Zacks Industry Outlook Highlights Berkshire Hathaway, Progressive, Chubb, RLI and Palomar
For Immediate Release
Chicago, IL – May 31, 2024 – Today, Zacks Equity Research discusses Berkshire Hathaway Inc. (BRK.B), The Progressive Corp. PGR, Chubb Ltd. CB, RLI Corp. RLI and Palomar Holdings PLMR.
Industry: Property & Casualty Insurance
Link: https://www.zacks.com/commentary/2281442/5-property-casualty-insurers-to-watch-despite-high-catastrophe-loss
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., The Progressive Corp., Chubb Ltd., RLI Corp. and Palomar Holdings 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 the industry players function smoothly.
Though the industry is witnessing an increase in premium pricing, the magnitude has decreased in the last 13 quarters. Nonetheless, an improvement in surplus and accelerated economic activities set the stage for a better M&A environment. 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.
About the Industry
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. Better pricing and increased exposure drive premiums.
These companies invest a portion of premiums to meet their commitments to policyholders. The Fed made four hikes in 2023, taking the tally to 11 since March 2022. An improving rate environment is a boon for insurers, especially long-tail insurers.
4 Trends Shaping the Future of the Property and Casualty Insurance Industry
Improved pricing to help navigate claims: Catastrophes are a concern for insurers due to the high degree of losses incurred. Insurers implement price hikes to ensure uninterrupted claims payment. Global commercial insurance prices rose for 26 straight quarters, per Marsh Global Insurance Market Index.
Better pricing will help insurers write higher premiums and address claims payment prudently. Per Fitch Ratings, personal auto is likely to deliver better performance in 2024. This, coupled with better investment results and lower claims, should fuel insurers' performance next year per Fitch Ratings.
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. Analysts at Swiss Re Institute predict premiums to grow 7% in 2024 and 4.5% in 2025.
Catastrophe loss induces volatility in underwriting profits: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profits. Per a Colorado State University (CSU) report, 2024 will have a very active hurricane season. The latest report published by CSU states that the 2024 hurricane season may have 23 named storms, including 11 hurricanes and five major hurricanes and be about 170% of the average season.
AM Best estimates cat loss to contribute 680 basis points to the expected combined ratio of 100.7 in 2024. Swiss Re estimates combined ratio to improve from the 2023 level to 98.5% in both 2024 and 2025. Underwriting losses are expected to be primarily due to soft performance in personal lines, which are expected to witness higher catastrophe losses per Insurance Information Institute and Milliman.
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 a sturdy capital level, the industry is witnessing a number of mergers, acquisitions and consolidations. Deloitte estimates more mergers and acquisitions in the reinsurance space in 2024.
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 costs. The industry has also witnessed the emergence of insurtechs or technology-led insurers.
The focus of insurtech is mainly on the property and casualty insurance industry. Insurers continue to invest heavily in technology, generative AI in particular, as it is expected to improve basis points, scale and efficiencies. However, the use of technology poses cyber threats.
Zacks Industry Rank Indicates Bright Prospects
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates rosy 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 #66, which places it in the top 26% 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 top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Earnings estimates for the current year have increased 10.2% year over year.
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, Underperforms S&P 500
The Property and Casualty Insurance industry has outperformed its sector but underperformed the Zacks S&P 500 composite over the past year. The stocks in this industry have collectively risen 26% in a year compared with the Finance sector and the Zacks S&P 500 composite's increases of 24.9% and 26.2%, respectively.
Current Valuation
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 1.5X compared with the S&P 500's 6.41X and the sector's 3.07X.
Over the past five years, the industry has traded as high as 1.6X, as low as 0.97X and at the median of 1.39X.
5 Property and Casualty Insurance Stocks to Focus On
Here we are discussing one Zacks Rank #1 (Strong Buy) stock, one Zacks Rank #2 (Buy) stock and three Zacks Rank #3 (Hold) stocks from the P&C Insurance industry. You can see the complete list of today's Zacks #1 Rank stocks here.
Palomar Holdings: Headquartered in La Jolla, CA, Palomar is a rapidly growing and profitable company focused on the provision of catastrophe insurance for personal and commercial property. New business, strong premium retention rates of its existing business and renewals of existing policies, strategic expansion of geographic and distribution footprint and new partnerships combined with better pricing drive growth for this insurer. It sports a Zacks Rank #1. Palomar expects to generate adjusted net income between $113 million and $118 million in 2024.
The Zacks Consensus Estimate for PLMR's 2024 and 2025 earnings suggests 21.7% and 18.1% year-over-year growth, respectively. The consensus estimate for 2024 and 2025 has moved up 4.2% and 3.1%, respectively, in the past 30 days. The company delivered a four-quarter average earnings surprise of 15.1%.
RLI: Headquartered in Peoria, IL, RLI is one of the industry's most profitable property and casualty writers with an impressive track record of underwriting profits. A broad range of product offerings, focus on specialty insurance lines, business expansion, sustained rate increase, improved retention, expanded distribution and operational strength bode well for this Zacks Rank #2 insurer.
The Zacks Consensus Estimate for RLI's 2024 and 2025 earnings suggests 18.2% and 2.6% year-over-year growth, respectively. The consensus estimate for 2024 and 2025 has moved up 1.7% and 1.4%, respectively, in the past 30 days. It delivered a four-quarter average earnings surprise of 132.39%.
The Progressive Corporation: Based in Mayfield Village, OH, Progressive is one of the major auto insurers in the country. Better pricing, a compelling portfolio, leadership position, strength in Vehicle and Property businesses, healthy policies in force, retention and solid capital position poise this Zacks Rank #3 insurer well for growth.
The Zacks Consensus Estimate for PGR's 2024 and 2025 earnings suggests 90.7% and 3.7% year-over-year growth, respectively. The consensus estimate for 2024 and 2025 earnings has moved up 2 cents and 3 cents, respectively, in the past seven days. The expected long-term earnings growth rate is pegged at 22.5%, better than the industry average of 10%. It delivered a four-quarter average earnings surprise of 4.99%.
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. Chubb has hiked dividends for the last 30 straight years.
The Zacks Consensus Estimate for 2024 and 2025 bottom line has moved 2 cents and 9 cents north, respectively, in the past seven days. The expected long-term earnings growth rate is 2.9%. It delivered a four-quarter average earnings surprise of 23.78%.
Berkshire Hathaway: Omaha, NE-based Berkshire Hathaway owns more than 90 subsidiaries in insurance, railroads, utilities, manufacturing services, retail and homebuilding. BRK.B is 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 2024 and 2025 bottom line suggests a year-over-year increase of 8.9% and 6.2%, respectively. The consensus estimate for 2024 earnings has moved up 1.2% in the past 30 days. The expected long-term earnings growth rate is 7%.
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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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RLI Corp. (RLI) : Free Stock Analysis Report
Chubb Limited (CB) : Free Stock Analysis Report
Berkshire Hathaway Inc. (BRK.B) : Free Stock Analysis Report
The Progressive Corporation (PGR) : Free Stock Analysis Report
Palomar Holdings, Inc. (PLMR) : Free Stock Analysis Report
