The stock market has been under pressure since the beginning of the year due to various macroeconomic and geopolitical concerns. Inflation has been raging, and the Fed has aggressively hiked the benchmark interest rates to bring it under control.

However, despite the Fed’s hawkish stance, inflation is hovering around multi-decade high levels, as was evident in August’s inflation data, with the consumer price index (CPI) rising 8.3% year-over-year, beating economists’ estimates. This sprung the Fed back into action, as it hiked the benchmark interest rate by 75 basis points last month for the third consecutive time.

Rising interest rates have given rise to recession fears, with many experts believing that the economy will be in a recession by next year. Although rising interest rates are not favorable for most sectors, the financial sector, which includes insurers, benefits from it.

Insurance companies must hold long-term safe bonds to meet their promised returns to policyholders. Amid the rising interest rate environment, the spread between the longer-term assets and shorter-term liabilities is increasing the spread of insurers. Historically, the insurance industry has generated higher profits in a rising interest rate environment.

Therefore, we think insurance stocks Intact Financial Corporation (IFCZF), The Hartford Financial Services Group, Inc. (HIG), and Heritage Insurance Holdings, Inc. (HRTG) are solid investments now, given their ability to capitalize on the rising interest rate environment. On the other hand, investors should avoid FedNat Holding Company (FNHC), given its weak fundamentals and growth prospects.

Stocks to Buy:

Intact Financial Corporation (IFCZF)

Headquartered in Toronto, Canada, IFCZF provides property and casualty insurance products to individuals and businesses in Canada, the United States, the United Kingdom, Ireland, the rest of Europe, and the Middle East.

It offers personal auto insurance, motor homes, recreational vehicles, motorcycles, and personal property insurance, such as protection for homes and contents from risks like fire, theft, etc. It also provides personal liability coverage and property coverage.

On July 7, 2022, IFCZF’s subsidiary RSA Insurance Group Ltd. (RSA) announced that it had completed the sale of its shareholding in RSA Middle East B.S.C.(c) to National Life & General Insurance Company.

IFCZF’s CEO and Member of the RSA UK and International Board said, “We believe this is a positive next step for the Middle East and will allow our teams in the UK, Ireland, and Europe to continue their focus on Intact’s strategy to outperform in these markets.”

IFCZF’s total revenues increased 39.8% year-over-year to C$5.34 billion ($3.86 billion) for the second quarter ended June 30, 2022. The company’s net earned premiums increased 39.7% year-over-year to C$4.90 billion ($3.55 billion). Also, its net income increased 106.6% year-over-year to C$1.18 billion ($854.83 million). In addition, its EPS came in at C$6.64, representing an increase of 84.9% year-over-year.

Analysts expect IFCZF’s revenue for fiscal 2022 to increase 13% year-over-year to $14.44 billion. The stock has gained 7.9% year-to-date to close the last trading session at $140.41.

IFCZF’s POWR Ratings reflect solid prospects. According to our proprietary rating system, it has an overall rating of B, translating to a Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Growth, Momentum, and Stability. IFCZF is ranked #4 out of 52 stocks in the Insurance – Property & Casualty industry. Click here to see the other ratings of IFCZF for Value, Sentiment, and Quality.

The Hartford Financial Services Group, Inc. (HIG)

HIG 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.

For the fiscal second quarter ended June 30, 2022, HIG’s earned premiums increased 7.8% year-over-year to $4.81 billion. Its net income and core earnings came in at $437 million and $714 million, respectively.

For the quarter ended September 30, 2022, HIG’s EPS is expected to increase 16.2% year-over-year to $1.46. Its revenue for fiscal 2023 is expected to increase 6.7% year-over-year to $23.55 billion. It surpassed Street EPS estimates in each of the trailing four quarters. The stock has declined 7% year-to-date to close the last trading session at $64.22.

HIG’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.

It has a B grade for Momentum, Stability, and Sentiment. It is ranked #6 in the same industry. To check the additional ratings of HIG for Growth, Value, and Quality, click here.

Heritage Insurance Holdings, Inc. (HRTG)

HRTG is a property and casualty insurance holding company that primarily provides personal and commercial residential insurance products through its insurance company subsidiaries. 

It is vertically integrated and controls or manages all aspects of insurance underwriting, customer service, actuarial analysis, distribution, claims processing, and adjusting.

HRTG’s revenue increased 9% year-over-year to $163.77 million for the second quarter ended June 30, 2022. The company’s adjusted net income came in at $2.90 million, compared to the adjusted net loss of $3.95 million. Its net premiums earned increased 8% year-over-year to $158.27 million.

Analysts expect HRTG’s EPS for the quarter ended September 30, 2022, to increase 30.5% year-over-year to $0.41. Its revenue for fiscal 2022 is expected to increase 5% year-over-year to $663.08 million. Over the past three months, the stock has lost 38.6% to close the last trading session at $1.62.

HRTG’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.

It has a B grade for Growth, Momentum, and Sentiment. Again, it is ranked #2 in the same industry. Click here to see the other ratings of Value, Stability, and Quality.

Stock to Avoid:

FedNat Holding Company (FNHC)

FNHC is an insurance holding company that controls all aspects of the insurance underwriting, distribution, and claims processes through its subsidiaries and contractual relationships with independent and general agents.

The company is authorized to underwrite homeowners’ multi-peril, federal flood, and various other lines of insurance in Florida and various other states.

On August 17, 2022, FNHC announced that it had received notice from the Listing Qualifications Department of Nasdaq notifying that the company had not complied with the requirements of the Nasdaq Listing Rule 5250(c)(1) for not timely filing its quarterly report on Form 10-Q for the second quarter ended June 30, 2022.

For the fiscal first quarter ended March 31, 2022, FNHC’s revenue declined 28.3% year-over-year to $248 million. The company’s adjusted operating loss widened 48.6% year-over-year to $28.86 million. Also, its net loss widened 61.4% year-over-year to $31.28 million.

For fiscal 2023, FNHC’s revenue is expected to decline 20% year-over-year to $196.49 million. Its EPS is expected to decline 5.8% per annum over the next five years. It failed to surpass consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has declined 86.8% to close the last trading session at $0.34.

FNHC’s POWR Ratings are consistent with this bleak outlook. It has an overall rating of D, which translates to a Sell in our proprietary rating system.

It has a D grade for Momentum, Stability, and Sentiment. Within the Insurance – Property & Casualty industry, it is ranked #54. To see the other ratings of FNHC for Growth, Value, and Quality, click here.

IFCZF shares were trading at $138.17 per share on Wednesday morning, down $2.24 (-1.60%). Year-to-date, IFCZF has gained 6.23%, versus a -23.57% 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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