Hurricane Idalia, which struck Florida last week, is expected to have done up to $20 billion of damage. Most of that $20 billion will come out of the pocket of insurance companies.
And, less than ten days before Hurricane Hilary forced California to declare a state of emergency in mid-August, the National Hurricane Center upped its forecast for the 2023 hurricane season from “near normal” to “above normal”. We’re currently smack in the middle of the annual hurricane season, which runs from June 1st to November 30th.
So the question is, are there any insurance companies with property and casualty exposure worth owning in what appears to be a rising risk environment?
Our POWR Ratings point to some possible ports that may, literally, weather the storm. Among these are W.R. Berkley (WRB), Old Republic International (ORI) and CNA Financial (CNA).
W.R. Berkley (WRB) is winning through diversification, and its POWR Ratings Growth ranking, which puts it in the top 91% of all U.S. companies, reflects that winning strategy.
And hey, rising interest rates don’t hurt when you’re a cash rich company in the current market. As WRB said in its latest earnings release, their short duration fixed income portfolio “enabled us to simultaneously benefit from improved yields and grow book value as interest rates have risen.”
And the income they are deploying grew rapidly in the latest quarter, with net investment income growing 42.9%. Earnings for 2023 are expected to be around $4.63 per share, and current estimates for 2024 are expected to top $5.60 per share, for a potential growth rate of 21%.
WRB has been climbing in the Momentum component of the POWR Ratings, and combined with a relatively high stability score, and a good Growth score, the stock currently has an overall rating of B.
Technically, the stock traded to a penny under $77 in late 2022, but has traded back to the low $60s, where it has been basing. This is mainly a result of the regional banking crisis that put a dent in a wide range of financial stocks in March. This leaves plenty of room to reach the current analyst estimate, which sits at $83.
If you’re looking for more of a safe dividend play, combined with growth, then Old Republic (ORI) may be right in your shipping lane (sticking with that nautical theme). ORI has been in business since 1887, has paid a cash dividend without fail since 1942…and has raised that cash dividend every year for the past 42 years.
Just like W.R. Berkley, ORI has seen big benefits from rising interest rates. On the company’s latest earnings call, Frank Sodaro, ORI’s CFO, gave some color on just how profitable rising rates have been.
Sodaro said, “our average reinvestment rate on corporate bonds during 2023 was just over 5.1%, while the book yield on similar bonds being disposed of was just under 3%.” (I’ll save you getting out your calculator, that’s a 70% increase in yield!)
Like WRB, ORI rates in the top 94% of U.S. companies on the Momentum scale, and has a fairly significant lead over WRB on the POWR Ratings Value component, where ORI also rates a B. This is notable since ORI has recovered fully from the regional bank crisis swoon, and actually trades slightly higher than it did prior to the March downdraft.
It’s tough to beat ORI in the insurance sector with a combination of reliable dividends and stable growth.
Finally, I think I’d be remiss if I didn’t mention one of the larger insurers in the market, which also pulls down a B POWR Rating, but is slightly lower in the overall category ranking than either WRB or ORI. And that is CNA Financial (CNA).
Where CNA shines in the POWR Ratings is on the Sability component where it ranks an A. That rating is strongly evident in CNAs stock price which is one of the least volatile U.S. stocks…only 8% of stocks are less volatile than CNA.
That stability also is demonstrated in its dividend, which with the stock at just under $40 stands right at 4.25%. In fact, the company’s return on equity (ROE) has been consistently rising since 2020, and now stands at 11.62%...a full 2 percentage points higher than anything the company achieved in the last decade.
Over the past few years CNA has traded in a range from about $36 to right at $50, and currently sits in the lower third of that range at $39.64. The stock could be a great pickup between here and $36 for a run back near those recent highs.
Hurricanes may still be brewing this year, but these three top rated POWR Ratings insurers stand ready to withstand the howling winds and continue to build strength for the long haul.
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WRB shares were trading at $62.46 per share on Tuesday afternoon, up $0.03 (+0.05%). Year-to-date, WRB has declined -13.04%, versus a 18.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Steven Adams
After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA.
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