Yahoo Finance 5 Property & Casualty Insurers to Buy for Sparkling Returns
The Property and Casualty (P&C) insurance space is set to benefit from better pricing, prudent underwriting, increased exposure, an improving rate environment and a solid capital position. With the ongoing economic expansion, insurers remain well-poised for growth.
The Zacks-defined Property & Casualty Insurance Industry is currently in the top 11% of the Zacks Industry Rank. In the past year, the industry has provided 24.2% returns, while its year-to-date return is 15.6%. Since it is ranked in the top half of the Zacks Ranked Industries, we expect it to outperform the market over the next three to six months.
Future Catalysts
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. Per Fitch Ratings, personal auto is likely to deliver a better performance this year.
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.
Colorado State University 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% AM Best estimates cat loss to contribute 680 basis points to the expected combined ratio of 100.7 in 2024.
The P&C insurance industry is witnessing increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation that expedite business operations and save costs. Insurers continue to invest heavily in technology to improve basis points, scale and efficiencies.
Meanwhile, consolidation in the property and casualty industry is likely to continue as players look to diversify their operations into new business lines and geographies. Deloitte estimates more mergers and acquisitions in the reinsurance space in 2024.
Finally, a massive rise in the market interest rate will raise the cost of funds, enabling financial companies to widen the spread between longer-term assets, such as loans, with shorter-term liabilities, thus boosting the financial sector’s profit margin.
The spread between the longer-term assets and shorter-term liabilities would increase the spread of insurers. The Fed is in no hurry to reduce the benchmark lending rate from the existing level of 5.25-5.5%. The insurance industry's profitability has risen historically during periods of rising interest rates.
Our Top Picks
We have narrowed our search to five P&C insurers with strong potential for the rest of 2024. These stocks have seen positive earnings estimates in the last 60 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
HCI Group Inc. HCI is engaged in property and casualty insurance, insurance management, reinsurance, real estate, and information technology businesses in Florida. HCI provides residential insurance products, such as homeowners, fire, flood, and wind-only insurance to homeowners, condominium owners, and tenants for properties, as well as offers reinsurance programs. HCI also owns and operates waterfront properties and retail shopping centers, and an office building, as well as commercial properties for investment purposes.
In addition, HCI designs and develops web-based applications and products for mobile devices, including SAMS, an online policy administration platform, Harmony, a policy administration platform, ClaimColony, an end-to-end claims management platform, and AtlasViewer, a mapping and data visualization platform.
Zacks Rank #1 HCI Group has an expected revenue and earnings growth rate of 40.9% and 57.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 13.1% over the last 60 days.
Palomar Holdings Inc.’s PLMR focus on new business, strong premium retention rates for existing business and renewal of existing policies poise it well for growth. PLMR should benefit from its solid product portfolio as well as geographic expansion and rate increases.
PLMR’s net investment income is expected to grow on the back of a higher average balance of investments. Higher return on capital indicates efficient utilization of shareholders’ value. PLMR expects to generate adjusted net income between $113 million and $118 million in 2024.
Zacks Rank #2 Palomar Holdings has an expected revenue and earnings growth rate of 34.2% and 26%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.6% over the last 30 days.
RLI Corp. RLI is one of the industry’s most profitable property and casualty writers with an impressive track record of underwriting profits. A strong local branch office network, a broad range of product offerings, and a focus on specialty insurance lines contribute to RLI’s profits.
RLI’s ability to maintain the combined ratio at favorable levels even in the toughest operating environment reflects superior underwriting discipline. RLI’s decision to drop underperforming products from its property business also bodes well. A strong capital position provides financial flexibility to operating subsidiaries and supports wealth distribution to shareholders.
Zacks Rank #2 RLI has an expected revenue and earnings growth rate of 15.6% and 18.4%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days.
ProAssurance Corp.’s PRA new business growth is aiding its Workers' Compensation Insurance and Specialty P&C businesses. Net premiums earned improved 1.8% year over year in the first quarter of 2024. Net Investment income also contributed to the results by rising 11.8% year over year in the first quarter. We expect the metric to grow 8.5% year over year in 2024.
PRA’s inorganic growth strategy continues to boost its results. PRA’s cost-cutting efforts in the form of implementing numerous operational and structural changes in the organization are expected to improve margins. Net losses and loss adjustment expenses demonstrated a 5.2% year-over-year decline in the first quarter. We expect total expenses of PRA to decline 8% year over year in 2024.
Zacks Rank #1 ProAssurance has an expected revenue and earnings growth rate of 1.4% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 46.2% over the last 60 days.
Root Inc. ROOT provides insurance products and services in the United States. ROOT offers automobile, homeowners, and renters’ insurance products. ROOT operates a direct-to-consumer model, and serves customers primarily through mobile applications, as well as through its website. ROOT’s direct distribution channels also cover digital, media, and referral channels, as well as distribution partners and agencies.
Zacks Rank #1 Root has an expected revenue and earnings growth rate of more than 100% and 53%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 27% over the last 30 days.
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RLI Corp. (RLI) : Free Stock Analysis Report
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HCI Group, Inc. (HCI) : Free Stock Analysis Report
Palomar Holdings, Inc. (PLMR) : Free Stock Analysis Report
Root, Inc. (ROOT) : Free Stock Analysis Report
