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3 Value Picks From the Undervalued P&C Insurance Industry
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The Zacks Property and Casualty Insurance industry is currently undervalued compared with the Zacks S&P 500 composite and the Zacks Finance sector. The price-to-book (P/B) ratio, the best multiple for valuing insurers because of their unpredictable financial results, stands at 1.52, below the Zacks S&P 500 composite’s P/B of 6.46 and the sector’s P/B of 3.09. Such a market positioning hints at room for upside in the coming quarters.
Before valuation expands, it is wise to add NMI Holdings (NMIH - Free Report) , HCI Group (HCI - Free Report) and Skyward Specialty Insurance Group (SKWD - Free Report) to one’s portfolio as they have solid growth potential.
Industry Growth Drivers
Per a report in Carrier Management, AM Best expects profitable commercial lines and improving personal lines, coupled with higher investment returns on increased yields and strong cash flow, to drive the industry’s performance in 2024.
The industry has been witnessing improving pricing, albeit at a slower pace. Better pricing will help insurers write higher premiums and address claims payment prudently. Swiss Re estimates premiums to grow 7% in 2024 and 4.5% in 2025. Per Fitch Ratings, personal auto will likely perform better than other lines of business, thus leading to better premiums.
Colorado State University (CSU) estimates an active hurricane season this year, about 170% of the average season. Swiss Re estimates the combined ratio in 2024 to be 98.5%
Though P&C insurers’ financials are less sensitive to interest rates than life insurers, a better interest rate environment will cushion investment income. Yet, concerns remain regarding Fed’s decision about curtailing rate this year.
The insurance industry has been witnessing accelerated digitalization. Insurers continue to invest heavily in technology, generative AI in particular, as it is expected to improve basis points, scale and efficiencies.
Zacks Industry Rank
The Zacks Property and Casualty Insurance industry is placed within the top 14% of the 248 Zacks industries. Industry players are poised to benefit from improving pricing, prudent underwriting, increased exposure, streamlined operations, strong global presence and a solid capital position. It currently carries a Zack Industry Rank #35.
Price Performance
The industry has outperformed the Zacks S&P 500 composite as well as the Finance sector year to date. The industry has gained 15.1%, compared with the Zacks S&P 500 composite and the sector’s increase of 12.6% and 4.4%, respectively.
Image Source: Zacks Investment Research
Picking the Value Stocks
With the help of the Zacks Stock Screener, we have selected three P&Cinsurance stocks with an impressive Value Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy). Back-tested results have shown that stocks with a favorable Value Score coupled with a solid Zacks Rank are the best investment options. You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks have also witnessed positive estimate revisions, reflecting analysts’ confidence in the companies’ operational efficiency.
NMI Holdings provides private mortgage insurance through its wholly-owned insurance subsidiaries in the United States. Improving mortgage insurance portfolio, higher new insurance written volume, a comprehensive reinsurance program, a solid capital position and effective capital deployment poise the insurer well for growth. The expected long-term earnings growth rate is pegged at 6.9%.
The stock currently has a P/B ratio of 1.34. The Zacks Consensus Estimate for current-year earnings has moved north by a cent in the past seven days and indicates a year-over-year increase of 10.7%. Its shares have gained 11.2% year to date. It has a Zacks Rank of 2 and a Value Score of B.
HCI Group provides property and casualty insurance, insurance management, reinsurance, and real estate and has information technology businesses in Florida. Growing homeowners business, acquiring profitable books of business, proactively managing risk and loss costs and deploying excess capital into investments and growth initiatives fuel growth.
The stock currently has a P/B ratio of 2.49. The Zacks Consensus Estimate for current-year earnings has moved 8.9% north in the past four weeks and indicates a year-over-year increase of 57.6%. Shares have gained 10.4% year to date. It sports a Zacks Rank of 1 and has a Value Score of A.
Skyward Specialty underwrites commercial property and casualty insurance products in the United States. Its less diversified portfolio, pure pricing increases above estimated loss cost trends, strong new business pricing, higher retention and strong submission activity should drive the insurer’s performance.
The stock currently has a P/B ratio of 2.12. The Zacks Consensus Estimate for current-year earnings has moved 4 cents north in the past four weeks and indicates a year-over-year increase of 31.8%. Shares have gained 8.3% year to date. It has a Zacks Rank of 2 and a Value Score of A.
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3 Value Picks From the Undervalued P&C Insurance Industry
The Zacks Property and Casualty Insurance industry is currently undervalued compared with the Zacks S&P 500 composite and the Zacks Finance sector. The price-to-book (P/B) ratio, the best multiple for valuing insurers because of their unpredictable financial results, stands at 1.52, below the Zacks S&P 500 composite’s P/B of 6.46 and the sector’s P/B of 3.09. Such a market positioning hints at room for upside in the coming quarters.
Before valuation expands, it is wise to add NMI Holdings (NMIH - Free Report) , HCI Group (HCI - Free Report) and Skyward Specialty Insurance Group (SKWD - Free Report) to one’s portfolio as they have solid growth potential.
Industry Growth Drivers
Per a report in Carrier Management, AM Best expects profitable commercial lines and improving personal lines, coupled with higher investment returns on increased yields and strong cash flow, to drive the industry’s performance in 2024.
The industry has been witnessing improving pricing, albeit at a slower pace. Better pricing will help insurers write higher premiums and address claims payment prudently. Swiss Re estimates premiums to grow 7% in 2024 and 4.5% in 2025. Per Fitch Ratings, personal auto will likely perform better than other lines of business, thus leading to better premiums.
Colorado State University (CSU) estimates an active hurricane season this year, about 170% of the average season. Swiss Re estimates the combined ratio in 2024 to be 98.5%
Though P&C insurers’ financials are less sensitive to interest rates than life insurers, a better interest rate environment will cushion investment income. Yet, concerns remain regarding Fed’s decision about curtailing rate this year.
The insurance industry has been witnessing accelerated digitalization. Insurers continue to invest heavily in technology, generative AI in particular, as it is expected to improve basis points, scale and efficiencies.
Zacks Industry Rank
The Zacks Property and Casualty Insurance industry is placed within the top 14% of the 248 Zacks industries. Industry players are poised to benefit from improving pricing, prudent underwriting, increased exposure, streamlined operations, strong global presence and a solid capital position. It currently carries a Zack Industry Rank #35.
Price Performance
The industry has outperformed the Zacks S&P 500 composite as well as the Finance sector year to date. The industry has gained 15.1%, compared with the Zacks S&P 500 composite and the sector’s increase of 12.6% and 4.4%, respectively.
Image Source: Zacks Investment Research
Picking the Value Stocks
With the help of the Zacks Stock Screener, we have selected three P&Cinsurance stocks with an impressive Value Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy). Back-tested results have shown that stocks with a favorable Value Score coupled with a solid Zacks Rank are the best investment options. You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks have also witnessed positive estimate revisions, reflecting analysts’ confidence in the companies’ operational efficiency.
NMI Holdings provides private mortgage insurance through its wholly-owned insurance subsidiaries in the United States. Improving mortgage insurance portfolio, higher new insurance written volume, a comprehensive reinsurance program, a solid capital position and effective capital deployment poise the insurer well for growth. The expected long-term earnings growth rate is pegged at 6.9%.
The stock currently has a P/B ratio of 1.34. The Zacks Consensus Estimate for current-year earnings has moved north by a cent in the past seven days and indicates a year-over-year increase of 10.7%. Its shares have gained 11.2% year to date. It has a Zacks Rank of 2 and a Value Score of B.
HCI Group provides property and casualty insurance, insurance management, reinsurance, and real estate and has information technology businesses in Florida. Growing homeowners business, acquiring profitable books of business, proactively managing risk and loss costs and deploying excess capital into investments and growth initiatives fuel growth.
The stock currently has a P/B ratio of 2.49. The Zacks Consensus Estimate for current-year earnings has moved 8.9% north in the past four weeks and indicates a year-over-year increase of 57.6%. Shares have gained 10.4% year to date. It sports a Zacks Rank of 1 and has a Value Score of A.
Skyward Specialty underwrites commercial property and casualty insurance products in the United States. Its less diversified portfolio, pure pricing increases above estimated loss cost trends, strong new business pricing, higher retention and strong submission activity should drive the insurer’s performance.
The stock currently has a P/B ratio of 2.12. The Zacks Consensus Estimate for current-year earnings has moved 4 cents north in the past four weeks and indicates a year-over-year increase of 31.8%. Shares have gained 8.3% year to date. It has a Zacks Rank of 2 and a Value Score of A.