CINF in terms of ROE, ROIC, growth projection, combined ratio and net margin. CINF has the edge over WRB with respect to price performance, dividend yield, leverage and valuation.