Yahoo Finance 3 Insurance Stocks Wall Street Analysts Think Will Rally in 2023
Improved pricing, increased technology advancements, an improving rate environment and global expansion, as well as an impressive solvency level, acted as tailwinds for insurance stocks in 2022. Stocks like Employers Holdings Inc. EIG, Mercury General Corporation MCY and MGIC Investment Corporation MTG are expected to give solid returns in 2023, banking on the aforementioned tailwinds.
Per Global Insurance Market Index released by Marsh, global commercial insurance prices increased 6% in the third quarter of 2022. It marked the 20th consecutive quarter of price increases. Per the Swiss Re Institute, the insurance industry is expected to generate premium growth of 2.1% on average over the next two years. An expanded distribution, operational strength, higher retention, strong renewal, price increases and a solid balance sheet are likely to help insurers retain momentum.
Per Deloitte Insights, gross premiums are estimated to increase about six-fold to $722 billion by 2030. Per a report from the Deloitte Center for Financial Services, global life insurance premium is estimated to increase 1.9% in 2023.
The insurance industry is likely to grow on the back of higher new business premiums, growth in the line of business, increase in agency renewal written premiums and non-cat property losses and expanding international business.
Sales and premiums of life insurance operations are likely to gain from increased awareness, driving higher demand for protection products. Continued improvement in pricing is likely to boost the premium growth of non-life insurance operations. Per a report from the Deloitte Center for Financial Services, global life insurance premium is estimated to increase 1.9% in 2023.
Per Swiss Re Institute, natural catastrophe activity has resulted in insured losses of $115 billion in so far 2022, which is higher than the 10-year average of $81 billion. Swiss Re estimated Hurricane Ian to be the most expensive one, with estimated preliminary insured losses of $50 billion to $65 billion. Nevertheless, prudent underwriting, continued increases in pricing, reinsurance programs and favorable reserve development should help them withstand the blows.
Insurance companies are the direct beneficiaries of growing interest rates. Seven rate hikes have been implemented by the Fed so far in 2022 to control persistent inflation. In the last monetary policy meeting of 2022, the Fed raised interest rates by 50 bps to the range of 4.25 to 4.5%. The Fed signaled interest rates to reach 5.1% in 2023, 4.1% in 2024 and 3.1% in 2025.
Riding on operational efficiency resulting in a solid capital position, insurers should continue to engage in strategic mergers and acquisitions to sharpen their competitive edge, build on a niche, expand globally, diversify their portfolio and deploy capital to enhance shareholder value. Per a report from the Deloitte Center for Financial Services, the insurance industry witnessed 427 completed deals in the first half of 2022, which increased 16% year over year.
The adoption of technologies such as Chatbot and RoboAdvisory, artificial intelligence and data analytics, insurtech solutions, telematics and cloud computing is gaining steam. These technological advancements should continue to drive efficiency, enhance cybersecurity, as well as expand automation capabilities across the organization.
3 Insurance Stocks to Keep an Eye On
We have shortlisted three insurance stocks with the help of the Zacks Stock Screener that currently have a Zacks Rank #1 (Strong Buy) or #2 (Buy). More than 70% of brokers recommend these stocks as a Strong Buy or Buy. Our research shows such stocks offer good investment opportunities. The suggested stocks are expected to perform well in 2023.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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Employers Holdings: This Reno, NV-based provider of workers' compensation insurance to small businesses in the low-to-medium hazard industries carries a Zacks Rank #1. EIG should continue to benefit from a solid presence in attractive markets and prudent underwriting.
The company’s growth strategy encompasses ramping up premiums by expanding underwriting appetite while managing fixed expenses. The insurer stays focused on investing in technology and digitalization to scale business. Employers Holdings has a superior quality, highly liquid investment portfolio, supporting financial flexibility.
Banking on operational excellence, this insurer has an impressive dividend history. It hiked dividends at a 10-year CAGR of 15.8%. In November 2022, its board of directors approved a special cash dividend of $1.25 per share. This marked EIG’s second special dividend for 2022, signaling its confidence in its capital position and future operations.
Shares of EIG are trading at 1.29 times the price-to-book value, lower than the industry average of 1.57. The stock carries an impressive Value Score of B. Back-tested results have shown that stocks with a favorable Value Score, when combined with a solid Zacks Rank, are the best investment bets.
The bottom line of Employers Holdings outpaced estimates in three of the last four quarters and missed the mark once, the average beat being 25.31%. The Zacks Consensus Estimate for EIG’s 2023 earnings suggests an 18.4% improvement, while the same for revenues indicates a 7.8% rise from the prior-year reported figures. The consensus mark for EIG’s 2023 earnings has moved 20.8% north in the past 60 days. With a market cap of $1.2 billion, the stock has gained 5.2% year to date.
Mercury General: Los Angeles, CA-based Mercury General, with a market cap of $1.8 billion, engages in writing personal automobile insurance in the United States.
This insurance company primarily caters to the auto market but also offers homeowner, commercial property, mechanical protection, fire and umbrella insurance. It operates in California as well as Arizona, Florida, Georgia, Illinois, Nevada, New Jersey, New York, Oklahoma, Texas and Virginia. It sports a Zacks Rank #1
MCY has an impressive Value Score A. The Zacks Consensus Estimate for MCY’s 2023 earnings suggests 191.3% year-over-year growth on 23.6% higher revenues. The consensus estimate has moved up 31.2% in the past 60 days. Though the stock has lost 37% year to date, the insurer is well-poised to sustain the bull run next year.
MGIC Investment: MGIC Investment, with a market cap of $3.8 billion, engages in the insurance underwriting and related services business, primarily in the United States and Canada.
MGIC Investment expects new business, combined with increasing annual persistency, to result in the continued growth of the insurance-in-force portfolio. The multi-line insurer expects to retain higher levels of liquidity at the holding company. MGIC Investment, carrying Zacks Rank #2, has constructed a solid capital base to increase the long-term value to shareholders while maintaining financial strength and flexibility. MTG has an impressive Value Score A.
It is the parent company of Mortgage Guaranty Insurance Corporation, the largest private mortgage insurer in the United States. In early December 2022, the company announced its partnership with Vesta, a modern mortgage loan origination system (LOS) and software-as-a-service company. With this partnership, lenders using the Vesta platform will be able to seamlessly and in real-time request quotes and order private mortgage insurance from MGIC without leaving the Vesta LOS. The insurer has a favorable VGM Score of B. MTG has an impressive dividend history, banking on a solid capital position.
MTG delivered an earnings surprise of 36.34%, on average, in the trailing four quarters. It carries a Zacks Rank #2 currently. The consensus estimate has moved up 0.4% in the past 60 days. Though the stock has lost 10.3% year to date, the insurer is well-poised to sustain the bull run next year.
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MGIC Investment Corporation (MTG) : Free Stock Analysis Report
Employers Holdings Inc (EIG) : Free Stock Analysis Report
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