The Zacks Property and Casualty Insurance industry continues to grapple with issues like higher catastrophe events, both natural and man-made, which drag down underwriting profit.

Per Aon, estimated total economic losses were $380 billion, while insured losses were $118 million in 2023.

Per AM Best, total net underwriting loss was $38 billion in 2023, a 10-year high, largely attributable to weather-related losses, high inflation as well as reinsurance pricing pressure. The combined ratio was 103.7 for the same time frame per the credit rating giant, to which catastrophe losses added 780 basis points. AM Best also estimates cat loss to contribute 680 basis points to the expected combined ratio of 100.7 in 2024.

Despite these challenges surrounding the industry, the P&C insurance industry has gained 13.5% in the year-to-date period, outperforming the Zacks S&P 500 Composite’s growth of 6.9% and the Finance sector’s 2.6% rise.

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High-quality dividend stocks such as Axis Capital Holdings Limited (AXS Quick QuoteAXS - Free Report) , Cincinnati Financial Corporation (CINF Quick QuoteCINF - Free Report) , CNA Financial Corporation (CNA Quick QuoteCNA - Free Report) and American Financial Group (AFG Quick QuoteAFG - Free Report) , which regularly boost dividend payouts, might offer investors an opportunity to gain from the industry’s growth prospects.

Global commercial insurance prices rose for 25 straight quarters, per Marsh Global Insurance Market Index.

Better pricing, operational strength, higher retention, and strong renewal should drive higher premiums. Per Deloitte Insights, gross premiums are estimated to increase sixfold to $722 billion by 2030. Analysts at Swiss Re Institute predict premiums to grow 5.5% in 2024.

The insurance industry is rate-sensitive. The Fed made four hikes in 2023, taking the tally to 11 since March 2022. An improving rate environment is a boon for insurers, especially long-tail insurers. The Fed has held interest rates unchanged at 5.25-5.5% at the December FOMC meeting.

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 buy back shares.

Simultaneously, the use of real-time data is making premium calculation easier and reducing risk. Increased automation is expected to drive premium growth and boost efficiency. Accelerated digitization, robotic process automation, cognitive intelligence and blockchain should help life insurers curb operational costs and aid margin expansion.

How to Pick Stocks With Solid Dividend Payouts?

To choose some of the best dividend stocks from the aforementioned industry, we have run the Zacks Stock Screener to identify stocks with a dividend yield in excess of 2% and a sustainable dividend payout ratio of less than 60%, reflecting enough room for future dividend increases. These stocks also have a five-year historical dividend growth rate of more than 2% and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Our Top Picks

Axis Capital, with a market capitalization of $5.19 billion, provides various specialty insurance and reinsurance products worldwide. The P&C insurer remains poised to gain from repositioning the portfolio and markets, offering profitable growth, lower volatility, strong market presence, better pricing and margin expansion. AXS sports a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The insurer’s payout ratio is 18, with a five-year annualized dividend growth rate of 2.26%. Its current dividend yield of 2.8% is better than the industry average of 0.2%. The insurer’s quarterly dividend payment witnessed a 10-year CAGR (2015-2024) of 4.2%. (Check Axis Capital’s dividend history here.)

AXIS Capital continues to build on its Specialty Insurance, Reinsurance plus Accident and Health portfolio, exit underperforming lines, invest in more attractive markets, and enter new markets, thus improving the portfolio mix and underwriting profitability. The company has been boosting shareholder value through stock buybacks and dividend hikes. It boasts one of the highest dividend yields among its peers. During 2023, the company repurchased shares for $17 million. As of Dec 31, 2023, the company had $100 million of remaining authorization under the board-authorized share repurchase program for share repurchases through Dec 31, 2024.

Cincinnati Financial, with a market capitalization of 18.38 billion, provides property casualty insurance products in the United States. CINF remains poised to gain from price increases, a higher level of insured exposures and several growth initiatives, which include the expansion of Cincinnati Re and Cincinnati Global. This Zacks Rank #2 P&C insurer intends to grow the Commercial Lines and Excess and Surplus lines through additional agency appointments, expansion of local field presence, higher renewal written premiums and higher average renewal estimated pricing.

The insurer’s payout ratio is 50, with a five-year annualized dividend growth rate of 7.22%. The 2.5% dividend yield surpasses the industry average of 0.2%, making Cincinnati Financial an appealing choice for investors seeking stable returns. The insurer’s quarterly dividend payment witnessed a 10-year CAGR (2014-2024) of 5.8%. (Check Cincinnati Financial’s dividend history here.)

Cincinnati Financial’s consistent cash flow continues to boost liquidity. In terms of capital management, Cincinnati Financial has returned capital to shareholders through share buybacks, regular cash dividends as well as special dividends. In January 2024, CINF’s board approved an 8% hike in quarterly dividend. The board of directors had increased the annual cash dividend rate for 64 consecutive years, a record which is believed to be matched by only seven other U.S. publicly traded companies. The dividend increases reflected strong operating performance and signaled management's and the board's positive outlook and confidence in outstanding capital, liquidity and financial flexibility.

CNA Financial, with a market capitalization of $11.87 billion, offers commercial P&C insurance products, mainly across the United States. The insurer’s focus on better pricing, increased exposure, higher new businesses, and retentions across its Specialty, Commercial and International segments poise it well for growth. CNA carries a Zacks Rank #3 at present.

The insurer’s payout ratio is 36, with a five-year annualized dividend growth rate of 4.35%. Its current dividend yield of 4% is better than the industry’s average of 0.2%. The insurer’s quarterly dividend payment witnessed a 10-year CAGR (2014-2024) of 5.8%. (Check CNA Financial’s dividend history here.)

A strong balance sheet and cash flows enable CNA Financial to engage in shareholder-friendly moves like dividend hikes. In February 2024, CNA Financial’s board approved a 5% hike in quarterly dividend. Simultaneously, CNA announced a special dividend of $2 per share, marking the 10th special dividend. On the back of a disciplined execution, denoted by strong underwriting results and confidence in future earnings performances, the company hiked its dividend over the past couple of years. Thus, CNA remains committed to returning more value to shareholders.

American Financial, with a market capitalization of $10.83 billion, is an insurance holding company that provides specialty property and casualty insurance products in the United States. This Zacks Rank #3 insurer is set to benefit from business opportunities, growth in the surplus lines and excess liability businesses, and higher retentions in the renewal business, which boost premium growth.

The insurer’s payout ratio is 27, with a five-year annualized dividend growth rate of 12.08%. Its current dividend yield of 2.2% is better than the industry’s average of 0.2%. The insurer’s quarterly dividend payment witnessed a 10-year CAGR (2015-2024) of 25.89%. (Check American Financial’s dividend history here).

American Financial has traditionally maintained an adjusted financial leverage of around 20%, with a good cash flow and interest coverage ratio. In each of the last 18 years, AFG has successfully increased its dividends. During 2023, AFG repurchased shares for $213 million and paid special cash dividends totaling $466 million. In addition, on Feb 6, 2024, AFG declared a special cash dividend of $2.50 per share. The aggregate amount of this special dividend will be approximately $210 million. The robust operating profitability at the P&C segment, a stellar investment performance and effective capital management support effective shareholders return. AFG expects its operations to continue to generate significant excess capital throughout the remainder of 2024, which provides ample opportunity for additional share repurchases or special dividends over the next year.