Pick 4 Solid Insurance Stocks From The Bull Market In 2017
Zacks Investment Research | Dec 13, 2017 09:29PM ET
Looking back, the year 2017 was full of both pleasant and unpleasant surprises. While an improving employment scenario and rising interest rates came as a breather to the insurance industry, the severe damages caused by devastating catastrophe events hampered the insurers’ overall performance to a great degree. The insurance industry has been wading through these challenges this year and there have been a few outperformers, which have sparked an interest among investors and raised optimism among them.
Based on the above scenario, picking the prospective winning stocks and making a prudent investment decision for the best returns may seem an uphill task. We will discuss below about the various scenarios, which have influenced the insurance industry to a large extent.
Catastrophe Loss Loomed Large
Although the first half of 2017 was mainly affected by a hail-driven weather-related catastrophe loss, the second half proved even costlier for the insurance industry as well as the market as a whole. With the occurrence of hurricanes Harvey, Irma and Maria, the relevant industry suffered an apparent dent in the underwriting results, thus hurting its overall performance.
Even though the mounting losses badly impacted the overall performance of the insurers, there were a few good stocks, which weathered such losses and emerged winners.
Interest Rate Hike — A Long-Awaited Boon to Insurers
The gradual rise in interest rates has benefited the insurance industry to a great extent. The Federal Reserve delivered in its promise to increase the rates thrice in 2017 by announcing the third and the final interest rate hike at the Federal Open Market Committee’s meeting on Wednesday, Dec 13, 2017. Notably, the interest rate now ranges between 1.25% and 1.50%, which in turn has boosted the insurance industry’s prospects and helped the companies strengthen their market position.
Even with the slow-paced rising rate environment, life insurers — who have been suffering from spread compression on products like fixed annuities and universal life due to persistently low rates — have heaved a sigh of relief. Thus, given the high dependence on investment income, life insurers will gain more from a progressing rate environment. While non-life insurers have already begun to display an improving investment income, instilling confidence in investors.
A progressing rate environment will also lessen the pressure on the insurers’ investment income, thus boosting their earnings. This in turn will accelerate the insurance companies’ overall growth in the future.
Other Factors Resulting in Favorable Performance
A few other factors have also impacted the industry performance so far. To that end, low inflation is expected to remain at 1.6%, falling shy of the 2% target, which is considered good for the economy.
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This apart, a reviving housing market has enhanced insurable exposures and premiums written. Additionally, an improving employment scenario and a positive consumer sentiment buoy optimism.
Outperformers in 2017
Despite adversities raising concerns for insurers this year, positives like rising interest rate environment and an improving economy have helped the following stocks perform well and yield profits through an underlying strength and business modification.
We have zeroed in on four stocks having outperformed so far despite all odds based on price performance, positive estimate revisions, strong surprise history in the last three quarters and a favorable Zacks Rank.
Chicago, IL-based CNA Financial Corporation (NYSE:CNA) offers commercial property and casualty insurance products, primarily in the United States. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 3.4% upward to $3.07 and moved 7.9% up to $3.42 for 2018 over the last 60 days. This is reflected through the company’s Zacks Rank #1 (Strong Buy). You can see Original post
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