Product diversification helps Zacks Multiline Insurance industry players to lower concentration risk, ensure uninterrupted revenue generation and improve retention ratio. Better pricing, prudent underwriting, increased exposure, faster economic recovery on the receding impact of the pandemic and increased vaccinations should benefit MetLife Inc. MET, American International Group Inc. AIG, Prudential Financial Inc. PRU, The Hartford Financial HIG and Old Republic International ORI. Accelerated digitalization will help in the smooth functioning of the industry.
The solid capital level of the multiline insurers will fuel merger and acquisition (M&A) activities. With seven hikes in interest rate in 2022, already one this year and more to come in the future, investment income should improve further as insurers are beneficiaries of a rising rate environment.
About the Industry
The Zacks Multiline Insurance industry comprises companies that provide 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. Since the companies offer single insurance coverage for multiple products, customer retention improves. The insured stands to benefit from lower premium payment compared to paying individual premiums for insuring varied products.
3 Trends Shaping the Future of the Multiline Insurance Industry
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 for 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 Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023. The report also stated that trends like commercial lines witnessing growth at a faster pace than personal lines and homeowners’ premiums improving better than personal auto are likely to continue in 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 geographies. Buying businesses in the same lines is driven by the players’ need to gain a fair market share and grow in their niche areas. With the reopening of the economy, an optimistic growth outlook and a solid capital level of the insurers, 2021 saw 869 deals, up 40% from 620 in 2020 while the total deal value surged 165% to $57.5 billion per Deloitte. However, with high inflation and rise in interest rate (the Fed has already made one rate hike this year), momentum in the M&A environment is likely to calm down. The first half of 2022 witnessed 427 deals per Deloitte.
Increased adoption of technology: Digitalization has taken a leap in the industry with the pandemic hitting hard and companies gathering strength to operate amid pandemic-induced restrictions. 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. 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.
Zacks Industry Rank Indicates Rosy Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid prospects in the near term. The Zacks Multiline Insurance industry, housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #16, which places it in the top 6% 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 negative earnings outlook for the constituent companies in aggregate. The bright outlook reflects that the industry’s earnings estimates have been revised upward by the analysts for the current year.
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 six months. The stocks in this industry have collectively gained 6.1% in the past year compared with the Finance sector’s increase of 4.8%. The Zacks S&P 500 composite declined 0.7% 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 3.02X compared with the S&P 500’s 5.77X and the sector’s 3.63X.
Over the past five years, the industry has traded as high as 3.14X, as low as 0.84X and at the median of 1.6X.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
5 Multiline Insurance Stocks to Keep an Eye on
We are presenting one Zacks Rank #1 (Strong Buy) stock, three Zacks Rank #2 (Buy) stocks and one Zacks Rank #3 (Hold) stock from the Multiline Insurance industry.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Old Republic International: Based in Chicago, IL, Old Republic is the third-largest title insurer engaged in the insurance underwriting and related services business, primarily in the United States and Canada. Solid market presence, niche focus, low property catastrophe exposure in its General Insurance segment and robust capital position augur well for the growth of this Zacks Rank #1 insurer.
The Zacks Consensus Estimate for 2023 and 2024 earnings has moved 7.3% and 6.8% north in the past seven days. ORI delivered a four-quarter average earnings surprise of 21.89%.
Price and Consensus: ORI
Prudential Financial: This Newark, NJ, headquartered Zacks Rank #2 company is a financial services leader with a leading position in universal, term and variable life insurance and an expanding Retirement business. Prudential Financial’s high-performing asset management business, deeper reach in the pension risk transfer market, improved margins and international operations bode well. PRU is on track to become a higher growth, less market-sensitive business and is thus rearranging its businesses.
The Zacks Consensus Estimate for 2024 indicates a year-over-increase of 23.5%. It has moved up 0.4% in the past 30 days. PRU delivered a four-quarter average earnings surprise of 3.64%. Prudential has a VGM Score of B.
Price and Consensus: PRU
American International Group: Headquartered in New York, this Zacks Rank #2 insurer provides insurance products for commercial, institutional, and individual customers in North America and internationally. Strategic business de-risking and acquisitions, cost-control efforts, and accelerated capital deployment will drive American International’s growth.
The Zacks Consensus Estimate for 2024 indicates a year-over-increase of 42.7%. The expected long-term earnings growth rate is pegged at 10%. AIG delivered a four-quarter average earnings surprise of 13.01%. American International has a VGM Score of A.
Price and Consensus: AIG
The Hartford Financial: Philadelphia, PA-based Hartford Financial is a credit enhancement company, which supports homebuyers, mortgage lenders, loan servicers and investors with a suite of private mortgage insurance and related risk-management products and services. This Zacks Rank #2 insurer is poised to grow on improvement in 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 solid capital position.
The Zacks Consensus Estimate for 2023 and 2024 earnings indicates a 10.2% and 11.2% year-over-year increase, respectively. The expected long-term earnings growth rate is pegged at 7%. HIG delivered a four-quarter average earnings surprise of 20.92%.
Price and Consensus: HIG
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. MetLife’s focus on businesses with growth potential and strategies to control cost and increase efficiency bode well for growth. MET carries a Zacks Rank #3.
The Zacks Consensus Estimate for 2023 and 2024 indicates a year-over-increase of 20.2% and 9.7%, respectively. Its expected long-term earnings growth rate is pegged at 13.3%, better than the industry average of 11.6%. MetLife delivered a four-quarter average earnings surprise of 12.07%. MET has VGM Score of B.
Price and Consensus: MET
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