4 P&C insurers on the verge of continuing their winning streak in 2022 – December 29, 2021

Zacks’ property and casualty insurance industry has had a mixed 2021 with an economic recovery gaining momentum, an easing of restrictions linked to the pandemic and an increase in vaccinations. Although the P&C insurance industry has had an active hurricane season this year, better pricing and prudent underwriting have been positive winds for insurers. However, the new variant of the Omicron virus has raised concerns of late.

The P&C insurance sector is up 14.4% year-to-date compared to the financial sector’s 22.3% rise and the Zacks S&P 500 composite rally of 28.6%.

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Due to improved pricing, exposure growth, underwriting profitability, favorable development of reserves, technological improvements and global expansion as well as high level of solvency impressive, property and casualty insurers like Selective Insurance Group, Inc. (SIGI Free report), American financial premiere (FAF Free report), Berkshire Hathaway (BRK.B Free report) and ProAssurance Corporation (PRA Free Report) remain well placed to maintain the bull run.

Factors at play

According to the Global Insurance Market Index released by Marsh, global commercial insurance prices rose 15% in the third quarter of 2021. This was the 16th consecutive quarter of price increases. According to the Swiss Re Institute, pricing for commercial non-life insurance lines has strengthened in 2021 and is expected to continue in 2022. Thus, better pricing should help underwrite higher premiums. According to a report by the Deloitte Center for Financial Services, global net P&C reinsurance written premiums rose 18.5% in the first half of 2021. The Swiss Re Institute remains positive on the outlook for global insurance premiums, expecting growth above the trend of 3.3% in 2022 and 3.1% in 2023.

P&C insurers are well positioned for growth given the expansion of international business. higher retention, strong turnover, price increases, appointment of retail agents and a strong balance sheet.

The P&C insurance industry remains exposed to severe weather events which make underwriting results and, in turn, earnings volatile. According to the Swiss Re Institute, natural disaster activity has been above average throughout 2021 and an annual insured loss of over $ 100 billion is expected. Nonetheless, the growth in exposure, improving prices, cautious underwriting and favorable development of reserves will likely help maintain profitability of underwriting. In the first half of 2021, the aggregate combined ratio of P&C reinsurers improved 1140 basis points year-on-year to 94.5, according to a report from the Deloitte Center for Financial Services.

An interest rate environment close to zero is likely to be of concern to insurers as it weighs on investment income, one of the important components of insurers’ turnover. Nonetheless, Fed officials continue to project three hikes in 2022 and three more in 2023, and two rate hikes in 2024. Right now, the interest rate ranges between 0% and 0.25%. A broader invested base, directing funds to alternative investments like private equity, hedge funds and real estate, should drive the measure going forward.

Building on solid capital, players in the P&C industry pursue mergers, acquisitions and alliances that can strengthen portfolios, diversify operations and enter more profitable market segments. According to a report from the Deloitte Center for Financial Services, the P&C insurance industry recorded 197 deals closed in the first half of 2021. Deloitte’s Global Outlook survey predicts more active M&A strategies in 2022, while more more insurers are looking for growth through expansion.

These insurers have increased their investments in technology. Adoption of technologies such as robotic process automation (RPA), Chatbot and RoboAdvisory, artificial intelligence (AI) and data analytics, insurtech solutions, telematics, cloud computing is gaining momentum . Deloitte’s global survey predicts that the technology budget of insurers will increase by 13.7% in 2022.

4 actions on the watchlist

Given their operational strength, we have selected four P&C insurance stocks with the help of the Zacks Stock Screener which have gained over 20% since the start of the year, have a market capitalization of over $ 1 billion. dollars, currently carry a Zacks Rank # 2 (Buy) and are well positioned to maintain momentum in 2022.
You can see the full list of Zacks # 1 Rank (Strong Buy) stocks today here.

Selective insurance: This Branchville, NJ-based insurer, along with its subsidiaries, provides insurance products and services in the United States.
Given the sharp increases in refueling prices, growth in exposure, strong retention rates and strong new business growth in the Exceptional Business Lines and Surplus and Surplus (E&S) lines segments, Selective Insurance’s revenue is expected to improve going forward, which in turn will drive revenue growth. A strong capital position is positive.

Selective Insurance’s net income has exceeded estimates in each of the past four quarters, with an average surprise of 44.85%. Zacks’ consensus estimate for 2022 earnings has risen 1.4% in the past 60 days. The expected long-term earnings growth rate is set at 13.4%, above the industry average of 9.7%. Shares of Selective Insurance are up 22.2% year-to-date.

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First American financial: This Santa Ana, California-based title insurer provides close / settlement services; title plant ownership data and automated recordings and images; home warranty products; property and casualty insurance; banking, trust and wealth management services.

Growing Millennials’ demand for first-time home buyers, an improved pricing environment, and strong business activities are helping First American to thrive.

The net result of the first American beat estimates in each of the last four quarters, the average surprise being 29.19%. Zacks’ consensus estimate for 2022 earnings has risen 0.5% in the past 30 days. FAF is well positioned to grow, as evidenced by its impressive VGM score of A. Shares of First American are up 50.6% year-to-date.

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Berkshire Hathaway: Omaha, NE-based Berkshire Hathaway holding company has more than 90 subsidiaries in insurance, railways, utilities, manufacturing services, retail and construction residential. BRK.B has one of the largest P&C insurance companies in terms of premium volume.

The continued growth of its insurance business fuels an increase in free float, boosts earnings and generates maximum return on equity. With Warren Buffett at the helm, Berkshire has been creating tremendous shareholder value for more than five decades.

Berkshire is expected to continue to benefit from growth in its insurance business as well as the manufacturing, services and retail, and finance and financial products segments.

With a huge reserve of cash, Berkshire Hathaway is likely to continue its wave of acquisitions. While large acquisitions open up more business opportunities, targeted acquisitions improve the profits of the existing business.

Zacks’ consensus estimate for 2022 earnings shows 6.8% year-over-year growth. It has increased 1.5% in the past 60 days. The expected long-term earnings growth rate is set at 7%. Berkshire shares have risen 28.7% year-to-date.

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ProAssurance: ProAssurance, based in Birmingham, AL, provides professional liability insurance products primarily to physicians, dentists, other healthcare providers and healthcare facilities through its subsidiaries. ProAssurance has significantly strengthened its position in the workers’ compensation market while increasing its focus on medical professional liability insurance and improving its size and scope in the MPLI space. ProAssurance is the third largest specialist publisher of liability insurance in the country for professionals and healthcare establishments.

The increase in new business written and high retention rates are expected to continue to generate premium income for ProAssurance. The NORCAL buyout continues to contribute a significant portion of the total gross premiums written. Its overall cost reduction initiatives strengthen operating margins and improve expense ratios.

ProAssurance’s net income has exceeded estimates in each of the past four quarters, with the average surprise being 233.34%. Zacks’ consensus estimate for 2022 earnings has risen 15.9% in the past 60 days. The expected long-term earnings growth rate is set at 7%. ProAssurance shares have risen 41.2% year-to-date.

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