The current economy has swiftly picked up its pace while interest rates have been improving gradually. This upside has provided a much-required impetus to insurers for retaining their faith in the industry itself. Tax cut and a lower catastrophe loss have further given the intended boost. The first-half results of the current year again cemented investors' confidence for better performance as the year progresses.
Even though the insurance industry might face challenges in the form of weather-oriented events, a regulatory uncertainty and political turmoil, it has maintained its focus on achieving two important objectives - the top-line improvement as well as bolstering bottom-line profitability. We expect some insurers to generate desirable results, keeping the optimism streak alive among investors in the wake of the aforementioned headwinds.
The slow and steady rise in interest rates has been a boon to insurers with the Fed indicating two more rate hikes this year (per the minutes released on Aug 22, 2018), lending an impression of aggressive rate increases. With the current interest rate ranging between 1.75% and 2%, we are hopeful that an improving rate environment will aid investment income, an important component of insurers' revenues.
This apart, inflation has finally reached the Fed's 2% target after failing to achieve the same for the past six years. Further, the unemployment rate came in at 3.9% with the gross domestic product (GDP) estimated to grow 2.8% for 2018 before averaging at 2.4% in 2019. The Central Bank also increased its third-quarter 2018 GDP estimate to 5% (from the previously guided 4.7%). Besides this, a recovering housing market looks geared up to enhance insurable exposures and premiums written.
Focusing on other factors, insurers are well positioned to benefit from a broader invested asset base and alternative asset classes. Mergers and acquisition activity, already an important trend to look out for in the current year, is expected to add more fuel to the already upbeat performance of the insurance industry.
Additionally, with the insurance industry exhibiting a favorable underwriting performance and improving combined ratios, we can expect this bullish sentiment to continue in the near term in comparison to the tumultuous journey in 2017.
A sturdy financial position, attributable to consistent capital inflow into the industry, will not only back insurers to counter a near-term volatility as well as the impact of any unfavorable occurrences but will also keep the industry's growth trend active.
Banking on the above-mentioned factors, we have arrived at a conclusion that this is a favorable period to invest in insurance stocks. Investors have a number of options to choose from, which makes the task of picking the right stocks daunting.
We have zeroed in on five stocks with a favorable combination. These stocks also carry a VGM Score of A and B. We expect these best bets to deliver an impressive performance given northbound estimate revisions, a solid Zacks Rank and share price outperformance on year-to-date basis. Our research shows that stocks with a commendable VGM Score of A or B when combined with a bullish Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best upside potential. You can see the complete list of today's Zacks #1 Rank stocks here .
Worcester, MA-based The Hanover Insurance Group, Inc.THG provides various property and casualty insurance products and services in the United States and internationally. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 0.6% upward to $8.60 over the past 60 days. This is also reflected in the company's Zacks Rank of 2. The insurer boasts a VGM Score of B.
The stock has rallied 17.1%, outperforming the industry 's increase of 5.9%.
Tampa, FL-based HCI Group, Inc.HCI primarily engages in the property and casualty insurance business in the state. The stock has seen the Zacks Consensus Estimate for 2018 bottom line being moved 0.5% north to $3.91 over the past 60 days. This is also represented by the company's Zacks Rank #2. The insurer carries a VGM Score of B.
The stock has surged 37.5%, outperforming the industry's rise of 5.9%.
Pembroke, Bermuda-based RenaissanceRe Holdings Ltd.RNR offers reinsurance and insurance coverages in the United States and internationally. The stock has seen the consensus mark for current-year earnings being raised 23.1% to $13.16 over the past 60 days. This is also indicated by the company's Zacks Rank of 2. It has a VGM score of A.
The stock has gained 6.8%, outperforming the industry's rise of 5.8%.
Headquartered in West Des Moines, IA, American Equity Investment Life Holding CompanyAEL provides life insurance products and services in the United States. The stock has seen the consensus mark for current-year earnings being raised 3.5% to $3.55 over the past 60 days. This is also indicated by the company's Zacks Rank of 2. The life insurer has a VGM Score of B.
The stock has gained 20.8% against the industry 's decline of 14.1%.
New York-based Assurant, Inc.AIZ provides risk management solutions for housing and lifestyle markets in North America, Latin America, Europe and the Asia Pacific. The stock has seen the consensus mark for current-year earnings being raised 2.5% to $7.73 over the past 60 days. This is also indicated by the company's Zacks Rank of 2. The Multi line insurer carries a VGM Score of B.
The stock has gained 2.6% against the industry 's decline of 7.9%.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free reportAmerican Equity Investment Life Holding Company (AEL): Free Stock Analysis ReportAssurant, Inc. (AIZ): Free Stock Analysis ReportThe Hanover Insurance Group, Inc. (THG): Free Stock Analysis ReportHCI Group, Inc. (HCI): Free Stock Analysis ReportRenaissanceRe Holdings Ltd. (RNR): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research