The U.S. property and casualty insurance industry managed to stay afloat amid the pandemic. While overall premium volume declined, many insurers generated solid underwriting profitability. According to an S&P Global Inc. report, the industry is expected to see a 5.8% increase in direct premiums written. Also, an expected combined ratio of 99.7 would make 2021 the fourth consecutive year of underwriting profit for the sector.
Furthermore, advanced technologies are driving the emergence of ‘Insurtech’ solutions, which could help the industry grow over the long term. According to a Mordor Intelligence report, the U.S. property and casualty insurance market is expected to grow at a 6% CAGR between 2020 – 2025.
Investors’ interest in the property and casualty insurance space is evidenced by the Invesco KBW Property & Casualty Insurance ETF’s (KBWP) 10.3% returns over the past six months. Given this backdrop, we think it could be wise to bet on the fundamentally sound property and casualty insurance stocks The Allstate Corporation (ALL), Loews Corporation (L), CNA Financial Corporation (CNA), and Alleghany Corporation (Y).
The Allstate Corporation (ALL)
Northbrook, Ill.-based ALL provides property and casualty and other insurance products in the United States and Canada. The company’s segments include Allstate Protection, Protection Services, Allstate Life, and Allstate Benefits segments.
On June 1, 2021, ALL agreed to acquire SafeAuto, a non-standard auto insurance carrier focused on providing state-minimum private passenger auto insurance with coverage options in 28 states. The move is expected to expand the company’s state-minimum auto coverage offerings, and the cash purchase of SafeAuto is expected to be immediately accretive to ALL’s earnings.
The company’s consolidated revenue increased 26.2% year-over-year to $12.45 billion for its fiscal first quarter ended March 31, 2021. Its total assets grew 3% year-over-year to $129.81 billion, while its adjusted net income increased 55.7% year-over-year to $1.87 billion. Also, its adjusted EPS came in at $6.11, up 63.8% year-over-year.
ALL is expected to come in at $15.46 in its fiscal year 2021, representing a 5% year-over-year rise. It surpassed consensus EPS estimates in each of the trailing four quarters. ALL’s revenue is expected to increase 14.2% year-over-year to $10.73 billion for the quarter ending September 30, 2021. Over the past nine months, the stock has surged 41.9% to close yesterday’s trading session at $128.79.
ALL’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. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Value, and Sentiment. Click here to access ALL’s ratings for Quality, Momentum, and Stability also. ALL is ranked #1 of 56 stocks in the Insurance – Property & Casualty industry.
Loews Corporation (L)
L in New York City is a commercial property and casualty insurance company that offers specialty insurance products, such as surety and fidelity bonds, property insurance products, and casualty insurance products. It is also involved in the operation of offshore oil and gas drilling rigs, transportation and storage of natural gas and natural gas liquids, and the operation of a chain of hotels.
L sold 47% of its interest in Altium Packaging in April 2021 for roughly $420 million in cash. However, in connection with the sale and deconsolidation, the company is expected to recognize an approximately $560 million pretax gain in the second quarter of 2021.
The company’s net revenue increased 16.9% year-over-year to $3.62 billion for the fiscal first quarter, ended March 31, 2021. Its expenses decreased 23.8% year-over-year to $3.21 billion. Its net income came in at $261 million versus a $ 632 million net loss in the prior-year period. Its EPS came in at $0.97, versus a $2.20 loss per share in the year-ago period.
Analysts expect L’s EPS to increase at a 14% rate per annum over the next five years. In addition, it surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock’s price has soared nearly 52% over the past nine months to close yesterday’s trading session at $54.11.
L’s POWR Ratings reflect solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system. It has a B grade for Growth and Stability.
CNA Financial Corporation (CNA)
CNA provides commercial property and casualty insurance products, primarily in the United States. It operates through Specialty, Commercial, International, Life & Group, and Corporate & Other segments. In addition, the company offers professional liability coverage and risk management services to various professional firms, including architects, real estate agents, and accounting and law firms. CNA is based in Chicago.
Dino E. Robusto, the company’s Chairman and CEO, said on May 3, 2021, “I am very pleased with our results as we achieved the best underlying combined ratio in over 12 years, offsetting substantially elevated catastrophes in the first quarter, as well as continued double-digit rate increases and strong new business growth. We remain bullish about our growth opportunities for the remainder of the year as we expect favorable market conditions to persist.”
CNA’s property & casualty segments’ core income increased 85.2% year-over-year to $263 million for its fiscal first quarter, ended March 31, 2021. Its net investment income grew 53.2% year-over-year to $504 million, while its core income increased 143.5% year-over-year to $263 million. Also, its core EPS came in at $0.96, up 140% year-over-year.
CNA’s EPS is expected to increase 44.8% year-over-year to $3.91 in its fiscal year 2021. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The company’s revenue is expected to increase 8.9% year-over-year to $9.02 billion in its fiscal year 2022. The stock has gained 45.9% over the past nine months to close yesterday’s trading session at $44.58.
It’s no surprise that CNA has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Stability and a B grade for Growth and Sentiment.
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. It also owns and manages improved and unimproved commercial land and residential lots.
Alleghany Capital Corporation, a wholly owned subsidiary of Y, announced on May 11, that it had formed a new wholly owned subsidiary, Piedmont Manufacturing Group, LLC, to acquire Wilbert, Inc. This partnership is expected to enhance the company’s ability to expand its consumer base.
Y’s revenue increased 79% year-over-year to $2.65 billion for its fiscal first quarter ended March 31, 2021. Its earnings before income tax came in at $296.9 million compared to a $466.20 million loss in the prior-year period. Its adjusted earnings increased 86.6% year-over-year to $138.3 million. Y’s adjusted EPS came in at $9.81, up 96.6% year-over-year.
For the quarter ending September 30, 2021, analysts expect Y’s EPS to increase 349.5% year-over-year to $14.52. In addition, it surpassed consensus EPS estimates in three of the trailing four quarters. The stock has rallied 27.9% over the past year to close yesterday’s trading session at $662.18.
Y’s POWR Ratings reflect this promising outlook. The stock has an A grade for Sentiment. Within the Insurance – Property & Casualty, Y is ranked #9.
To see the additional POWR Ratings for Y (Growth, Value, Quality, Momentum, and Stability), click here.
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ALL shares were trading at $127.56 per share on Thursday afternoon, down $1.23 (-0.96%). Year-to-date, ALL has gained 17.58%, versus a 17.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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