Table of Contents
- 1 About the Industry
- 2 4 Trends Shaping the Future of Property and Casualty Insurance Industry
- 3 Zacks Industry Rank Indicates Bleak Prospects
- 4 Industry Outperforms Sector But Lags S&P 500
- 5 One-Year Price Performance
- 6 Current Valuation
- 7 Price-to-Book (P/B) Ratio (TTM)
- 8 Price-to-Book (P/B) Ratio (TTM)
- 9 6 Property and Casualty Insurance Stocks to Keep an Eye on
- 10 Price and Consensus: FNF
- 11 Price and Consensus: FAF
- 12 Price and Consensus: BRK.B
- 13 Price and Consensus: PGR
- 14 Price and Consensus: ALL
- 15 Price and Consensus: RE
- 16 Just Released: Zacks’ 7 Best Stocks for Today
With 2020’s hurricane season likely to see 190% more storms than the average season, the Zacks Property and Casualty Insurance (P&C) industry is up for a tough ride. Nonetheless, better pricing, prudent underwriting and exposure growth should benefit Berkshire Hathaway (BRK.B), Progressive Corporation (PGR), Allstate Corporation (ALL), Everest Re Group (RE), Fidelity National Financial (FNF) and First American Financial (FAF).
While frequent natural disasters should accelerate the policy renewal rate, increasing adoption of technology and emergence of insurtech will help in smooth functioning of the industry. However, pandemic-related uncertainties weigh on merger and acquisition (M&A) activities and industry surplus.
About the Industry
The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property, and casualty insurance products and services. Such insurance coverage helps to safeguard property in case of any natural or man-made disaster. Liability coverages are also provided by some industry players.
Insurance coverages offered by the companies also include automobiles, professional risk, marine, excess casualty, aviation, personal accident, commercial multi-peril, and professional indemnity and surety.
Premiums are the primary source of revenues for these insurers. These companies invest a portion of premiums collected to meet their commitments to policyholders. Thus, a low rate environment is a concern for P&C insurers (especially for long-tail insurance providers).
4 Trends Shaping the Future of Property and Casualty Insurance Industry
Catastrophe loss weighing on underwriting profitability: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profit. Per reports by Aon, total economic losses in the first half of 2020 was $75 billion, stemming from 207 catastrophe events across the globe while insured losses were $30 billion, 8% higher than the 20-year average. In fact, Colorado State University (“CSU”) expects ‘extremely active Atlantic hurricane season in 2020 and hurricane activity will be about 190% of the average season’. There will be 24 named storms, including 12 hurricanes and six major hurricanes, per CSU. Nonetheless, exposure growth, better pricing, prudent underwriting and favorable reserve development will help withstand the blow. Per a report by Carrier Management, Fitch Ratings analysts project an overall combined ratio of 97 in 2020, a slight improvement from 98 in 2019. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
Improved pricing helps navigate claims payment: Though catastrophes are a concern for insurers due to the high degree of losses incurred, they implement price hikes to ensure uninterrupted claims payment. Per Willis Towers Watson’s Commercial Lines Insurance Pricing Survey, U.S. commercial insurance prices improved 10% in the second quarter of 2020. It further stated that in 2020, 23 lines are expected to witness price rise while five might see either increases, decreases or flat renewals. Better pricing will help insurers address claims payment.
Merger and acquisitions: Consolidation in the property and casualty industry is likely to continue as players look to diversify their operations into new business lines and geography. Buying businesses in the same lines will also continue as players look to gain market share and grow in their niche areas. Also, non-traditional firms are gradually entering the insurance space and combining insurance with their core products. Per a recent Willis Towers Watson report, the global M&A market recorded its first positive performance in three years for completed deals. However, deal volume has declined considerably due to the uncertainty surrounding the pandemic. Industry surplus too has dropped.
Increased adoption of technology: The 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 cost. The industry has also witnessed the emergence of insurtech — technology-led insurers — creating competition for incumbent players. The focus of insurtech is mainly on the property and casualty insurance industry. Adoption of technologies has helped in seamless underwriting and claims processing during the pandemic that has led to social distancing norms. As insurtechs use the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains huge market risk.
Zacks Industry Rank Indicates Bleak Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull prospects in the near term. The Zacks Property and Casualty Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #210, which places it in the bottom 17% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. In a year’s time, the industry’s earnings estimates for the current year have gone down 18.8%.
Before we present a few property and casualty stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector But Lags S&P 500
The Property and Casualty Insurance industry has underperformed the Zacks S&P 500 composite but outperformed its own sector over the past year. The stocks in this industry have collectively lost 1.8% in the past year compared with the Finance sector’s decrease of 6.6%. Meanwhile, the Zacks S&P 500 composite has risen 18.4%.
One-Year Price Performance
On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.29X compared with the S&P 500’s 5.94X and the sector’s 2.54X.
Over the past five years, the industry has traded as high as 1.67X, as low as 0.93X and at the median of 1.46X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
6 Property and Casualty Insurance Stocks to Keep an Eye on
We are recommending two Zacks Rank #2 (Buy) stocks from the P&C Insurance industry. We are also presenting four stocks with a Zacks Rank #3 (Hold) from the same industry. You can see the complete list of today’s Zacks #1 Rank stocks here.
Fidelity National Financial: The Jacksonville, FL-based company is the nation’s largest title insurance and settlement services provider. Boasting leading market share in the residential purchase, refinance and commercial markets, it carries a Zacks Rank #2. The company should continue to benefit from prudent acquisitions, strategic investments, effective cost management and solid capital position. Estimates for its 2020 bottom line have jumped over the past 60 days by 20.3%, and suggest a 15.6% increase from the year-ago reported number. The stock has lost 24.5% in the past year.
Price and Consensus: FNF
First American Financial: Santa Ana, CA-based title insurer provides closing/settlement services, property and casualty insurance, trust and wealth management services, among others. Increased demand among millennials for first-time home purchases, better pricing and strength in commercial business should drive its performance. It carries a Zacks Rank #2. This company has seen upward estimate revisions for its 2020 bottom line over the past 60 days by 1.3%. The stock has lost 10% in the past year.
Price and Consensus: FAF
Berkshire Hathaway: Omaha, NE-based Berkshire is a holding company, which owns more than 90 subsidiaries in insurance, rail roads, utilities, manufacturing services, retail and home building. The company is expected to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments and strategic acquisitions. It carries a Zacks Rank #3. The expected long-term earnings growth is 7%. The stock has gained 4.1% in the past year.
Price and Consensus: BRK.B
The Progressive Corporation: Based in Mayfield Village, OH, it is one of the major auto insurers in the country. It is poised to grow on a robust portfolio, solid policies in force, service to customers opting for a combination of home and auto insurance, leadership in underwriting technology and application of quantitative analytics in pricing and risk selection and solid market positioning. It carries a Zacks Rank #3. Estimates for its 2020 bottom line have jumped over the past 60 days by 6.2%, and suggest a 2.1% increase from the year-ago reported number. The expected long-term earnings growth is 6.2%. The stock has lost 5% in the past year.
Price and Consensus: PGR
The Allstate Corporation: Based in Northbrook, IL, it third-largest property-casualty insurer and the largest publicly-held personal lines carrier in the United States also provides a range of life insurance and investment products. Allstate is poised to grow on the back of its solid property and liability segment. It carries a Zacks Rank #3. The Zacks Consensus Estimate for 2020 indicates a year-over-increase of 6.8%. The expected long-term earnings growth is 7.5%. The stock has lost 12.2% in the past year.
Price and Consensus: ALL
Everest Re Group: Hamilton, Bermuda-based company writes property and casualty, reinsurance and insurance in the United States, Bermuda and international markets. The company is poised to benefit from huge market share in insurance and reinsurance market and traditional risk management capabilities. It carries a Zacks Rank #3. The expected long-term earnings growth is 10.4%, better than the industry average of 8.8%. The stock has lost 18.5% in the past year.
Price and Consensus: RE
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Everest Re Group, Ltd. (RE) : Free Stock Analysis Report
The Progressive Corporation (PGR) : Free Stock Analysis Report
Fidelity National Financial, Inc. (FNF) : Free Stock Analysis Report
First American Financial Corporation (FAF) : Free Stock Analysis Report
Berkshire Hathaway Inc. (BRK.B) : Free Stock Analysis Report
The Allstate Corporation (ALL) : Free Stock Analysis Report
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