The Zacks Property and Casualty (P&C) Insurance industry has been benefiting from increased exposure driving business growth, higher retention, streamlined operations, global presence, better pricing, solid underwriting and a strong capital position. With the ongoing economic expansion, insurers remain well-poised for growth. However, catastrophe events, both natural and man-made, might have weighed on underwriting profit.
The industry has returned 26.1% year to date, outperforming the Zacks S&P 500 composite and the Finance sector’s growth of 19.5% and 14.9%, respectively.
YTD Price Performance
Image Source: Zacks Investment Research
Here we focus on two property and casualty insurers, namely RLI Corp. RLI and The Hanover Insurance Group, Inc. THG.
RLI Corp., with a market capitalization of $6.95 billion and being an insurance holding company, underwrites property and casualty insurance. Hanover Insurance, with a market capitalization of $5.27 billion, provides various property and casualty insurance products and services in the United States. RLI and THG carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Global commercial insurance rates remained unchanged in the second quarter of 2024, per the Marsh Global Insurance Market Index.
Price hikes, operational strength, higher retention, strong renewal and the appointment of retail agents should help write higher premiums. Per Deloitte Insights, gross premiums are estimated to increase sixfold to $722 billion by 2030.
Analysts at Swiss Re Institute predict premium volume to reach $4.6 trillion in 2024 and $4.8 trillion in 2025. Per the Swiss Re Institute, property and casualty insurers are anticipated to enhance profitability in 2024, with an industry-wide return on equity (ROE) of 10% so far this year. For 2025, the Swiss Re Institute estimates an ROE of more than 10%.
Insurers are direct beneficiaries of a rising rate environment. They invest a portion of their premiums. With a lower rate of return, investment income will suffer. In the FOMC meeting, the Federal Reserve announced cutting the interest rate by 50 basis points. This is the first time in four years that the central bank has taken such an action. The interest rate is now 4.75-5%, down from a more than two-decade high of 5.25-5.5%.
A solid capital level supports insurers in pursuing strategic mergers and acquisitions to gain market share, expand in niche areas and diversify operations into new business lines and geography, as well as increase dividends, pay special dividends and buy back shares. Per Deloitte Insights, the insurance industry is expected to witness more acquisition opportunities in 2024.
The P&C insurance industry is witnessing increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and robotic process automation that expedite business operations and save costs. Insurers continue to invest heavily in technology to improve basis points, scale and efficiencies. Per Deloitte Insights, the insurance players are estimated to write approximately $4.7 billion in annual global premiums from AI-related insurance, compounded at an annual growth rate of around 80% by 2032.
Let’s delve deeper into specific parameters to ascertain which P&C insurer is better positioned at the moment.
Price Performance
Shares of Hanover Insurance have climbed 20.5% year to date compared with the industry’s growth of 26.1% and RLI’s return of 14.2%.
Return on Equity
RLI Corp., with a ROE of 18.3%, exceeds Hanover Insurance’s ROE of 12.4% and the industry average of 7.8%.
Valuation
The price-to-book value is the best multiple used for valuing insurers. Compared with RLI’s P/B ratio of 4.39, Hanover Insurance is cheaper, with a reading of 2.07. The P&C insurance industry’s P/B ratio is 1.59.
Debt-to-Capital
THG’s debt-to-capital ratio of 23.4 is higher than the industry average of 17.2 and RLI’s reading of 5.9. Therefore, RLI has an advantage over THG on this front.
Growth Projection
The Zacks Consensus Estimate for 2024 earnings indicates 604.4% growth from the year-ago reported figure for Hanover Insurance, while the same for RLI Corp. implies an increase of 24.2%.
Earnings Surprise History
RLI outpaced expectations in five of the last six reported quarters and missed once. Hanover Insurance surpassed estimates in three of the last six reported quarters and matched thrice.
Net Margin
RLI’s net margin for the trailing 12 months was 20.7%, higher than THG’s reading of 4.4%.
Dividend Yield
Hanover Insurance’s dividend yield of 2.32% is better than RLI’s dividend yield of 0.7%. Thus, THG has an advantage over RLI on this front.
Revenue Estimates
The Zacks Consensus Estimate for RLI Corp. and Hanover Insurance's 2024 revenues implies a year-over-year increase of 18.8% and 4.8%, respectively.
Therefore, RLI is at an advantage on this front.
To Conclude
Our comparative analysis shows that RLI Corp is better positioned than Hanover Insurance with respect to return on equity, leverage, net margin, earnings surprise history and revenue estimates. Meanwhile, Hanover Insurance scores higher in terms of price, valuation, dividend yield and growth projection. With the scale slightly tilted toward RLI, the stock appears to be better poised.
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Today, See These 5 Potential Home Runs >>RLI Corp. (RLI) : Free Stock Analysis Report
The Hanover Insurance Group, Inc. (THG) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
