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Zacks Industry Outlook Highlights: Berkshire Hathaway, Cincinnati Financial, W.R. Berkley, First American Financial and Kinsale Capital

Zacks Industry Outlook Highlights: Berkshire Hathaway, Cincinnati Financial, W.R. Berkley, First American Financial and Kinsale Capital

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This story originally appeared on Zacks

For Immediate Release

Chicago, IL – November 9, 2021 – Today, Zacks Equity Research discusses Property & Casualty Insurance, including Berkshire Hathaway Inc. (BRK.B), Cincinnati Financial Corporation CINF, W.R. Berkley Corporation WRB, First American Financial Corporation FAF and Kinsale Capital Group, Inc. KNSL.

- Zacks

Link: https://www.zacks.com/commentary/1825169/7-property-casualty-insurers-to-watch-amid-high-cat-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 HathawayCincinnati FinancialW.R. BerkleyFirst American Financial and Kinsale Capital are poised to grow despite a rise in catastrophic activities.

Given an active catastrophe environment, the policy renewal rate should accelerate, apart from the rate firming up. This apart, increasing adoption of technology and emergence of insurtech will help in the smooth functioning of the industry players.

Though pandemic-related uncertainties weigh on merger and acquisition (M&A) activities, a low rate environment, improvement in surplus, and reopening of economic activities set the stage up for a better M&A environment this year onward.

About the Industry

The Zacks Property and Casualty Insurance industry comprises companies that provide commercial and personal property, and casualty insurance products and services. Such insurance coverage helps to safeguard property in case of any natural or man-made disaster. Liability coverages are also provided by some industry players.

The insurance coverages offered by the companies also include 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 collected to meet their commitments to policyholders. Though the rate environment still lies near-zero level, indications show that the rate rise could happen next year after the Fed completes tapering.

4 Trends Shaping the Future of 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. They implement price hikes to ensure uninterrupted claims payment. Per Marsh, global commercial insurance prices in second-quarter 2021 increased 15% — marking the 15th straight quarter of price increase. According to Willis Towers Watson’s 2021 Insurance Marketplace Realities report, except for one, 29 lines of business are expected to witness a price rise this year. Better pricing will help insurers address claims payment.

Catastrophe loss weighing on underwriting profitability: The property and casualty insurance industry is susceptible to catastrophe events, which drag down underwriting profit. Per Swiss Re, the insurance and reinsurance industry witnessed the second-highest first-half losses attributable to catastrophe and severe weather events in a report published in ARTEMIS. The Colorado State University (CSU) had already stated at the onset of the hurricane season that 2021 is likely to witness an above-average hurricane season.

Aon noted that insured losses from natural disasters hit a 10-year high of $42 billion in the first half of 2021. 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, sturdy capital level and a still low rate environment (helping in borrowing funds at low coupon rate), 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. The adoption of technologies has helped in seamless underwriting and claims processing during the pandemic that has led to social distancing norms. As insurtechs use the latest technologies and concepts that the incumbents are just beginning to experiment with, there remains a huge market risk.

Zacks Industry Rank Indicates Dull Prospects

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 #198, which places it in the bottom 21% 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 21% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. The estimates have moved down 5.1% since August 2021 end.

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 Underperforms S&P 500 and Sector

The Property and Casualty Insurance industry has underperformed the Zacks S&P 500 composite as well as its sector over the past year. The stocks in this industry have collectively gained 23.7% in the past year compared with the Finance sector’s increase of 34.5% and the Zacks S&P 500 composite’s rise of 33.8%. 

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 1.33X compared with the S&P 500’s 7.33X and the sector’s 3.43X.

Over the past five years, the industry has traded as high as 1.42X, as low as 1.17X and at the median of 1.31X. 

5 Property and Casualty Insurance Stocks to Keep an Eye On

We are recommending two Zacks Rank #1 (Strong Buy) stocks and three Zacks Rank #2 (Buy) stocks from the P&C Insurance industry. You can see the complete list of today’s Zacks #1 Rank  stocks here.

First American Financial Corp.: This Santa Ana, CA, based title insurer sports a Zacks Rank #1. This company provides closing/settlement services; property data and automated title plant records and images; home warranty products; property and casualty insurance; banking, trust and wealth management services.

Increased demand among millennials for first-time home purchases, improved rate environment, and strength in commercial business poise the insurer well for growth. Estimates for its 2021 bottom line have jumped over the past 60 days by 7.7% and suggest about a 38.2% surge from the year-ago reported number.

Kinsale Capital Group: This Richmond, VA, based company offers various insurance and reinsurance products across all 50 states of the United States, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands. This Zacks Rank #1 company is poised for long-term growth given its continued focus on the E&S market, improved revenues, solid underwriting results and effective capital deployment measures. Estimates for its 2021 bottom line have jumped over the past 60 days by 13.8% and suggest a 69.9% increase from the year-ago reported number.

Cincinnati Financial: Fairfield, OH-based Cincinnati Financial markets property and casualty insurance. This Zacks Rank #2 company should continue to grow given the disciplined expansion of Cincinnati Re, an agent-focused business model, and strong performance at the Commercial Lines segment. Estimates for its 2021 bottom line have jumped over the past 60 days by 6.5% and suggest a 64.6% increase from the year-ago reported number.

Berkshire Hathaway: Omaha, NE-based Berkshire is a holding company, which owns more than 90 subsidiaries in insurance, railroads, utilities, manufacturing services, retail and homebuilding. The company is expected to benefit from its growing Insurance business as well as Manufacturing, Service and Retailing, and Finance and Financial Products segments and strategic acquisitions.

It carries a Zacks Rank #2. Estimates for its 2021 bottom line have jumped over the past 60 days by 0.5% and suggest a 29.2% increase from the year-ago reported number. The expected long-term earnings growth rate is 7%.

W.R. Berkley Corp.: Greenwich, CT. based W.R. Berkley is one of the nation’s largest commercial lines property-casualty insurance providers benefiting from its insurance business. This Zacks Rank #2 insurer should continue to benefit from its well-performing insurance business.

Rate increases, reserving discipline, and growing premiums from international business, mainly supported by the emerging markets of the United Kingdom, Continental Europe, South America, Canada, Scandinavia, Asia and Australia bode well. The Zacks Consensus Estimate for 2021 indicates a year-over-increase of 107.7% and has moved 6.9% north in the past 60 days. The expected long-term earnings growth rate is 9%.

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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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W.R. Berkley Corporation (WRB): Free Stock Analysis Report

 

Berkshire Hathaway Inc. (BRK.B): Free Stock Analysis Report

 

Cincinnati Financial Corporation (CINF): Free Stock Analysis Report

 

First American Financial Corporation (FAF): Free Stock Analysis Report

 

Kinsale Capital Group, Inc. (KNSL): Free Stock Analysis Report

 

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