4 Low-Beta Insurance Stocks To Beat Market Volatility

The insurance industry has been bearing the brunt of the coronavirus pandemic, near-zero interest rates, trade tariffs and inflation rate. The industry has declined 17.2% year to date against the S&P 500 composite’s increase of 0.8%.

A low interest rate environment makes insurers prone to interest rate risks. Life insurers’, earnings, capital, reserves and liquidity are affected as their earnings are typically derived from the spread between their investment returns and what they credit as interest on insurance policies and products.

A near-zero interest rate is also a concern for long-tail Property and Casualty Insurance providers. The rate environment is expected to remain low in a range of 0-0.25%. No improvement in rates is expected before 2023 as outlined in the September FOMC meeting. Also, investment income, a component of insurers’ top line, is likely to remain under pressure. 

P&C or non-life insurers are exposed to catastrophes that induce volatility in underwriting profits. Colorado State University predicts an ‘extremely active Atlantic hurricane season in 2020 and hurricane activity will be about 190% of the average season.’ However, improved pricing (most of the lines are witnessing rate increase), prudent underwriting, favorable reserve development and sturdy capital level should help withstand the blow.

On the other hand, life insurers have been refraining from selling long duration term life insurance, moving away from guaranteed savings products toward protection products of unit-linked savings products in their efforts to maintain sales and profitability.

Social distancing norms have led to increased automation, which is expected to ensure smooth functioning, in turn driving premiums and efficiency. Adoption of technologies like artificial intelligence, robotic process automation, cognitive intelligence or blockchain should help life insurers curb operational costs and aid margin expansion.

Amid the current situation, let’s focus on some low-beta insurance stocks that tend to deliver steady performance irrespective of market conditions.

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