The Property and Casualty (P&C) insurance industry 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.
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 in 2024. This coupled with better investment results and lower claims should fuel insurers' performance in 2024. Analysts at Swiss Re Institute predict premiums to grow 7.5% in 2023 and 5.5% 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.
However, the industry is susceptible to catastrophe events, which drag down underwriting profits. Swiss Re estimated a global economic loss of $290 billion in the first nine months of 2023. According to AM Best, total net underwriting loss was $32.2 billion in the first nine months of 2023.
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.
The Zacks-defined Property and Casualty Insurance industry is currently in the top 17% of the Zacks Industry Rank. In the past year, the industry has provided 25% returns, while its year-to-date return is 12.3%. Since it is ranked in the top half of the Zacks Ranked Industries, we expect this industry to outperform the market over the next three to six months.
Our Top Picks
We have narrowed our search to five P&C insurers with strong potential for 2024. These stocks have seen positive earnings estimates in the last 30 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.
Zacks Investment Research
Image Source: Zacks Investment Research
The Progressive Corp. PGR continues to gain on higher premiums, given its compelling product portfolio, leadership position and strength in both Vehicle and Property businesses. Focus on becoming a one-stop insurance destination, catering to customers opting for a combination of home and auto insurance, augurs well for PGR’s growth.
Policies in force and retention ratio should remain healthy. Competitive pricing to retain current customers and address customer needs with new offerings should continue to drive policy life expectancy.
Zacks Rank #1 The Progressive has an expected revenue and earnings growth rate of 15.7% and 49.4%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.3% over the last 30 days.
AXIS Capital Holdings Ltd. AXS continues to build on its Specialty Insurance, Reinsurance and Accident and Health to pave the way for long-term growth. Focus on deploying resources prudently while enhancing efficiencies, improving its portfolio mix and underwriting profitability, apart from fortifying the casualty and professional lines in the insurance segment, bode well for AXS. Repositioning of the portfolio, over the last three years, will continue to drive results. AXS effectively deploys capital to boost shareholder value.
Zacks Rank #1 AXIS Capital Holdings has an expected revenue and earnings growth rate of 3.6% and 3.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last seven days.
Mercury General Corp. MCY is engaged primarily in writing all risk classifications of automobile insurance in a number of states, principally California. MCY offers automobile policyholders the following types of coverage: bodily injury liability, underinsured and uninsured motorist, property damage liability, comprehensive, collision and other hazards specified in the policy.
Zacks Rank #1 Mercury General has an expected revenue and earnings growth rate of 16.3% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 48.7% over the last 30 days.
W. R. Berkley Corp. WRB has consistently benefited from its insurance business, performing well on the increase in premiums written over the past many years. WRB has been investing in numerous startups since 2006 and establishing new units in growing international markets. WRB’s international business is poised for growth supported by the emerging markets. Solid capital position enables capital deployment. Investment in alternative assets should help improve investment income.
Zacks Rank #2 W. R. Berkley has an expected revenue and earnings growth rate of 9.7% and 22%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1% over the last 30 days.
Palomar Holdings Inc. PLMR is well-poised on solid revenue growth and balance sheet. Focus on new business, strong premium retention rates for existing business and renewals of existing policies bode well for PLMR. Premiums should benefit from PLMR’s solid product portfolio as well as geographic expansion and rate increases.
Net investment income of PLMR is expected to grow on the back of higher average balance of investments. A higher return on equity indicates efficient utilization of shareholders’ value. PLMR expects to generate adjusted net income between $110 million and $115 million in 2024.
Zacks Rank #2 Palomar Holdings has an expected revenue and earnings growth rate of 24.8% and 16%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.7% over the last 30 days.
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