The Property and Casualty (P&C) insurance space 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.
The Zacks-defined Property & Casualty Insurance Industry is currently in the top 24% of the Zacks Industry Rank. In the past year, the industry has provided 19.7% returns, while its year-to-date return is 19.5%. Since it is ranked in the top half of the Zacks Ranked Industries, we expect it to outperform the market over the next three to six months.
Future Catalysts
Price hikes, operational strength, higher retention, strong renewal and the appointment of retail agents should help write higher premiums. 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.
Meanwhile, consolidation in the property and casualty industry is likely to continue as players look to diversify their operations into new business lines and geographies. Deloitte estimates more mergers and acquisitions in the reinsurance space in 2024.
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.
Our Top Picks
We have narrowed our search to five P&C insurers with strong potential for the rest of 2024. These stocks have seen positive earnings estimates in the last 30 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks in the past three months.
Zacks Investment Research
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Arch Capital Group Ltd. ACGL boasts a strong product portfolio and has a solid track record of premium growth. Premiums should benefit from new business opportunities, rate increases, growth in existing accounts and growth in Australian single-premium mortgage insurance.
ACGL has also been diversifying its Mortgage Insurance business via strategic acquisitions that also complement the strength in the specialty insurance and reinsurance businesses. A solid capital position shields ACGL from market volatility. ACGL’s growing Investment portfolio provides meaningful tailwinds to its bottom line. Strategic buyouts strengthen ACGL’s portfolio and offer geographic diversification.
Arch Capital Group has an expected revenue and earnings growth rate of 15.1% and 5.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last seven days.
The Allstate Corp. ALL is witnessing consistent growth in premiums, thanks to strategic acquisitions and expanding ventures. Rate hikes to counter inflationary pressures on loss costs are expected to continue in ALL’s auto insurance business for 2024.
ALL’s focus on optimizing core operations has allowed it to redirect resources toward high-growth areas. The sale of ALL’s Health & Benefits division is expected to free up capital. Cost-saving initiatives are projected to boost profits. ALL’s cash-generating abilities are crucial for returning capital to its shareholders.
The Allstate has an expected revenue and earnings growth rate of 9.6% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.5% in the last seven days.
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 their needs with new offerings should continue to drive policy life expectancy.
The Progressive has an expected revenue and earnings growth rate of 19.5% and 96.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.1% in the last 30 days.
RLI Corp. RLI is one of the industry’s most profitable property and casualty writers with an impressive track record of underwriting profits. A strong local branch office network, a broad range of product offerings, and a focus on specialty insurance lines contribute to RLI’s profits.
RLI’s ability to maintain the combined ratio at favorable levels even in the toughest operating environment reflects superior underwriting discipline. RLI’s decision to drop underperforming products from its property business also bodes well. A strong capital position provides financial flexibility to operating subsidiaries and supports wealth distribution to shareholders.
RLI has an expected revenue and earnings growth rate of 18.1% and 22.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.6% over the last 30 days.
Root Inc. ROOT provides insurance products and services in the United States. ROOT offers automobile, homeowners, and renters’ insurance products. ROOT operates a direct-to-consumer model, and serves customers primarily through mobile applications, as well as through its website. ROOT’s direct distribution channels also cover digital, media, and referral channels, as well as distribution partners and agencies.
Root has an expected revenue and earnings growth rate of more than 100% and 74.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 28.5% over the last 30 days.
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