Product diversification helps Zacks Multiline Insurance industry players weather the impact of a sustained low interest rate environment. Better pricing, prudent underwriting and exposure growth should benefit Cigna (CI – Free Report) , Old Republic International (ORI – Free Report) , James River Group (JRVR – Free Report) , Hartford Financial (HIG – Free Report) , MetLife (MET – Free Report) , Prudential (PRU – Free Report) and American International Group (AIG – Free Report) .
Increasing adoption of technology will help in smooth functioning of the industry. However, pandemic-related uncertainties weigh on merger and acquisition (M&A) activities.
About the Industry
The Zacks Multiline Insurance industry comprises companies that provide a single insurance coverage, bundling automobile, homeowner, long-term care, life and health insurance to individuals and businesses. The insured pays a single premium and is covered for many things through a single contract.
These companies cover commercial and personal properties, automobiles, marine, livestock, aviation, personal accident, life including permanent and term insurance, supplemental accident and health insurance, workers’ compensation, annuity products, private mortgage insurance, et al. The industry participants also provide risk management services.
4 Trends Shaping the Future of Multiline Insurance Industry
Diversified portfolio lowers concentration risk: Given the nature of the business, Multiline insurers’ product and service portfolio is diversified, which lowers concentration risk. While auto claims are likely to decline, frequency of claims from essential service industries are bound to rise. Further, a spike in mortality will induce higher claim payments for life insurance coverages. The U.S. multiline-insurance sector should face operational challenges due the pandemic. Slowdown in economic growth might weigh on new sales and insurable exposures. Nonetheless, better pricing, reinsurance arrangements, product redesigns, prudent underwriting and favorable reserve should help carriers weather this difficult operating environment.
Low interest rate environment: A sustained low interest rate and equity market fluctuations weigh on investment results. Notably, investment yield should be less on account of the low rate. The sustained low interest rate environment prompted life insurance providers to make product modifications by moving away from fixed annuity products with guarantee returns to variable annuity products and products with market-related returns. A low rate is a headwind for long-tail Property and Casualty insurers. A rate recovery is unlikely until 2023.
Merger and acquisitions: Consolidation in the multi-line insurance industry would continue as players look to diversify their operations into new business lines and geography. Buying businesses in the same lines will be driven by the players’ need to gain a fair market share and grow in their niche areas. Also, a low interest rate environment makes mergers and acquisitions possible since funding purchases become more affordable. Per a recent Willis Towers Watson report, the global M&A market recorded its first positive performance in three years for completed deals. However, deal volume has declined considerably due to the uncertainty surrounding the pandemic. Per Willis Towers Watson’s Quarterly Deal Performance Monitor and M&A Research Centre at The Business School, the industry witnessed 674 deals of more than $100 million in 2020, much lower than the year-ago figure of 774 deals. However, a low rate environment, improvement in surplus, and reopening of economic activities should lead to a better M&A environment this year.
Increased adoption of technology: The industry is witnessing greater use of technology like blockchain, AI, advanced analytics, telematics, cloud computing and robotic process automation to expedite business operations and save costs. Many life insurers have started selling policies online that appeal to the tech-savvy population. At the same time, the use of real-time data is making premium calculation easier and reducing risk. The P&C industry, in particular, also witnessed the emergence of insurtech — technology-led insurers — sparking competition for incumbent players. Moreover, adoption of technology has helped in seamless underwriting and claims processing amid the pandemic, which necessitated social distancing and remote working.
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 encouraging prospects in the near term. The Zacks Multiline Insurance industry, housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #120, which places it in the top 47% of 255 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 the result of a positive earnings outlook for the constituent companies in aggregate. The industry’s earnings estimates for the current year have been revised upward by 2.6% since July 2020.
Before we present a few multiline insurance 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 and S&P 500
The Multiline Insurance industry has outperformed both the Zacks S&P 500 composite and its sector over the past year. The stocks in this industry have collectively rallied 66.3% in the past year compared with the Finance sector’s increase of 53.7%. Notably, the Zacks S&P 500 composite has gained 59.9% in the same time frame.
One-Year Price Performance
On the basis of its trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.15X compared with the S&P 500’s 6.6X and the sector’s 3.18X.
Over the past five years, the industry has traded as high as 1.98X, as low as 0.85X and at the median of 1.48X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
7 Multiline Insurance Stocks to Keep an Eye on
We are presenting one Zacks Rank #1 (Strong Buy) stock and one Zacks Rank #2 (Buy) stock from the Multiline Insurance industry. We are also presenting five stocks with a Zacks Rank #3 (Hold) from the same industry. You can see the complete list of today’s Zacks #1 Rank stocks here.
Old Republic International Corporation: This Chicago, IL based company engages in the insurance underwriting and related services business, primarily in the United States and Canada. Being the third-largest title insurer in the country, strength of its General Insurance as well as Title Insurance segment places it well for growth. The Zacks Consensus Estimate for 2021 and 2022 earnings of this Zacks Rank #1 company has moved up 24.2% and 22.9%, respectively, in the past 60 days. The company delivered four-quarter average earnings surprise of 65.77%.
Price and Consensus: ORI
James River Group: This Pembroke, Bermuda based company provides specialty insurance and reinsurance services in the United States. The Zacks Consensus Estimate for 2021 and 2022 earnings of this Zacks Rank #2 company has moved up 3.2% and 1.7%, respectively, in the past 30 days, indicating 273.9% and 14.5% year-over-year increase. The company delivered four-quarter average earnings surprise of 11.63%.
Price and Consensus: JRVR
Cigna: This Bloomfield, CT based company provides insurance and related products and services. Acquisition of Express Scripts, strong international operations and growing medical membership auger well for growth of this Zacks Rank #3 company. The Zacks Consensus Estimate for 2021 and 2022 indicates year-over-increase of 9.9% and 12.6%, respectively from the prior-year reported numbers. The expected long-term earnings growth rate is 11.6%.
Price and Consensus: CI
Prudential: Headquartered in Newark, NJ, this Zacks Rank #3 insurer offers an array of financial products and services including life insurance, annuities, retirement-related services, mutual funds, investment management and real estate services. Prudential continues to benefit from solid asset-based businesses, improved margins in Group Insurance business and international operations. High performing asset management business and deeper reach in the pension risk transfer market are catalysts for long-term growth. The Zacks Consensus Estimate for 2021 and 2022 indicates year-over-increase of 15.3% and 9.6% respectively from its prior-year reported numbers. The expected long-term earnings growth rate stands at 10.9%.
Price and Consensus: PRU
AIG: Headquartered in New York, NY, this Zacks Rank #3 insurer provides insurance products for commercial, institutional, and individual customers in North America and internationally. Strategic business de-risking and acquisitions, cost control efforts, accelerated capital deployment will drive growth. The Zacks Consensus Estimate for 2021 and 2022 indicates year-over-increase of 78.2% and 14.5% respectively from its prior-year reported numbers. The expected long-term earnings growth rate is 10%.
Price and Consensus: AIG
MetLife: This New York, NY-based insurance-based global financial services company provides protection and investment products to a range of individual and institutional customers. Its focus on businesses with growth potential and strategies to control cost and increase efficiency bode well for growth. It carries Zacks Rank #3. The Zacks Consensus Estimate for 2021 and 2022 indicates year-over-increase of 2.6% and 10.9%, respectively from its prior-year reported numbers. The expected long-term earnings growth rate is pegged at 5.3%.
Price and Consensus: MET
Hartford Financial: This Hartford, CT-based Zacks Rank #3 company is one of the major multi-line insurance and investment companies in the country, providing investment products, group life and group disability insurance, property and casualty insurance and mutual funds in the United States. Expanded product offerings, efforts to strengthen commercial business, underwriting strength in products, capital appreciation and cost-curbing initiatives bode well for growth. The Zacks Consensus Estimate for 2021 and 2021 of this Zacks Rank #3 company have moved up 0.2% and 2.1%, respectively, in the past 30 days. The expected long-term earnings growth rate is pegged at 7%.
Price and Consensus: HIG
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