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The S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite have recently declined around 2.6%, 2%, and 3%, respectively, since Aug. 30, 2024.

September has historically been a sluggish month for the stock market. While there are several theories for this uncanny phenomenon, the most common notion is that investors often take time off during the summer months, leading to an overall decline in trading volumes. Stock Trader’s Almanac shows that September has been the weakest month for the S&P 500 since 1950 and since 1971 for the Nasdaq.

Concerns over flat pricing and an inevitable interest rate cut now loom over the insurance industry. Nonetheless, the space seems well-poised for growth amid this volatility. The industry has gained 32.4% year-to-date, outperforming the Finance sector’s increase of 13.8% and the Zacks S&P 500 composite’s gain of 15.7%.

Increased exposure, favorable renewal, solid retention, new business growth, portfolio repositioning, proper segmentation, and reinsurance covers should help Heritage Insurance Holdings (HRTG - Free Report), Assurant Inc (AIZ - Free Report), Reinsurance Group of America (RGA - Free Report), and Unum Group (UNM - Free Report) deliver operational excellence and, in turn, better returns for investors.

The Industry Outperforms the Sector and the S&P 500

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Factors Dominating the Insurance Industry

The insurance industry is rate-sensitive. After 11 rate hikes since March 2022, a rate cut in September FOMC seems inevitable as inflation approaches the target of 2% amid stable employment and improved retail sales data.

Insurers invest a portion of their premiums and thus are direct beneficiaries of a rising rate environment. Per a report published in The Guardian, based on trading in financial markets, investors see about a 76% chance of a 25-basis point cut in interest rates in September. 

Pricing plays a crucial role in driving premiums and addressing claims payment prudently. After 26 straight quarters of a year-over-year rise, pricing stayed flat in the second quarter of 2024. In fact, it declined 1% sequentially. Nonetheless, banking on prudent underwriting criteria and increased exposure, premiums should grow.

Analysts at Swiss Re Institute predict non-life premiums to grow 7% and life premiums to grow 2.9% in 2024. Per a report in Carrier Management, AM Best expects profitable commercial lines and improving personal lines in 2024.

Colorado State University (CSU) estimates an extremely active 2024 hurricane season. Catastrophes and non-life insurers’ profitability are inversely related. The hurricane season typically starts in June and lasts through November, gathering strength in August and September. Thus, property and casualty insurers’ third-quarter results are affected the most.  

Per Verisk and The American Property Casualty Insurance Association (APCIA), premiums written increased 10.2% and earned premiums grew 11% in the first half of 2024. Aon estimates first-half 2024 total economic losses to be $117 billion, whose 50% is covered by insurance. Verisk and APCIA stated the net underwriting gain of $3.7 billion in the first half of 2024 reversed the $23.4 billion loss incurred in the year ago period.

Policyholders’ surplus improved to $1,070 billion as of June 30, 2024 from $1,014 billion at the end of 2023. The rate of return on average policyholders’ surplus, a crucial component of overall profitability, increased to 9.1% in the first half of 2024, up from 3.6% at the end of 2023. Swiss Re expects the combined ratio, a measure of the insurer's profitability, to improve 350 basis points year-over-year to 98.5% in 2024.

Also, the insurance industry continues to witness accelerated digitalization. Players are investing heavily in technology to improve scale and efficiencies. A sturdy capital position can support effective capital deployments like mergers and acquisitions, dividend hikes, special dividends, and share buyback programs. 

Notably, the insurance industry is undervalued. The price-to-book multiple, commonly used for valuing insurance stocks, is pegged at 1.9 compared with the S&P 500’s 8.4 and the sector’s 3.6. 

Value Picks

Picking the right stocks for greater investment rewards could be an uphill battle. With the help of our Zacks Stock Screener, we have identified the best bets.

We have shortlisted four stocks, each having a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) rating and an impressive Value Score of A or B. Each stock has witnessed positive estimate revision, reflecting analysts’ optimism about their prospects.

The Value Score helps to identify stocks that are undervalued. These value stocks have a long history of delivering superior returns.

Heritage Insurance

Tampa, FL-based Heritage Insurance provides personal and commercial residential insurance products. Its focus on rate adequacy, selective underwriting, and profit-oriented underwriting criteria while restricting new business in over-concentrated markets or products poises it well for growth. This Zacks Rank #1 (Strong Buy) insurer has strategically diversified its portfolio to achieve better risk distribution, claims trends, and lower reinsurance costs.

The Zacks Consensus Estimate for Heritage Insurance's 2024 and 2025 earnings suggests 10.3% and 18.1% year-over-year growth, respectively. The consensus estimate for 2024 and 2025 has moved up 33.1% and 26.7%, respectively, in the past 30 days. 

The stock has a P/B ratio of 1.94. It also has a Value Score of A.

Assurant

Headquartered in Hartford, CT, this insurer is one of the major multi-line insurance and investment companies in the country. It is poised to grow on improvement in the quality and size of mortgage insurance in force, a decline in claim payments, given the strong credit characteristics of the new loans insured, maintenance of capital in compliance with regulations, and its solid capital position.

Assurant expects adjusted EBITDA to increase in the high single digits, led by strong growth in Global Housing and modest growth in Global Lifestyle. Adjusted earnings per share are expected to grow in the low double digits, excluding reportable catastrophes.

The Zacks Consensus Estimate for 2024 and 2025 earnings indicates a year-over-increase of 6.8% and 6.1%, respectively. The consensus estimate for 2024 and 2025 earnings has moved 3.1% and 4.5% north, respectively, in the past 30 days. Its expected long-term earnings growth rate is pegged at 7.1%. 

The stock has a P/B ratio of 2.02. It has a Value Score of B and a Zacks Rank #1 (Strong Buy) rating.

Reinsurance Group

Headquartered in Timberlake, MO, Reinsurance Group is a leading global provider of traditional life and health reinsurance and financial solutions. The company's strong momentum in U.S. Traditional, Longevity/PRT, Asia Asset-Intensive, and Asia Traditional spaces should continue to drive its earnings.

Demand for protection products among the emerging global middle class, as well as increasing demand for retirement, senior protection, and savings products among aging populations, may create opportunities for growth.

The Zacks Consensus Estimate for 2024 and 2025 earnings indicates a year-over-increase of 8.2% and 3.8%, respectively. The consensus estimate for 2024 and 2025 earnings has moved 2.7% and 1.6% north, respectively, in the past 60 days. Its expected long-term earnings growth rate is pegged at 7.1%. 

The stock has a P/B ratio of 1.45. Additionally, it has a Value Score of A and a Zacks Rank #2 (Buy) rating.

Unum Group

Headquartered in Chattanooga, TN, Unum provides disability insurance, long-term care insurance, life insurance, employer- and employee-paid group benefits, and related services. The continued roll-out of dental products and geographic expansion has been paying off as the acquired dental insurance businesses are growing in the United States and the United Kingdom. Conservative pricing and reservation practices, disciplined sales trends, strong persistence, and favorable risk results are also expected to drive earnings.

In 2024, Unum Group expects sales growth in the range of 7-10%, premium growth in the band of 5-7%, and adjusted operating return on equity (ROE) between 12% and 14% from core business. Unum estimates 10-15% growth in after-tax adjusted operating EPS in 2024. For the long-term, Unum Group expects sales growth in the range of 8-12%, premium growth in the range of 4-7%, and adjusted operating earnings per share growth between 8% and 10%. 

The Zacks Consensus Estimate for 2024 and 2025 earnings indicates a year-over-increase of 10.4% and 5.4%, respectively. The consensus estimate for 2024 and 2025 earnings has moved 0.6% and 0.5% north, respectively, in the past 30 days. Its expected long-term earnings growth rate is pegged at 8%. 

The stock has a P/B ratio of 0.98. Additionally, it has a Value Score of A and a Zacks Rank #2 (Buy) rating.

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