Looking back, the year 2017 was full of both pleasant and unpleasant surprises. While an improving employment scenario and rising interest rates came as a breather to the insurance industry, the severe damages caused by devastating catastrophe events hampered the insurers’ overall performance to a great degree. The insurance industry has been wading through these challenges this year and there have been a few outperformers, which have sparked an interest among investors and raised optimism among them.
Based on the above scenario, picking the prospective winning stocks and making a prudent investment decision for the best returns may seem an uphill task. We will discuss below about the various scenarios, which have influenced the insurance industry to a large extent.
Catastrophe Loss Loomed Large
Although the first half of 2017 was mainly affected by a hail-driven weather-related catastrophe loss, the second half proved even costlier for the insurance industry as well as the market as a whole. With the occurrence of hurricanes Harvey, Irma and Maria, the relevant industry suffered an apparent dent in the underwriting results, thus hurting its overall performance.
Even though the mounting losses badly impacted the overall performance of the insurers, there were a few good stocks, which weathered such losses and emerged winners.
Interest Rate Hike — A Long-Awaited Boon to Insurers
The gradual rise in interest rates has benefited the insurance industry to a great extent. The Federal Reserve delivered in its promise to increase the rates thrice in 2017 by announcing the third and the final interest rate hike at the Federal Open Market Committee’s meeting on Wednesday, Dec 13, 2017. Notably, the interest rate now ranges between 1.25% and 1.50%, which in turn has boosted the insurance industry’s prospects and helped the companies strengthen their market position.
Even with the slow-paced rising rate environment, life insurers — who have been suffering from spread compression on products like fixed annuities and universal life due to persistently low rates — have heaved a sigh of relief. Thus, given the high dependence on investment income, life insurers will gain more from a progressing rate environment. While non-life insurers have already begun to display an improving investment income, instilling confidence in investors.
A progressing rate environment will also lessen the pressure on the insurers’ investment income, thus boosting their earnings. This in turn will accelerate the insurance companies’ overall growth in the future.
Other Factors Resulting in Favorable Performance
A few other factors have also impacted the industry performance so far. To that end, low inflation is expected to remain at 1.6%, falling shy of the 2% target, which is considered good for the economy.
This apart, a reviving housing market has enhanced insurable exposures and premiums written. Additionally, an improving employment scenario and a positive consumer sentiment buoy optimism.
Outperformers in 2017
Despite adversities raising concerns for insurers this year, positives like rising interest rate environment and an improving economy have helped the following stocks perform well and yield profits through an underlying strength and business modification.
We have zeroed in on four stocks having outperformed so far despite all odds based on price performance, positive estimate revisions, strong surprise history in the last three quarters and a favorable Zacks Rank.
Chicago, IL-based CNA Financial Corporation (NYSE:CNA) offers commercial property and casualty insurance products, primarily in the United States. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 3.4% upward to $3.07 and moved 7.9% up to $3.42 for 2018 over the last 60 days. This is reflected through the company’s Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. With respect to surprise history, the company delivered positive surprises in the last three quarters with an average beat of 53.2%.
Shares of CNA Financial have gained 27.5% year to date, outperforming the industry’s increase of 17.4% and the S&P 500 index’s gain of 19.3%.
West Des Moines, IA-based American Equity Investment Life Holding Company (NYSE:AEL) develops and sells fixed index and fixed rate annuity products in the United States. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 13.2% upward to $3.00 and moved 4.1% up to $2.77 for 2018 over the last 60 days. This is reflected through the company’s Zacks Rank of 1. With respect to surprise history, the company came up with positive surprises in the last three quarters with an average beat of 28.8%.
Shares of American Equity Investment have surged 38.5% year to date, outperforming the industry’s rally of 23.1% and the S&P 500 index’s gain of 19.3%.
Milwaukee, WI-based MGIC Investment Corporation (NYSE:MTG) provides private mortgage insurance and ancillary services to lenders and government sponsored entities in the United States. The Zacks Consensus Estimate for current year-earnings moved up 9% to $1.21 and 6.1% to $1.21 for 2018 over the last 60 days. This is reflected through the company’s bullish Zacks Rank which is as same as the above two. With respect to its earnings track record, the company pulled off positive surprises in the trailing three quarters with an average beat of 27.1%.
Shares of MGIC Investment have soared 48.6% year to date, outperforming the industry’s increase of 9.8% and the S&P 500 index’s gain of 19.3%.
Bloomfield, CT-based Cigna Corporation (NYSE:CI) provides insurance and related products and services in the United States and internationally. The Zacks Consensus Estimate for current-year earnings has been raised nearly 3% to $10.34 and 0.9% to $11.53 for 2018 over the last 60 days. This stock carries a Zacks Rank #3 (Hold). With respect to its earnings history, the company delivered beat estimates in the trailing three quarters with an average positive surprise of 16.9%.
Shares of Cigna have gained 55.9% year to date, outperforming the industry’s rise of 9.8% and the S&P 500 index’s gain of 19.3%.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
American Equity Investment Life Holding Company (AEL): Free Stock Analysis Report
Cigna Corporation (CI): Free Stock Analysis Report
MGIC Investment Corporation (MTG): Free Stock Analysis Report
CNA Financial Corporation (CNA): Free Stock Analysis Report
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