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ALL or CINF: Which P&C Insurance Industry Stock Has an Edge?

By Zacks Investment ResearchStock MarketsJun 23, 2021 10:20PM ET
www.investing.com/analysis/all-or-cinf-which-pc-insurance-industry-stock-has-an-edge-200588047
ALL or CINF: Which P&C Insurance Industry Stock Has an Edge?
By Zacks Investment Research   |  Jun 23, 2021 10:20PM ET
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With another hurricane season already underway, property and casualty insurers are bracing up to weather its impact. Reopening of the economy and an economic growth outlook inspire confidence for the days ahead.

P&C insurers’ profitability is inversely related to catastrophic events. Per Colorado State University (CSU), 2021 above-average hurricane season may have 17 named storms, including eight hurricanes and four major hurricanes. This year’s hurricane season could be about 140% of average season per CSU.

However, insurers continue to witness improved pricing. As per Marsh, global commercial insurance prices in the first quarter of 2021 increased 18%, marking the 14th straight quarter of price increase. Exposure growth, prudent underwriting, favorable reserve development and sturdy capital level are other tailwinds that should support P&C insurers.

Though a still low interest rate and equity market fluctuations will continue to weigh on investment results, a larger invested base should offer some respite. In fact, Fed officials are optimistic about a rate rise by 2023. Seven officials expect a rate rise in 2022 itself.

Increased adoption of technology is helping insurers curb expense and expedite business operations. The P&C insurance industry in particular is witnessing the emergence of insurtech — technology-led insurers.

Sturdy policyholders’ surplus will help the industry absorb losses. Also, given a solid capital level, insurers are buying businesses as they look to gain market share and grow in their niche areas. Moreover, industry players are engaging in share buybacks, increasing dividends or paying out special dividends.

The industry has rallied 15.1% year to date compared with Zacks S&P 500 composite’s rise of 13.9%.

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Zacks Investment Research
Image Source: Zacks Investment Research

Here we focus on two property and casualty insurers, namely The Allstate Corporation (NYSE:ALL) ALL and Cincinnati Financial Corporation (NASDAQ:CINF) CINF. Allstate is the third-largest property-casualty (P&C) insurer and the largest publicly-held personal lines carrier in the United States. Cincinnati Financial markets property and casualty insurance. Both the companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s now see how these P&C insurers have fared in terms of some of the key metrics.

Price Performance

Cincinnati Financial has rallied 33.7% year to date compared with the industry’s increase of 15.1% and Allstate’s gain of 16.3%.

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Zacks Investment Research
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Return on Equity (ROE)

Allstate with a return on equity of 21.2% exceeds Cincinnati Financial’s ROE of 6% and the industry average of 5.6%.

Zacks Investment Research
Zacks Investment Research
Image Source: Zacks Investment Research

Valuation

Price-to-book value is the best multiple used for valuing insurers. Compared with Cincinnati Financial’ reading of 1.69, Allstate is cheaper with a reading of 1.55. The P&C insurance industry’s P/B ratio is 1.34.

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Zacks Investment Research
Image Source: Zacks Investment Research

Dividend Yield

Allstate’s dividend yield of 2.5% tops Cincinnati Financial’s 2.2% as well as the industry’s average of 0.4%.

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Zacks Investment Research
Image Source: Zacks Investment Research

Debt-to-Equity

Cincinnati Financial’s debt-to-equity ratio of 8.1 is lower than the industry average of 25.3 as well as Allstate s reading of 29.9. u

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Zacks Investment Research
Image Source: Zacks Investment Research

Earnings Surprise History

Allstate outpaced expectations in each of the four trailing quarters, delivering earnings surprise of 63.23%, on average. Cincinnati Financial surpassed estimates in three of the last four reported quarters, with the average surprise being 17.63%.

Growth Projection

The Zacks Consensus Estimate for 2021 earnings indicates 30.2% growth from the year-ago reported figure for Cincinnati Financial and 6.2% for Allstate.

VGM Score

VGM Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth and most promising momentum. Allstate has an impressive VGM Score of A while Cincinnati Financial has a VGM Score of C. Travelers (NYSE:TRV) thus has an edge.

To Conclude

Our comparative analysis shows that Allstate has an edge over Cincinnati Financial with respect to return on equity, valuation, dividend yield, VGM Score and earnings surprise history. Meanwhile, Cincinnati Financial scores higher in terms of price performance, leverage and growth projection.

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ALL or CINF: Which P&C Insurance Industry Stock Has an Edge?
 

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ALL or CINF: Which P&C Insurance Industry Stock Has an Edge?

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