Chicago, IL – January 3, 2024 – Today, Zacks Equity Research discusses MetLife Inc. MET, American International Group Inc. AIG, The Hartford Financial Services Group HIG, MGIC Investment Corp. MTG and CNO Financial Group CNO.
Link: https://www.zacks.com/commentary/2204521/5-stocks-to-watch-from-the-prospering-multiline-insurance-industry
Product diversification helps Zacks Multiline Insurance industry players lower concentration risk, ensure uninterrupted revenue generation and improve retention ratio. Better pricing, prudent underwriting, increased exposure, faster economic recovery following the pandemic and increased vaccinations should benefit MetLife Inc., American International Group Inc., The Hartford Financial Services Group, MGIC Investment Corp. and CNO Financial Group.
Accelerated digitalization will help the industry function smoothly. Per Fitch Ratings, improved investment results, better pricing and lower claims, coupled with improved performance of personal lines, should fuel insurers' performance.
The solid capital level of multiline insurers fuels merger and acquisition (M&A) activities. The 11 rate hikes made by the Fed propelled investment income as insurers are beneficiaries of a higher rate environment. However, the Fed's indication of rate reduction this year makes us cautious.
The Zacks Multiline Insurance industry comprises companies that provide single insurance coverage, bundling automobile, homeowner, long-term care, and 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 players also provide risk management services. Since the companies offer single insurance coverage for multiple products, customer retention is better. The insured stands to benefit from lower premium payments compared to paying individual premiums for insuring varied products.
Diversified portfolio lowers concentration risk: Given the nature of the business, multiline insurers' product and service portfolios are diversified. This lowers concentration risk. Increased awareness, driving higher demand for protection products, should benefit sales and premiums of life insurance operations. Continued improvement in pricing and an increase in exposure should support premium growth.
Also, per Deloitte Insights, the transition to green energy and related insurance products, as well as exposure to intangible assets, offers growth opportunities. Per Fitch Ratings, personal auto, which suffered in 2023, is likely to deliver a better performance in 2024.
Merger and acquisitions: Consolidation in the multi-line insurance industry is expected to continue as players look to diversify their operations into new business lines and geographies. Buying businesses along the same lines is driven by the players' need to gain a fair market share and grow in their niche areas. The M&A environment, which slowed down in the first half of 2023, regained some pace in the second half. M&As are expected to gain momentum in 2024.
Increased adoption of technology: Digitalization has increased by leaps and bounds. 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 are 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. Insurers remain focused on ramping up data and analytics capabilities as well as realizing the benefit of the technological infrastructure per Deloitte Insights.
Moreover, the adoption of technology has helped in seamless underwriting and claims processing. With the usage of generative AI on the rise, operations are poised for scale up. However, the adoption of technology comes with the risk of cyber threats.
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 #53, which places it in the top 21% 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 bright outlook reflects that the industry's earnings estimates have been revised upward by analysts for the current year. Earnings estimates for the 2024 have moved 2% north since April 2023.
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.
The Multiline Insurance industry has underperformed both the Zacks S&P 500 composite and its sector over the past year. The stocks in this industry have collectively gained 2.6% in the past year compared with the Finance sector's increase of 15% and the Zacks S&P 500 composite's rise of 25.2% in the same time frame.
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 2.65X compared with the S&P 500's 6.06X and the sector's 3.37X.
Over the past five years, the industry has traded as high as 2.74X, as low as 0.69X and at the median of 1.48X.
We are presenting three Zacks Rank #2 (Buy) and two Zacks Rank #3 (Hold) stocks from the Multiline Insurance industry.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The Hartford Financial Services Group: Headquartered in Hartford, CT, The Hartford Financial Services Group is one of the major multi-line insurance and investment companies in the country. This Zacks Rank #2 insurer is poised to grow on improvement in the quality and size of mortgage insurance in force, a decline in claim payments, given the strong credit characteristics of the new loans insured, maintenance of capital in compliance with regulations and its solid capital position.
The Zacks Consensus Estimate for 2024 indicates an increase of 19.6% from the 2023 estimated figure. Its expected long-term earnings growth rate is pegged at 7%. HIG delivered a four-quarter average earnings surprise of 10.8%. It has a VGM Score of B.
CNO Financial Group: Carmel, IN-based CNO Financial Group is a top-tier holding company for a group of insurance companies operating throughout the United States. It develops, administers and markets supplemental health insurance, annuity, individual life insurance and other insurance products. Growing new annualized premiums for health and life products, steady increase in net investment income coupled with improvements in Life margin and Long-term care margin poise this Zacks Rank #2 insurer well for growth.
The Zacks Consensus Estimate for 2024 indicates an increase of 9.7% from the 2023 estimated figure. The 2024 estimate has moved 3 cents north in the past 60 days. The company has a VGM Score of B. CNO Financial's ROIC of 6.7% compares favorably with the industry average of 1.7%, demonstrating better capital efficiency compared to its industry peers, suggesting effective management of its investments.
MGIC Investment Corp.: Based in Milwaukee, WI, MGIC Investment is the parent company of Mortgage Guaranty Insurance Corporation, the largest private mortgage insurer in the United States. Higher insurance in force, a decline in loss and claims payments, lower delinquency, better housing market fundamentals and prudent capital deployment bode well for the growth of this Zacks Rank #2 insurer.
The Zacks Consensus Estimate for 2024 has moved 1 cent north in the past 30 days. The expected long-term earnings growth rate is pegged at 5%. MTG delivered a four-quarter average earnings surprise of 12.57%.
American International Group: Headquartered in New York, AIG provides insurance products for commercial, institutional, and individual customers in North America and internationally. Strategic business de-risking, acquisitions, cost-control efforts and accelerated capital deployment will drive AIG's growth. It carries a Zacks Rank #3.
The Zacks Consensus Estimate for 2024 indicates a year-over-increase of 13%. The expected long-term earnings growth rate is pegged at 10%. AIG delivered a four-quarter average earnings surprise of 11.45%. It has a VGM Score of B.
MetLife: This New York-based insurance-based global financial services company provides protection and investment products to a range of individual and institutional customers. MetLife's focus on businesses with growth potential and strategies to control costs and increase efficiency bodes well for the growth of this Zacks Rank #3 insurer.
The Zacks Consensus Estimate for 2024 indicates a year-over-increase of 22.9% and has moved 1 cent north in the past 30 days. Its expected long-term earnings growth rate is 12.3%.
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The Hartford Financial Services Group, Inc. (HIG) : Free Stock Analysis Report
American International Group, Inc. (AIG) : Free Stock Analysis Report
MGIC Investment Corporation (MTG) : Free Stock Analysis Report
CNO Financial Group, Inc. (CNO) : Free Stock Analysis Report
MetLife, Inc. (MET) : Free Stock Analysis Report
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