2 Funds To Gain From Strength In U.S. Insurance

A spate of natural disasters, an aging American population and increased number of vehicles on the roads have resulted in increasing prices of insurance premiums. Further, a number of mergers in the pipeline have resulted in the firming up of the insurance industry.

Consequently, insurance buyers have been facing extreme price pressure. Under such circumstances, investing in funds with significant exposure to health insurance companies seems prudent.

Higher Prices and Renewals Boost Insurance Sector

Per the latest report published by Willis Towers Watson in their 2019 Insurance Marketplace Realities, players in the insurance industry are poised for tremendous growth. The report attributes the fact to rising pricing pressure on insurance buyers due to a spate of casualty losses.

Experts from Willis Towers Watson also expect the auto liability premiums to continue to increase in 2019, the third year on the trot. The auto rates are believed to surge to anything between 6% and 12% in 2019 as the automobile sector experiences deteriorating loss costs. Such costs result from the ever-increasing number of vehicles on the roads, which has led to a bump up in the number of auto claims.

Looking at the property market, the recent carnage by a spate of natural disasters has resulted in increased prices of claims. For non-catastrophe-exposed programs, pricing is expected increase 2.5%. Meanwhile, pricing for catastrophe-exposed programs is likely to rise between 2.5% and 7.5% in 2019.

Finally, an expanding aging population in the United States has resulted in a higher number of claims from long-term care and senior living facilities. The health insurance renewals are expected to increase between 5% and 30%.

Insurance Mergers in the Pipeline

According to a report published by PwC on Oct 24, 2018, the total value of merger and acquisition activity in America’s insurance sector increased to $8.1 billion in the third quarter of 2018. This marked a steep increase from $1.9 billion in the same period in 2017.

Of the various high-profile mergers, the one that stands out is Apollo Global Management LLC’s takeover of Aspen Insurance Holdings Ltd. for $2.6 billion. The deal was announced in August 2018 and is yet to go through. In August, the $2.2-billion buyout of Navigators Group Inc. by Hartford Financial Services Group (NYSE:HIG) Inc. was announced, which is yet to be through as well.

2 Best Funds to Buy Now

We have highlighted four insurance-related mutual funds that will benefit from such developments.

The question here is why investors should consider mutual funds. Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Insurance Port FSPCX, with a Zacks Mutual Fund Rank #1 (Strong Buy), invests a major portion of its assets in securities of companies principally engaged in underwriting, reinsuring, selling, distributing, or placing of property and casualty, life, or health insurance. FSPCX distributes dividends and capital gains, if any, in April and December every year.

This Sector-Finance product, as of the last filing, allocates the fund in Large Value Stocks. As of the last filing, Chubb Corp (NYSE:CB), American International Group (NYSE:AIG), The Travelers Companies (NYSE:TRV) I and Metlife Inc were the top holdings for FSPCX, constituting 11.5%, 8.5%, 8.1% and 7.5%, respectively.

The Fidelity Select Insurance Port fund, managed by Fidelity, carries an expense ratio of 0.79%. Moreover, FSPCX requires a minimal initial investment of $2,500.

FSPCX has a history of strong positive total returns for over 10 years. Specifically, the fund’s returns over the three and five-year benchmarks are 12.5% and 11.3%, respectively. To see how this fund performed compared in its category, please click here.

FSPCX’s performance, as of the last filing, when compared to funds in its category was in the top 42% over the past three years and in the 29% over the past five years.

PGIM Jennison Financial Services A PFSAX, a Zacks Ranked #1 fund, invests a huge portion of its assets in equity securities of asset management companies, securities/brokerage firms, mortgage banking companies, banks, insurance companies, industrial finance companies and leasing companies. PFSAX distributes dividends and capital gains annually.

This Sector-Finance product, as of the last filing, allocates the fund in Large Value, Large Growth and Small Value Stocks. As of the last filing, Metlife Inc was one of the top holdings for PFSAX, constituting 4.6% of the fund’s portfolio.

The PGIM Jennison Financial Services fund, managed by Prudential (LON:PRU), carries an expense ratio of 1.37%. Moreover, PFSAX requires a minimal initial investment of $2,500.

PFSAX has a history of strong positive total returns for over 10 years. Specifically, the fund’s returns over the three and five-year benchmarks are 10.6% and 3.8%, respectively. To see how this fund performed compared in its category, please click here.

PFSAX’s performance, as of the last filing, when compared to funds in its category was in the top 69% over the past three years and in the 94% over the past five years.

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