<< Read Part 1: A Year Of Speedy Recovery For U.S. Insurers?

<< Read Part 2: Insurance Industry Outlook: Life Insurers

The commercial, property and personal lines of P&C industry have been showing decent progress in recent quarters. Most importantly, ample underwriting capacity and heightened competition have helped P&C insurers to reach the market hardening phase, which is the key to improvement. After battling falling prices for years, the industry has been witnessing improving premium rates since 2013.

Though the low interest rate environment remains a drag on P&C insurers’ progress, a likely reversal of interest rates later this year should alleviate some pressure, particularly on their investment portfolios.

On the other hand, concerns related to weak capital levels are now things of the past, as the industry’s capital position has been building up on the back of better-than-before earnings and policyholders' surplus. High capital levels and lower-than-normal catastrophe losses are further reining in price hardening.

While a not-so-strong pricing power and continued pressure on investment income are concerns, capital strength and better preparation to withstand catastrophe-related losses should translate into better underwriting profits and lower combined ratio in the upcoming quarters.

Further, conservative investment strategies and capital restructuring efforts will continue to strengthen P&C insurers’ financial footing in the quarters ahead.

As property-casualty insurers hold about two-thirds of the invested assets in the form of bonds, their capacity is highly sensitive to changes in credit market conditions. With credit and equity markets showing improvement, insurers are likely to incur lesser realized and unrealized capital losses on their portfolios in the quarters ahead.   
    
Moreover, insurance volume is expected to expand going forward on speedier economic recovery. With improved employment in the private sector and recovery, though uneven, in the housing markets, a number of carriers have seen growth in insurance sales in the recent quarters.

Though competition is cropping up both within the primary lines of the P&C space and with reinsurers’ expansion, proactive transformational measures, including adoption of technology solutions, will give a competitive advantage.

Also, it appears that the pace of renewal rate growth is slowing as competition is heating up and is expected to remain flat in the upcoming quarters. In order to regain the renewal enthusiasm and meet evolving demands of policyholders, insurers are in the process of product reframing and innovation.

The emerging risks related to cyber threats are also giving P&C insurers scope to capitalize on. Rising data theft and security breach are expected to open up opportunities for the carriers.

Stocks Worth Betting On

As you can see, there are plenty of reasons to be optimistic about U.S. life Insurers now. The industry has been undertaking several structural changes that will make underwriting and pricing schemes even more attractive to consumers. So one may consider buying some P&C insurance stocks that promise better performance based on their strong fundamentals and a favorable Zacks Rank.

Specific P&C insurers that we like with a Zacks Rank #1 (Strong Buy) include Arch Capital Group Ltd. (ACGL - Snapshot Report), W.R. Berkley Corporation (WRB -Analyst Report), Everest Re Group Ltd. (RE - Analyst Report) and Infinity Property and Casualty Corp. (IPCC - Snapshot Report).

Stocks in our U.S. P&C insurance universe with a Zacks Rank #2 (Buy) currently include The Hanover Insurance Group Inc. (THG - Snapshot Report), Hallmark Financial Services Inc. (HALL - Snapshot Report), Federated National Holding Company (FNHC - Snapshot Report) and Platinum Underwriters Holdings Ltd. (PTP -Snapshot Report).