Add these 5 insurance actions to boost your portfolio in 2H22
The insurance industry continues to benefit from better pricing, conservative underwriting, increased exposure, an improving pricing environment and a strong capital position despite an active catastrophic environment. The insurance industry is a major contributor to the country’s GDP. Given the ongoing economic expansion. Insurers are primed for growth.
In a favorable macroeconomic context, Axis Capital Holdings Limited AXS, American Financial Group Inc.. AFG, Argo Group International Holdings, Ltd. ARGO, Brighthouse Financial Inc.. BHF and Unum Group The UNM is geared up for a solid performance based on operational excellence.
Factors likely to have an impact on insurers in 2H
The second half of the year traditionally bears the brunt of hurricanes. According to Colorado State University (CSU), 2022 is expected to see an active hurricane season that could have 19 named storms, including nine hurricanes and four major hurricanes. This year’s hurricane season could be about 130% of the average season per CSU.
Last year also saw an above-average hurricane season. According to a report by the Swiss Re Institute, catastrophic insured losses worldwide incurred in 2021 amounted to $112 billion, making it the fourth most expensive year. Natural disasters accounted for $105 billion in insured losses worldwide, a 17% increase from 2020 levels, according to the report. The industry suffered a net underwriting loss of $3.8 billion compared to an underwriting gain of $5.2 billion in 2020, as the magnitude of the increase in premiums earned was less than the magnitude of rising losses and loss adjustment costs according to a report by Verisk and American Property Casualty Insurance. Association. The combined ratio deteriorated by 100 basis points to 99.6 in 2021.
According to the American Property Casualty Insurance Association and Verisk, the profitability of U.S. private P&C insurers (measured by an annualized rate of return on average insured surplus) was 6.4% in 2021, down from 6.9% in 2020.
Nevertheless, prudent underwriting by insurers, better pricing, favorable reserve developments and a solid level of capital should help them withstand the impact.
Prices continue to improve
Catastrophic events weigh on the profitability of insurers’ underwriting. Still, price hikes from industry players should help keep them afloat. Insurers continue to see price improvement, albeit to a lesser degree. According to Marsh, global commercial insurance prices in the first quarter of 2022 rose 11%, marking the 18th consecutive quarter of price increases. According to the report, property rates increased by 7%, accident rates increased by 7%, financial and business line rates in the United States increased by 26% and cyber insurance rates increased. by 26%. According to Willis Towers Watson’s 2022 Insurance Market Realities Report, rates will continue to rise, but by a small margin.
Better pricing will help insurers underwrite higher premiums. According to information from Deloitte, global non-life premiums are expected to increase by 3.7% in 2022, while life insurance premiums are expected to increase by 4%.
Interest rate increases
Given the improved pricing environment, insurers stand to benefit as they are the direct beneficiaries of the rate hike. The Federal Reserve has raised twice this year so far — in March and May — with more to come. The interest rate is currently between 0.75% and 1%.
The improvement in the pricing environment will primarily benefit P&C and life insurers (whose revenue typically comes from the difference between the returns on their investments and what they credit as interest on policies and life insurance products). ‘insurance).
Accelerated digitization has taken place with increased use of technologies such as blockchain, AI, advanced analytics, telematics, cloud computing, and robotic process automation in day-to-day operations. These are likely to help insurers ensure transparent underwriting and claims handling, which in turn will help contain costs and therefore expand margins.
According to Deloitte Insights, the technology budget is expected to increase by 13.7% in 2022
Efficient deployment of capital
With a solid level of capital, insurers engage in strategic consolidations to expand their businesses, develop niches and invest in growth opportunities. Insurers are also approving dividend increases, special dividends and share buybacks to increase shareholder value.
Stocks to add to your portfolio
With the help of the Zacks Stock Screener, we shortlisted five insurance stocks with a favorable Zacks ranking, backed by upward estimate revisions, and an impressive value score of A or B. The value score helps identify undervalued companies. The deviation from their fair value is what creates an exceptional upside opportunity. Additionally, back-tested results showed that stocks with a favorable style score of A or B coupled with a strong Zacks ranking are the best investment bets.
You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Axis Capital Holdings is a leading specialty insurer and global reinsurer, targeting leadership in specialty risks. The company’s focus on building a portfolio of specialty insurance, reinsurance as well as accident and health insurance, its strong market presence, better pricing, expanding margins and effective deployment capital should stimulate growth. This Zacks No. 2 (buy) ranked insurer remains focused on lines of business likely to offer strong double-digit ROE opportunities.
AXS has one of the highest dividend yields among its peers and has made 18 consecutive dividend increases.
AXS’s 2022 net profit estimates have risen 1.5% over the past 30 days and suggest a 22.4% increase on the figure reported a year ago. Axis Capital has an impressive VGM score of A. The expected long-term growth rate is set at 5%.
American financial The Group is a niche player in the property and casualty insurance and annuity markets with a focus on specialized commercial products for businesses. New business opportunities, growth in excess lines and excess liability business, rate increases and greater retention in renewal business in real estate and transportation, specialty damages and specialty financial services prepare this Zacks No. 1 rank insurer for growth.
AFG has a strong record of increasing dividends for 17 consecutive years and has paid 18 exceptional dividends in 11 years.
AFG’s 2022 net income estimates have risen 9.8% over the past 60 days.
Argo Group is a US-focused specialty insurer poised to capitalize on highly profitable businesses, growth initiatives, expense drive programs and digitalization.
The Argo Group, bearing Zacks rank No. 2, expects to generate an operating return on equity between 9% and 11% in 2022.
ARGO 2022 net income estimates are up 0.2% over the past 60 days and suggest a 255.5% increase over the number reported a year ago. Argo has an impressive VGM score of A.
Brighthouse Financial is one of the largest providers of annuity and life insurance products in the United States and is well positioned to take advantage of the growth in the individual insurance market, given a broad and attractive range of annuity and annuity products as well as a strong market presence. This Zacks No. 2 ranked insurer remains focused on increasing new sales of life insurance products and expanding its distribution network, aiming to become a leading player in the industry.
The Zacks consensus estimate for Brighthouse Financial’s earnings in 2022 has risen 4.3% over the past seven days.
Unum Group provides long term care insurance, life insurance, employer and employee paid group benefits and related services. Continued dental product rollout and geographic expansion has paid off as the acquired dental insurance business expands in the US and UK.
Unum, carrying Zacks Rank #2, has a track of increasing dividends 13 times over the past 12 years.
UNM’s net income estimates for 2022 have risen 1.5% over the past seven days and suggest a 17% increase from the figure reported a year ago. Unum Group has an impressive VGM score of A. The expected long-term growth rate is pegged at 11.9%, better than the industry average of 8.4%.
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