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4 Low Price-to-Book Stocks From the Undervalued Insurance Industry
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The Zacks Insurance industry is undervalued than the Zacks S&P 500 composite and the Zacks Finance sector. The insurance industry’s price-to-book (the best multiple for valuing insurers because of their unpredictable financial results) of 1.57 was less than the Zacks S&P 500 composite’s P/B of 8.57 and the sector’s P/B of 3.65. Such below-market positioning hints at room for an upside in the days ahead.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Thus, before their valuation increases, locating some undervalued stocks with growth potential is wise.
Driving Forces
Global commercial insurance rates remained unchanged in the second quarter of 2024, per the Marsh Global Insurance Market Index. Price hikes, operational strength, higher retention, strong renewal and the appointment of retail agents should help write higher premiums. Per Deloitte Insights, gross premiums are estimated to increase sixfold to $722 billion by 2030.
Analysts at Swiss Re Institute predict premium volume to reach $4.6 trillion in 2024 and $4.8 trillion in 2025. Per the Swiss Re Institute, property and casualty insurers are anticipated to enhance profitability in 2024, with industry-wide return on equity (ROE) at 10% so far in 2024. For 2025, the Swiss Re Institute estimates an ROE of more than 10%.
According to Verisk’s Extreme Event Solutions group estimates, U.S. onshore wind property losses from Beryl were within the $2-$3 billion range. Per Allstate, estimated catastrophe losses were $587 million for July alone from 20 events.
Multiline insurers benefit from a diversified portfolio that lowers concentration risk. While higher demand for protection products benefits sales and premiums of life insurance operations, better pricing and increased exposure to intangibles and cyber threats support premium growth of non-life insurance operations. Per the 2024 global insurance outlook published in Financial Services, U.S. demand for catastrophe reinsurance is expected to grow, putting upward pressure on prices.
The insurance industry is rate-sensitive. An improving rate environment is a boon for insurers, especially long-tail insurers. The Fed held interest rates unchanged at 5.25-5.5% at the December FOMC meeting. With a large invested asset base, investment income should remain healthy, even if the Fed cuts rates later this year. Also, the insurance players are investing heavily in technology to improve scale and efficiency. This should help them generate higher margins and improve profitability.
Price Performance
The insurance industry has outperformed the Zacks S&P 500 composite as well as the Finance sector in the past year. The insurance industry has gained 31.6%, compared with the Zacks S&P 500 composite and the sector’s increase of 27.8% and 27.1%, respectively.
Image Source: Zacks Investment Research
Better pricing, prudent underwriting and increased exposure should help insurers retain the momentum and remain well-poised for the longer term.
Picking the Value Stocks
With the help of the Zacks Stock Screener, we have selected four insurance 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 and 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 with growth potential have witnessed positive estimate revisions, reflecting analysts’ confidence in their operational efficiency and a cheaper valuation.
Axis Capital Holdings Limited (AXS - Free Report) provides various specialty insurance and reinsurance products worldwide. AXIS Capital continues to build on its Specialty Insurance, Reinsurance, and Accident and Health to pave the way for long-term growth. Apart from fortifying the casualty and professional lines in the insurance segment, its focus on deploying resources prudently while enhancing efficiencies and improving its portfolio mix and underwriting profitability bodes well. The expected long-term earnings growth rate is 27.8%. This insurer surpassed earnings estimates in each of the last four quarters, the average beat being 94.62%. AXS currently sports a Zacks Rank #1. AXS has a Value Score of A.
The company’s return on equity in the trailing 12 months was 19.7%. AXS also has an impressive VGM Score of A.
Axis Capital’s P/B ratio is 1.26. The Zacks Consensus Estimate for 2024 earnings has moved north 6.8% in the past 30 days, and the estimate indicates a year-over-year increase of 8.6%. AXS shares have gained 40.4% in the past year.
NMI Holdings Inc (NMIH - Free Report) 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 9.8%.
The stock currently has a P/B ratio of 1.55. The Zacks Consensus Estimate for 2024 earnings has moved north by 1.1% in the past seven days, and the estimate indicates a year-over-year increase of 16.9%. Its shares have gained 39.8% in the past year. It has a Zacks Rank of 2 and a Value Score of B.
The insurer’s return on equity in the trailing 12 months was 18.2% and it surpassed earnings estimates in each of the last four quarters, the average beat being 10.15%.
MGIC Investment Corporation (MTG - Free Report) is the largest private mortgage insurer in the United States. Higher insurance in force, resulting from an increase in new business written, higher annual persistency, a decline in loss and claims payments, lower delinquency, better housing market fundamentals and prudent capital deployment, bode well for growth. The expected long-term earnings growth rate is pegged at 6.8%.
The stock currently has a P/B ratio of 1.26. The Zacks Consensus Estimate for 2024 earnings has moved north by 2.2% in the past seven days, and the estimate for earnings per share indicates a year-over-year increase of 9.1%. Its shares have gained 43% in the past year. It has a Zacks Rank of 1 and a Value Score of B. The insurer’s return on equity in the trailing 12 months was 14.9% and it surpassed earnings estimates in each of the last four quarters, the average beat being 15.59%.
Old Republic International Corporation (ORI - Free Report) specializes in insurance underwriting and related services, operating primarily in the United States and Canada. ORI’s solid market presence, niche focus, low property catastrophe exposure in its General Insurance segment and robust capital position bodes well for growth. ORI continues to strengthen its balance sheet by improving its cash balance while lowering its leverage ratio. Earnings have grown 10.3% in the past five years, better than the industry average of 9%.
The stock currently has a P/B ratio of 1.51. The Zacks Consensus Estimate for 2024 earnings has moved north by 4.4% in the past 30 days, and the estimate indicates a year-over-year increase of 7.6%. Its shares have gained 29.4% in the past year. It has a Zacks Rank of 2 and a Value Score of B. The insurer’s return on equity in the trailing 12 months was 12.5% and it surpassed earnings estimates in three of the last four quarters and missed in one, the average beat being 9.06%.
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4 Low Price-to-Book Stocks From the Undervalued Insurance Industry
The Zacks Insurance industry is undervalued than the Zacks S&P 500 composite and the Zacks Finance sector. The insurance industry’s price-to-book (the best multiple for valuing insurers because of their unpredictable financial results) of 1.57 was less than the Zacks S&P 500 composite’s P/B of 8.57 and the sector’s P/B of 3.65. Such below-market positioning hints at room for an upside in the days ahead.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Thus, before their valuation increases, locating some undervalued stocks with growth potential is wise.
Driving Forces
Global commercial insurance rates remained unchanged in the second quarter of 2024, per the Marsh Global Insurance Market Index. Price hikes, operational strength, higher retention, strong renewal and the appointment of retail agents should help write higher premiums. Per Deloitte Insights, gross premiums are estimated to increase sixfold to $722 billion by 2030.
Analysts at Swiss Re Institute predict premium volume to reach $4.6 trillion in 2024 and $4.8 trillion in 2025. Per the Swiss Re Institute, property and casualty insurers are anticipated to enhance profitability in 2024, with industry-wide return on equity (ROE) at 10% so far in 2024. For 2025, the Swiss Re Institute estimates an ROE of more than 10%.
According to Verisk’s Extreme Event Solutions group estimates, U.S. onshore wind property losses from Beryl were within the $2-$3 billion range. Per Allstate, estimated catastrophe losses were $587 million for July alone from 20 events.
Multiline insurers benefit from a diversified portfolio that lowers concentration risk. While higher demand for protection products benefits sales and premiums of life insurance operations, better pricing and increased exposure to intangibles and cyber threats support premium growth of non-life insurance operations. Per the 2024 global insurance outlook published in Financial Services, U.S. demand for catastrophe reinsurance is expected to grow, putting upward pressure on prices.
The insurance industry is rate-sensitive. An improving rate environment is a boon for insurers, especially long-tail insurers. The Fed held interest rates unchanged at 5.25-5.5% at the December FOMC meeting. With a large invested asset base, investment income should remain healthy, even if the Fed cuts rates later this year. Also, the insurance players are investing heavily in technology to improve scale and efficiency. This should help them generate higher margins and improve profitability.
Price Performance
The insurance industry has outperformed the Zacks S&P 500 composite as well as the Finance sector in the past year. The insurance industry has gained 31.6%, compared with the Zacks S&P 500 composite and the sector’s increase of 27.8% and 27.1%, respectively.
Image Source: Zacks Investment Research
Better pricing, prudent underwriting and increased exposure should help insurers retain the momentum and remain well-poised for the longer term.
Picking the Value Stocks
With the help of the Zacks Stock Screener, we have selected four insurance 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 and 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 with growth potential have witnessed positive estimate revisions, reflecting analysts’ confidence in their operational efficiency and a cheaper valuation.
Axis Capital Holdings Limited (AXS - Free Report) provides various specialty insurance and reinsurance products worldwide. AXIS Capital continues to build on its Specialty Insurance, Reinsurance, and Accident and Health to pave the way for long-term growth. Apart from fortifying the casualty and professional lines in the insurance segment, its focus on deploying resources prudently while enhancing efficiencies and improving its portfolio mix and underwriting profitability bodes well. The expected long-term earnings growth rate is 27.8%.
This insurer surpassed earnings estimates in each of the last four quarters, the average beat being 94.62%. AXS currently sports a Zacks Rank #1. AXS has a Value Score of A.
The company’s return on equity in the trailing 12 months was 19.7%. AXS also has an impressive VGM Score of A.
Axis Capital’s P/B ratio is 1.26. The Zacks Consensus Estimate for 2024 earnings has moved north 6.8% in the past 30 days, and the estimate indicates a year-over-year increase of 8.6%. AXS shares have gained 40.4% in the past year.
NMI Holdings Inc (NMIH - Free Report) 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 9.8%.
The stock currently has a P/B ratio of 1.55. The Zacks Consensus Estimate for 2024 earnings has moved north by 1.1% in the past seven days, and the estimate indicates a year-over-year increase of 16.9%. Its shares have gained 39.8% in the past year. It has a Zacks Rank of 2 and a Value Score of B.
The insurer’s return on equity in the trailing 12 months was 18.2% and it surpassed earnings estimates in each of the last four quarters, the average beat being 10.15%.
MGIC Investment Corporation (MTG - Free Report) is the largest private mortgage insurer in the United States. Higher insurance in force, resulting from an increase in new business written, higher annual persistency, a decline in loss and claims payments, lower delinquency, better housing market fundamentals and prudent capital deployment, bode well for growth. The expected long-term earnings growth rate is pegged at 6.8%.
The stock currently has a P/B ratio of 1.26. The Zacks Consensus Estimate for 2024 earnings has moved north by 2.2% in the past seven days, and the estimate for earnings per share indicates a year-over-year increase of 9.1%. Its shares have gained 43% in the past year. It has a Zacks Rank of 1 and a Value Score of B. The insurer’s return on equity in the trailing 12 months was 14.9% and it surpassed earnings estimates in each of the last four quarters, the average beat being 15.59%.
Old Republic International Corporation (ORI - Free Report) specializes in insurance underwriting and related services, operating primarily in the United States and Canada. ORI’s solid market presence, niche focus, low property catastrophe exposure in its General Insurance segment and robust capital position bodes well for growth. ORI continues to strengthen its balance sheet by improving its cash balance while lowering its leverage ratio. Earnings have grown 10.3% in the past five years, better than the industry average of 9%.
The stock currently has a P/B ratio of 1.51. The Zacks Consensus Estimate for 2024 earnings has moved north by 4.4% in the past 30 days, and the estimate indicates a year-over-year increase of 7.6%. Its shares have gained 29.4% in the past year. It has a Zacks Rank of 2 and a Value Score of B. The insurer’s return on equity in the trailing 12 months was 12.5% and it surpassed earnings estimates in three of the last four quarters and missed in one, the average beat being 9.06%.