Benchmark U.S. Treasury yields have been on the rise since the start of the year. The yield of the benchmark 10-year Treasury note has been hovering around 1.8% of late. The increase in interest rates will allow financial institutions, including insurance companies, to generate better revenues.
At its December FOMC meeting, the Federal Reserve announced that it would accelerate the reduction of its monthly bond purchases and signaled three interest rate hikes later this year. A reduction in bond buying by the Fed should reduce bond prices, pushing their interest yields up. Because higher bond yields increase risk-free returns, the high investments in bonds by financial institutions should benefit them. Insurance companies usually hold long-term high-quality bonds to meet their promised returns to policyholders. Therefore, higher bond yields should benefit them.
Given this backdrop, we think it could be wise to add quality insurance companies Allianz SE (ALIZY), The Hartford Financial Services Group, Inc. (HIG), Loews Corporation (L), and Alleghany Corporation (Y) to your portfolio.
Allianz SE (ALIZY)
Headquartered in Munich, Germany, ALIZY provides property-casualty insurance, life/health insurance, and asset management products and services worldwide. The company provides a range of reinsurance coverage, primarily to Allianz insurance entities and third-party customers. It operates in the Property-Casualty, Life/Health, Asset Management, Corporate and other segments.
On Nov. 8, 2021, Allianz Global Investors and the European Investment Bank announced their establishment of the Emerging Market Climate Action Fund (EMCAF), which plans to raise EUR500 million ($577.55 million). The fund of funds is aimed at bolstering climate mitigation and adaptation in developing countries. The announcement came at the COP26 climate summit. ALIZY’s revenues increased 9.5% year-over-year to €34.40 billion ($39 billion) for the third quarter, ended Sept. 30, 2021. The company’s net income increased 4.6% year-over-year to €2.22 billion ($2.51 billion). Its EPS came in at €5.01, representing an increase of 2.6% year-over-year.
Over the past month, the stock has gained 11.3% in price to close the last trading session at $25.31.
ALIZY’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Stability and a B grade for Momentum and Sentiment. It is ranked #4 of 55 stocks in the Insurance – Property & Casualty industry. Click here to see the additional ratings of ALIZY for Growth, Value, and Quality.
The Hartford Financial Services Group, Inc. (HIG)
HIG in Hartford, Conn., is a holding company, and its business segments include commercial lines; personal lines; property & casualty other operations; group benefits; and Hartford funds. The company is a leader in property and casualty insurance, group benefits, and mutual funds.
On Nov. 9, 2021, HIG announced its commitment to invest $2.5 billion over the next five years in technologies, companies, and funds that address climate change concerns and are leading the energy transition. HIG Chairman and CEO Christopher Swift said, “We are demonstrating our environmental commitment through our actions across the business, ranging from insurance solutions that encourage sustainable construction to investments by the company in renewable energy.”
For its fiscal third quarter, ended Sept. 30, 2021, HIG’s total revenues increased 10% year-over-year to $5.68 billion. The company’s net income available to common shareholders increased 5% year-over-year to $476 million. Also, its adjusted EPS came in at $1.36, representing an 8% increase.
Analysts expect HIG’s EPS for the quarter ending March 31, 2022, to increase 187.5% year-over-year to $1.61. Its revenue for its fiscal 2021 is expected to increase 6.4% year-over-year to $21.84 billion. It has surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 33.8% in price over the past year to close the last trading session at $70.46.
HIG’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. HIG has a B grade for Momentum, Stability, and Sentiment. It is ranked #7 in the Insurance – Property & Casualty industry. To check the additional ratings of HIG for Growth, Value, and Quality, click here.
Loews Corporation (L)
New York City-based L provides commercial property and casualty insurance in the United States and internationally. The company offers specialty insurance products that include management and professional liability, other coverage products, surety and fidelity bonds, property insurance, and casualty insurance.
L’s revenues increased 24% year-over-year to $10.99 billion for the nine months ended Sept. 30, 2021. The company’s net income for its fiscal third quarter, ended Sept. 30, 2021, increased 58.2% year-over-year to $220 million. Also, its EPS increased 70% year-over-year to $0.85.
Analysts expect L’s EPS to increase 14% in the next five years. Over the past year, the stock has gained 25.2% in price to close the last trading session at $59.59.
L’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. L has a B grade for Momentum and Stability. It is ranked #6 in the Insurance – Property & Casualty industry. Click here to see the other ratings of L for Growth, Value, Sentiment, and Quality.
Alleghany Corporation (Y)
Y provides property and casualty reinsurance and insurance products internationally. The New York City company operates in three segments: Reinsurance; Insurance; and Alleghany Capital. In addition, it owns and manages improved and unimproved commercial land and residential lots.
On Oct. 18, 2021, Alleghany Capital (a subsidiary of Y) announced that its subsidiary, Integrated Project Services, acquired Anchorbuoy Limited. The President and CEO of Alleghany Capital, David Van Geyzel, said, “We look forward to supporting IPS and Linesight as they continue to expand their businesses globally and capitalize on the opportunities that result from this transaction.”
Y’s total revenues for the quarter ended Sept.30, 2021, increased 13.6% year-over-year to $2.87 billion. The company’s net premiums written increased 21.1% year-over-year to $1.98 billion. And its net investment income came in at $133 million, representing a 2.9% rise year-over-year.
For its fiscal year 2021, analysts expect Y’s EPS to increase 175.6% year-over-year to $43.80. It has surpassed the Street’s EPS estimates in each of the trailing four quarters. And the stock has gained 9.8% in price over the past year to close the last trading session at $660.50.
Y’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. Y has a B grade for Momentum, Stability, and Sentiment. Again, it is ranked #9 in the Insurance – Property & Casualty industry. To see the additional ratings of Y for Growth, Value, and Quality, click here.
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ALIZY shares were trading at $25.37 per share on Thursday morning, up $0.06 (+0.24%). Year-to-date, ALIZY has gained 7.45%, versus a -3.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...
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