Yahoo Finance 4 Low-Beta Insurance Stocks to Watch Amid High Market Volatility
Macroeconomic headwinds, which include still-high interest rates, ongoing inflationary pressures, poor economic growth and continuing wars across several parts of the world, are some factors that have been inducing market volatility. Also, potential volatility from natural catastrophe losses, as well as higher reinsurance costs, raises a concern.
Despite such negatives, the insurance industry has outperformed the Zacks S&P 500 composite and the Finance sector year to date, riding on its solid fundamentals. The insurance industry has advanced 16.7% year to date compared with the Zacks S&P 500 composite’s return of 14.6% and the Finance sector’s growth of 5.5%.
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Investors always look for a safe portfolio of stocks that will give them solid returns despite market turmoil. Arch Capital Group Ltd. ACGL, Axis Capital Holdings Limited AXS, The Hartford Financial Services Group, Inc. HIG and Old Republic International Corporation ORI have the potential to make investors happy, courtesy of their fundamental strength.
Factors Driving the Industry
Per a report in Carrier Management, AM Best expects profitable commercial lines and improving personal lines, coupled with higher investment returns on increased yields and strong cash flow, to drive the industry’s performance in 2024.
Improved pricing will help insurers write higher premiums and address claims payment prudently. Swiss Re estimates premiums to grow 7% in 2024 and 4.5% in 2025. Per Fitch Ratings, personal auto is likely to perform better than other lines of business, thus leading to better premiums.
Colorado State University estimates an active hurricane season this year, about 170% of the average season. Swiss Re estimates the combined ratio in 2024 to be 98.5%.
Multiline insurers benefit from a diversified portfolio that lowers concentration risk. While higher demand for protection products benefits sales and premiums of life insurance operations, better pricing and increased exposure to intangibles and cyber threats support premium growth of non-life insurance operations. Per the 2024 global insurance outlook published in Financial Services, U.S. demand for catastrophe reinsurance is expected to grow, putting upward pressure on prices.
Insurers invest a portion of their premium income. Therefore, the higher the rates, the better the investment results. Despite different opinions, the Fed has refrained from cutting rates so far. With a large invested asset base, investment income should remain healthy, even if the Fed cuts rates later this year.
The industry is also witnessing accelerated digitalization to improve scale and efficiency. While a solid policyholders’ surplus helps the industry absorb losses, a sturdy capital level supports inorganic expansion, investment in growth initiatives and distribution of wealth to shareholders.
Amid the current situation, let’s focus on some low-beta stocks that tend to deliver steady performance irrespective of market conditions.
What is Beta?
Beta indicates the volatility of a particular stock with respect to the market. In other words, beta measures the extent of the stock price movement relative to the market and provides an investor with an estimation of how much risk a stock will add to the portfolio.
If a company has a beta of 1, it means that the relative volatility of the stock is the same as that of the market. In the same way, if the stock's beta is greater than 1, then it is more volatile than the market. Conversely, a beta below 1 signifies low volatility.
In a turbulent market, it is advisable to focus on low-beta stocks as these will ensure a steady return on investment.
The Winning Formula
We have used our proprietary Zacks Stock Screener to find stocks that can deliver steady performance, even in times of market turmoil. We have included stocks with a beta of less than 1 for selecting low-risk stocks. However, low beta cannot be the only stock selection criterion.
Other Parameters
Percentage Change in Price in the Last 12 Weeks Greater Than 1: This ensures that the stocks have witnessed positive price movement over the last three months.
Average 20-Day Volume Greater Than 400,000: A substantial trading volume ensures that the stocks are easily tradable.
Zacks Rank Less Than Equal to 3: Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stocks will either outperform or perform in line with the broader U.S. equity market over the next one to three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
VGM Score of A or B: The selected insurance stocks have a VGM Score of A or B.
Insurance Stocks in Focus
Headquartered in Pembroke, Bermuda, Arch Capital Group offers insurance, reinsurance and mortgage insurance across the world. The expected long-term earnings growth rate is 6.8%. The Zacks Consensus Estimate for 2024 has moved up 6.5% in the past 60 days and indicates year-over-year growth of 1.2%.
This Zacks Rank #3 is a leading specialty P&C and mortgage insurer, which is poised to grow on new business opportunities, rate increases, growth in existing accounts and inorganic growth encompassing international expansion. With operations spread across geographies, a compelling product portfolio provides meaningful diversification and earnings stability to the insurer.
Bermuda-based AXIS Capital Holdings provides a broad range of specialty insurance and reinsurance solutions to its clients on a worldwide basis through operating subsidiaries and branch networks based in Bermuda, the United States, Europe, Singapore, Canada, Latin America and the Middle East. The expected long-term earnings growth rate is 27.1%. The Zacks Consensus Estimate for 2024 has moved up 0.3% in the past 30 days and indicates year-over-year growth of 2.6%.
Rate increases, increased new business opportunities and a focus on driving growth in its most attractive lines, underwriting excellence, a compelling and diversified product portfolio, digital capabilities and a solid capital position poise this Zacks Rank #3 insurer well for growth.
Headquartered in Hartford, CT, The Hartford Financial Services Group is one of the major multi-line insurance and investment companies in the country, providing investment products, group life and group disability insurance, property and casualty (P&C) insurance and mutual funds in the United States. The expected long-term earnings growth rate is 12.2%. The Zacks Consensus Estimate for 2024 earnings per share indicates a year-over-year increase of 11.6%.
This Zacks Rank #3 insurer is poised to grow on improvement in the quality and size of mortgage insurance in force and a decline in claim payments, given the strong credit characteristics of the new loans insured, maintenance of capital in compliance with regulations and a solid capital position.
Headquartered in Chicago, IL, Old Republic International specializes in insurance underwriting and related services, operating primarily in the United States and Canada. ORI’s solid market presence, niche focus, low property catastrophe exposure in its General Insurance segment and robust capital position bode well for growth. This Zacks Rank #2 insurer continues to strengthen its balance sheet by improving its cash balance while lowering its leverage ratio.
The Zacks Consensus Estimate for 2024 earnings per share indicates a year-over-year increase of 3.8%. The Zacks Consensus Estimate for ORI’s 2024 earnings has moved 1.1% north in the past 60 days.
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The Hartford Financial Services Group, Inc. (HIG) : Free Stock Analysis Report
Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report
Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report
Old Republic International Corporation (ORI) : Free Stock Analysis Report
