Zacks Industry Outlook Highlights: First American Financial, NMI Holdings, Universal Insurance Holdings, American Financial Group and RLI

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For Immediate Release

Chicago, IL - September 08, 2015 - Today, Zacks Equity Research discusses the Insurance, part 3, including First American Financial Corporation ( FAF ), NMI Holdings, Inc. ( NMIH ), Universal Insurance Holdings Inc. ( UVE ), American Financial Group Inc. ( AFG ) and RLI Corp. ( RLI ) .

Industry: Insurance, part 3


All economic indicators point to an imminent reversal of the interest rate environment, which should brace up the business of Property & Casualty (P&C) insurers, albeit moderately. This is because P&C insurers are not as sensitive to the interest rate environment as life insurers are.

Since the prolonged low rate environment has hurt investment earnings of P&C insurers, a higher rate would come as a breather. Moreover, a higher rate environment should make the pricing environment competitive, and act as an earnings booster.

Moreover, ample underwriting capacity, a strong liquidity profile and evolving coverage opportunity should let P&C insurers stand tall.

However, with the continuation of a soft market environment -- characterized by low premium rates -- the commercial, property and personal lines of the P&C industry should see stressed bottom lines.

Concerns related to weak capital levels are now things of the past, as the industry's capital position has been building up on the back of improved earnings and policyholders' surpluses. The industry has also been witnessing continued inflow of alternative capital (which is one of the reasons for market softening). High capital levels and lower-than-normal catastrophe losses are further positioning the industry to perform well.

Further, better preparation to withstand catastrophe losses should translate into higher underwriting profits and lower combined ratio in the upcoming quarters. Conservative investment strategies should also favor.

As property-casualty insurers hold about two-thirds of the invested assets in the form of bonds, their capacity is highly sensitive to changes in credit market conditions. With credit and equity markets showing improvement, insurers are likely to incur lesser realized and unrealized capital losses in the quarters ahead.

Moreover, insurance volume is expected to expand going forward with economic recovery. With improved employment in the private sector and recovery, though uneven, in the housing markets, a number of carriers have seen growth in insurance sales in the recent quarters.

Though competition is cropping up both within the primary lines of the P&C space and with reinsurers' expansion, proactive transformational measures, including adoption of technology solutions, will give a competitive advantage.

Also, for more enthusiasm in renewals and to meet evolving demands of policyholders, insurers are in the process of product reframing and innovation. This should help them grow their customer base for products that will offer higher margin.

The emerging risks related to cyber threats are also giving P&C insurers scope to capitalize on. This segment has been witnessing continued growth in premium and policy count. On the other hand, the chance of cyber threats damaging the insurance industry is a major concern. Political instability is another emerging risk to P&C insurers.

Stocks to Consider

Despite the near-term concerns related to market softening, there are plenty of reasons to be optimistic about U.S. P&C insurers from a long-term perspective. The industry has been undertaking several structural changes that will make underwriting and pricing schemes even more attractive to consumers.

One may consider buying some P&C insurance stocks that promise better performance based on their strong fundamentals. A favorable Zacks Rank is a mandatory criterion before picking such stocks.

We particularly recommend First American Financial Corporation ( FAF ), NMI Holdings, Inc. ( NMIH ) and Universal Insurance Holdings Inc. ( UVE ) with a Zacks Rank #1 (Strong Buy).

Stocks in our U.S. P&C insurance universe with a Zacks Rank #2 (Buy) currently include American Financial Group Inc. ( AFG ) and RLI Corp. ( RLI ).

Check out our latest U.S. Insurance Industry Outlook for more on the current state of affairs in the overall insurance market.

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FIRST AMER FINL (FAF): Free Stock Analysis Report

NMI HOLDINGS-A (NMIH): Free Stock Analysis Report

UNIVL INSUR HLD (UVE): Free Stock Analysis Report

AMER FINL GROUP (AFG): Free Stock Analysis Report

RLI CORP (RLI): 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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