The insurance industry is strategically positioned for gains, benefitting from the Federal Reserve's 11 consecutive key rate hikes since March 2022, which have led to the highest benchmark rate in 22 years (5.25%-5.50%). Moreover, as the current inflation level is yet away from the Fed’s target rate of 2%, more hikes are likely in the future.
So, let us delve into three quality insurance stocks, Reinsurance Group of America, Incorporated (RGA), CNA Financial Corporation (CNA), and International General Insurance Holdings Ltd. (IGIC), that offer the opportunity to level up one’s weekly investments.
The US general insurance industry is anticipated to grow by 8.2% in 2023, according to GlobalData's Insurance Database. Despite challenges, the industry is set to grow at a CAGR of 8.5%, from $2.18 trillion in 2023 to $3.03 trillion in 2027. The growth is expected to be supported by rising premium prices in motor, health, and property insurance policies over the next five years.
Moreover, reinsurance, a critical component of the broader insurance ecosystem, plays a pivotal role in spreading risk and ensuring the stability of the insurance market. It has witnessed expansion due to increased demand for risk mitigation from primary insurers.
Also, integrating advanced technologies, such as data analytics and artificial intelligence, has enabled reinsurers to enhance underwriting processes, better assess risk, and improve overall operational efficiency. The reinsurance market is anticipated to grow at a CAGR of 3.9% from this year to 2032.
In addition, the Property and Casualty (P&C) insurance sector is poised for substantial growth, propelled by the demand for insurance coverage in homes, properties, and vehicles. Global Market Insights predicts that the P&C insurance market will achieve a valuation of $3.02 trillion by 2032, with a projected CAGR of 5.5% from 2023 to 2030.
Furthermore, investors are drawn to the insurance sector's stability, often considering it a defensive play in economic volatility. Investors’ interest in the insurance industry is evident from the SPDR S&P Insurance ETF’s (KIE) 9.5% returns over the past six months, higher than the S&P 500’s 5.4% gain.
Considering these conducive trends, let's examine the fundamentals of the three best insurance stocks.
Reinsurance Group of America, Incorporated (RGA)
RGA engages in the reinsurance business. The company offers individual and group life and health insurance products, asset-intensive and financial reinsurance products, and other capital motivated solutions.
RGA’s forward EV/Sales multiple of 0.68 is 76.7% lower than the industry average of 2.94. Its forward P/S of 0.59x is 73.4% lower than the 2.20 industry average.
For the fiscal third quarter ended September 30, 2023, RGA’s net premiums increased 31% year-over-year to $4.26 billion. Its adjusted operating income rose 40.9% over the prior-year quarter to $372 million. Its total revenues increased 27.2% year-over-year to 5.15 billion.
In addition, net income available to RGA’s shareholders amounted to $287 million, compared to a loss of $76 million in the previous-year quarter.
RGA’s EPS and revenue are expected to increase 48.8% and 3.8% year-over-year to $4.45 and $4.54 billion in the fiscal fourth quarter ending December 2023. It surpassed the consensus EPS and revenue estimates in three of the trailing four quarters, which is impressive.
Over the past three months, the stock has gained 14.5% to close the last trading session at $162.15.
RGA’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
It has an A grade for Momentum and a B for Growth and Sentiment. Within the A-rated Insurance - Reinsurance industry, it is ranked #2 among eight stocks.
Click here to see the other ratings of RGA for Stability, Value, and Quality.
CNA Financial Corporation (CNA)
CNA provides commercial property and casualty insurance products. It operates through Specialty; Commercial; International; Life & Group; and Corporate & Other segments.
CNA’s forward EV/Sales multiple of 1 is 66% lower than the industry average of 2.94. Its forward P/S of 0.79x is 64.1% lower than the 2.20 industry average.
On October 30, CNA declared a quarterly dividend of $0.42 per share, payable on November 30, 2023. Its four-year average dividend yield is 8.19%, and its forward annual dividend of $1.68 per share translates to a 4.31% yield on the current market price.
CNA has raised its dividend payouts consistently for the past seven years. Over the past five years, CNA’s dividend payouts have grown at a 5.3% CAGR.
CNA’s net earned premiums increased 8% year-over-year to $2.22 billion for the third quarter ended September 30, 2023. Its net earned premiums from the Property & Casualty segment rose 9.1% year-over-year to $2.30 billion. Its core income increased 572% year-over-year to $289 million.
Analysts expect CNA’s revenue for the fourth quarter ending December 2023, to increase 10.2% year-over-year to $3.46 billion. Its EPS for the same quarter is expected to increase 6.6% year-over-year to $1.08. The company has surpassed the EPS and revenue estimates in three of the trailing four quarters.
Shares of CNA declined marginally intraday to close the last trading session at $38.96.
CNA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
In addition, it has an A grade for Stability and Momentum. Within the Insurance – Property & Casualty industry, CNA is ranked #12 among 56 stocks.
In addition to the POWR Ratings stated above, one can access CNA’s Growth, Value, Sentiment, and Quality ratings here.
International General Insurance Holdings Ltd. (IGIC)
Headquartered in Amman, Jordan, IGIC provides specialty insurance and reinsurance solutions worldwide. It operates through three segments: Specialty Long-tail; Specialty Short-tail; and Reinsurance. The company underwrites a portfolio of specialty risks, including energy, property, construction and engineering, ports and terminals, general aviation, political violence, marine, contingency, treaty, and casualty reinsurance.
IGIC’s forward P/S of 0.68x is 69.2% lower than the 2.20 industry average. Its forward EV/Sales multiple of 0.43 is 85.3% lower than the industry average of 2.94.
On September 19, IGIC announced that it had completed a tender process about its offer to purchase all of its outstanding public warrants and private warrants to purchase its common shares, par value $0.01 per share, at a purchase price of $0.95 per warrant in cash, without interest.
When combined with the contemplated redemption of untendered public warrants, the successfully completed tender process will lead to a simplified capital structure of the company with no warrants.
IGIC’s net premiums earned for the second quarter ended June 30, 2023, increased 23.3% year-over-year to $118.40 million. Its total revenues rose 32% from the previous-year quarter to $129.90 million.
The company’s net income for the period increased 81.1% from the year-ago quarter to $40.50 million. Also, its EPS attributable to owners came in at $0.88, representing an increase of 95.6% year-over-year.
Analysts expect IGIC’s EPS for the fourth quarter ending December 2023 to increase 128.6% year-over-year to $0.64. Its revenue in the same quarter is expected to grow 15% year-over-year to $180.20 million. It surpassed the EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 42% to close the last trading session at $8.66. It gained 36.9% year-to-date.
IGIC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and Momentum and a B for Value and Stability. It is ranked first in the Insurance - Reinsurance industry.
To see IGIC’s other ratings for Growth and Quality, click here.
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RGA shares were trading at $162.25 per share on Monday morning, up $0.10 (+0.06%). Year-to-date, RGA has gained 16.12%, versus a 16.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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