Bright Near-Term Outlook for Multiline Insurance Industry

The Zacks Multiline Insurance industry comprises companies that provide a single insurance coverage, bundling automobile, homeowner, long-term care, life and health insurance to individuals and businesses. The insured pays a single premium and is covered for many things through a single contract.

These companies cover commercial and personal properties, automobiles, marine, livestock, aviation, personal accident, life including permanent and term insurance, supplemental accident and health insurance, workers’ compensation, annuity products, private mortgage insurance, et al. The industry participants also provide risk management services.

Here are the industry’s three major themes:

  • The U.S. multiline-insurance sector should face operational challenges due the pandemic. Slowdown in economic growth might weigh on new sales and insurable exposures. While auto claims are likely to decline, frequency of claims from essential service industries are bound to rise. Further, a spike in mortality will induce higher claim payments for life insurance coverages. A low interest rate and equity market fluctuations might weigh on investment results. Notably, investment yield should be less on account of low rate. The sustained low interest rate environment prompted life insurance providers to make product modifications by moving away from fixed annuity products with guarantee returns to variable annuity products and products with market related returns. Nonetheless, better pricing, reinsurance arrangements, product redesigns and strong capital reserve should help the carriers weather this difficult operating environment.
  • Consolidation in the multi-line insurance industry would continue as players look to diversify their operations into new business lines and geography. Buying businesses in the same lines will be driven by the players’ need to gain a fair market share and grow in their niche areas. Also, a low interest rate environment makes mergers and acquisitions conducive since funding purchases become more affordable.
  •  The industry is noticing greater use of technology like blockchain, AI, advanced analytics, telematics, cloud computing and robotic process automation to expedite business operations and save costs.  Many life insurers started selling policies online that appeal to the tech-savvy population. At the same time, the use of real-time data is making premium calculation easier and reducing risk. The P&C industry also witnessed the emergence of insurtech — technology-led insurers — sparking competition for incumbent players. Moreover, adoption of technology has helped in seamless underwriting and claims processing amid the pandemic, which necessitated social distancing and remote working.

Zacks Industry Rank Indicates Bright Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bullish prospects in the near term. The Zacks Multiline Insurance industry, housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #103, which places it in the top 41% of 255 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is the result of a positive earnings outlook for the constituent companies in aggregate.

Before we present a few multiline insurance stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Lags Sector and S&P 500

The Multiline Insurance industry has underperformed both the Zacks S&P 500 composite and its sector over the past year. The stocks in this industry have collectively lost 22.4% in the past year compared with the Finance sector decline of 13.9%. Notably, the Zacks S&P 500 composite gained 5.8% in same time frame.

One-Year Price Performance

Current Valuation

On the basis of its trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 1.17X compared with the S&P 500’s 4.26X and the sector’s 2.34X.

Over the past five years, the industry has traded as high as 1.98X, as low as 0.85X and at the median of 1.48X.

Price-to-Book (P/B) Ratio (TTM)

Price-to-Book (P/B) Ratio (TTM)

Bottom Line

Adoption of technology, product development, prudent underwriting practices, competitive pricing and a compelling product portfolio should keep boosting business growth for multiline insurers. Also, a sturdy capital level should support effective capital deployment like investing in growth opportunities and returning capital to their shareholders.

Investors may look at the following stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Old Republic International Corporation (ORI) engages in the insurance underwriting and related services business primarily in the United States and Canada. The Zacks Consensus Estimate for 2021 and 2021 of this Zacks Rank #1 company has moved up 12% and 16%, respectively, in the last 30 days.

Price and Consensus: ORI

CNO Financial Inc. (CNO) develops, markets, and administers health insurance, annuity, individual life insurance, and other insurance products for senior and middle-income markets in the United States. The Zacks Consensus Estimate for 2020 and 2021 earnings per share suggests an improvement of 3.9% and 8.9% from the respective prior-year reported numbers. The stock carries a Zacks Rank #2.

Price and Consensus: CNO

EverQuote, Inc
. (EVER) operates an online marketplace for insurance shopping in the United States. The Zacks Consensus Estimate for 2020 and 2021 earnings per share suggests 21.4% and 84.6% rise from the respective prior-year reported figures. The company carries a Zacks Rank #2.

Price and Consensus: EVER

Horace Mann Educators Corporation (HMN) operates as a multiline insurance company in the United States. This Zacks Rank #2 insurer has seen its consensus estimate for 2020 and 2021 move up 1.9% and 1.8% in the last 60 days. Also, the Zacks Consensus Estimate for 2020 and 2021 earnings per share suggests 25% and 5.5% rise from the respective prior-year reported numbers.

Price and Consensus: HMN

MGIC Investment Corporation (MTG) provides private mortgage insurance, other mortgage credit risk management solutions, and ancillary services to lenders and government sponsored entities in the United States, Puerto Rico, and Guam. This Zacks Rank #2 mortgage insurer has beat estimates in each of the trailing four quarters.

Price and Consensus: MTG

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