Chicago, IL – January 23, 2023 – Today, Zacks Equity Research discusses Berkshire Hathaway Inc. (BRK.B), Chubb Ltd. CB, The Progressive Corp. PGR, The Travelers Companies Inc. TRV and Everest Re Group RE.
The Zacks Property and Casualty Insurance (P&C) industry is likely to benefit from better pricing, prudent underwriting and exposure growth. Industry players like Berkshire Hathaway Inc., Chubb Ltd., The Progressive Corp., The Travelers Companies Inc. and Everest Re Group are poised to grow despite a rise in catastrophic activities. Given an active catastrophe environment, the policy renewal rate should accelerate. Also, the increasing adoption of technology and the emergence of insurtech will help in the smooth functioning of the industry players.
Though the industry is witnessing a rate increase, the magnitude has decreased in the last seven quarters. Nonetheless, an improvement in surplus and accelerated economic activities set the stage for a better M&A environment.
The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property insurance, and casualty insurance products and services. Such insurance helps to safeguard property in case of any natural or man-made disasters. Liability coverages are also provided by some industry players. The insurance coverage offered also includes 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 to meet their commitments to policyholders. The interest rate environment has started to improve. The Fed has already made seven hikes in 2022 with more to come in 2023. An improving rate environment is a boon for insurers, especially long-tail insurers
Improved pricing to help navigate claims: Catastrophes are a concern for insurers due to the high degree of losses incurred. They implement price hikes to ensure uninterrupted claims payment. Global commercial insurance prices rose for 20 straight quarters though the magnitude has slowed down over the last seven quarters, per Marsh Global Insurance Market Index.
Better pricing will help insurers write higher premiums and address claims payment prudently. Per Deloitte Insights, trends like commercial lines witnessing growth at a faster pace than personal lines and homeowners' premiums improving better than personal auto are likely to continue in 2023. Per Deloitte Insights, gross premiums are estimated to increase sixfold to $722 billion by 2030. China and North America should account for more than two-thirds of the global market, per the report.
Catastrophe loss induces volatility in underwriting profits: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profit. Swiss Re estimated insured losses from natural catastrophes of $35 million for the first half of 2022, while Munich Re estimated losses of $65 billion, with slightly less than half insured.
Per a report published in LAW360, AM Best estimated the net income of U.S. property and casualty insurers to decline 17% year over year to $31.4 billion in the first half of 2022. While the third quarter largely suffered the wrath of Hurricane Ian, the fourth quarter faced the wrath of winter storms that impacted much of the United States and Canada in late December.
However, exposure growth, better pricing, prudent underwriting and favorable reserve development will help withstand the blow. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
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 along the same lines will also continue as players look to gain market share and grow in their niche areas. With the reopening of the economy, optimistic growth outlook and sturdy capital level, the industry is witnessing a number of mergers, acquisitions and consolidations.
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. Accelerated digitalization has become the need of the hour and insurers continue to invest heavily in technology to improve basis points, scale and efficiencies. As insurtechs use the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains a huge market risk.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak 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 #173, which places it in the bottom 31% 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 a negative earnings outlook for the constituent companies in aggregate.
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.
The Property and Casualty Insurance industry has outperformed both the Zacks S&P 500 composite as well as its sector over the past year. The stocks in this industry have collectively gained 1% in the past year against the Finance sector and the Zacks S&P 500 composite's decline of 10.5% and 18.3%, respectively.
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 1.51X compared with the S&P 500's 5.46X and the sector's 3.49X.
Over the past five years, the industry has traded as high as 1.63X, as low as 0.98X and at the median of 1.41X.
We are recommending one Zacks Rank #2 (Buy) stock and four Zacks Rank #3 (Hold) stocks from the P&C Insurance industry. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Everest Re Group: Hamilton, Bermuda-based Everest Re Group is the seventh-largest global property and casualty reinsurer. This Zacks Rank #2 insurer is poised to grow on the strength of new business growth, strong renewal retention, continued favorable rate increases and a solid capital position.
The Zacks Consensus Estimate for RE's 2023 bottom line suggests a year-over-year increase of 77.2% and has moved 3.9% north in the past 30 days. The expected long-term earnings growth rate is 13.5%. It has a VGM Score of A. RE delivered a four-quarter average earnings surprise of 10.26%.
Berkshire Hathaway: Omaha, NE-based Berkshire Hathaway owns more than 90 subsidiaries in insurance, railroads, utilities, manufacturing services, retail and homebuilding. BRK.B boasts one of the largest property and casualty insurance companies measured by premium volume. BRK.B, carrying a Zacks Rank #3, should continue to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments. Continued insurance business growth fuels an increase in float, drives earnings and generates maximum return on equity. With Warren Buffett at its helm, Berkshire continues to create tremendous value for shareholders.
The Zacks Consensus Estimate for Berkshire's 2023 bottom line suggests a year-over-year increase of 11.9%. The expected long-term earnings growth rate is 7%. BRK.B delivered a four-quarter average earnings surprise of 22.18%. It has a VGM Score of A.
The Travelers Companies Inc: New York, NY-based Travelers is one of the leading writers of auto and homeowners' insurance plus commercial U.S. property-casualty insurance. This Zacks Rank #3 insurer operates a comprehensive portfolio of coverages across nine lines of business that should maintain high levels of retention, improve pricing and increase new business while achieving a positive renewal premium change. An active catastrophe reinsurance program lends support in absorbing losses stemming from catastrophes.
Estimates for Travelers' 2023 bottom line suggest a year-over-year increase of 12.8%. The expected long-term earnings growth is pegged at 5.5%. TRV delivered a four-quarter average earnings surprise of 25.39%. It has a VGM Score of A.
Progressive: This Mayfield, OH-based company is a leading auto insurer in the United States and has one of the largest auto insurance groups. PGR is the largest seller of motorcycle policies, a market leader in commercial auto insurance and one of the top 15 homeowner carriers based on premiums written. PGR's compelling product portfolio, leadership position, strength in both Vehicle and Property businesses, healthy policies in force and retention continue to bode well for growth. PGR carries a Zacks Rank #3.
The Zacks Consensus Estimate for Progressive's 2023 bottom line suggests a year-over-year increase of 64.6%. It has moved higher by a couple of cents in the past 30 days. The expected long-term earnings growth rate is 19.9%, better than the industry average of 9.7%. It has a VGM Score of A.
Chubb: Based in Zurich, Switzerland, Chubb is one of the world's largest providers of P&C insurance and reinsurance. It has diversified through acquisitions into many specialty lines and also provides specialized insurance products. This Zacks Rank #3 insurer is poised to benefit from its focus on capitalizing on the potential of middle-market businesses and strategic initiatives, which pave the way for long-term growth.
The Zacks Consensus Estimate for Chubb's 2023 bottom line suggests a year-over-year increase of 11.2% and has moved 0.4% north in the past 30 days. The expected long-term earnings growth rate is 10%. It has a VGM Score of A. CB delivered a four-quarter average earnings surprise of 11.75%.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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