In today’s world of uncertainties, the need for insurance is imperative. Given the long-term growth prospects of the insurance industry, I believe it could be wise for investors to add quality insurance stocks like Tokio Marine Holdings, Inc. (TKOMY), MS&AD Insurance Group Holdings, Inc. (MSADY), and Fairfax Financial Holdings Limited (FRFHF) to one’s portfolio.
Before discussing why these stocks could be worth adding to one’s portfolio, let’s discuss what’s happening in the insurance space.
Conservative investors often find the insurance business attractive as these businesses are known to thrive irrespective of the economic cycle. Various types of insurance are required by law to help protect people against unforeseen losses.
The insurance industry faced a challenging 2022 due to high inflation, losses arising from natural catastrophes, and increased pandemic-related claims. High inflation meant people assumed more risks and reviewed their coverages. According to the Swiss Re Institute, natural disasters caused an estimated $115 billion of insurance losses in 2022.
Despite the challenges, given its investments in technology and data, the insurance industry looks set to grow strongly. As inflation eases and the Fed is likely to keep increasing interest rates, financial companies, which include insurers, are expected to benefit.
Insurers hold long-term safe bonds to meet their promised returns to policyholders. Amid a rising interest rate environment, their returns on such investments increase. With the fast-warming planet, the occurrence of natural disasters is on the rise driving the demand for property and casualty insurance.
The global property and casualty insurance market is expected to rise at a 6.7% CAGR between 2023 and 2033. Investors’ interest in the property and casualty insurance industry is evident from the Invesco KBW Property & Casualty Insurance ETF’s (KBWP) 11.4% returns over the past six months.
Amid this backdrop, it could be wise for investors to add TKOMY, MSADY, and FRFHF to their portfolios.
Let’s dive deeper into these stocks to see what makes them good investments.
Tokio Marine Holdings, Inc. (TKOMY)
Headquartered in Tokyo, Japan, TKOMY engages in the non-life and life insurance and financial and general businesses in Japan and internationally. It operates through four segments: Domestic Non-Life Insurance Business, Domestic Life Insurance Business, International Insurance Business, and Financial and Other businesses.
On November 24, 2022, TKOMY announced that it had increased its shareholding in PT Asuransi Tokio Marine Indonesia from 60% to 80% through its wholly-owned subsidiary, Tokio Marine Asia Pte. Ltd.
The acquisition of additional shareholding will help TKOMY achieve sustainable growth and profit expansion while also enhancing its diversified business portfolio by capturing growth opportunities in emerging countries.
In terms of forward EV/Sales, TKOMY’s 0.74x is 62.3% lower than the 1.95x industry average. Likewise, its 0.86x forward Price/Sales is 60.2% lower than the 2.16x industry average.
For nine months ended December 31, 2022, TKOMY’s ordinary income increased 19.2% year-over-year to ¥5.21 trillion ($39.20 billion). Its investment income rose 24.8% over the prior-year period to ¥692.72 billion ($5.21 billion). The company’s normal profit came in at ¥346.29 billion ($2.61 billion).
Analysts expect TKOMY’s revenue for fiscal 2023 to increase significantly to $45.22 billion. Its EPS for fiscal 2024 is expected to increase 12% year-over-year to $1.68. Over the past six months, the stock has gained 8.1% to close the last trading session at $19.36.
TKOMY’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth and Stability and a B for Momentum and Stability. It is ranked #2 out of 55 stocks in the B-rated Insurance – Property & Casualty industry. Click here to see the other ratings of TKOMY for Value and Quality.
MS&AD Insurance Group Holdings, Inc. (MSADY)
Headquartered in Tokyo, Japan, MSADY is an insurance holding company that provides insurance and financial services worldwide. The company offers fire and allied, marine, personal accident, voluntary automobile, compulsory automobile liability, non-insurance products, life insurance products, and reinsurance services. It also provides risk-related services.
In terms of forward EV/Sales, MSADY’s 0.05x is 97.6% lower than the 1.95x industry average. Its 1.25x forward EV/EBIT is 88.2% lower than the 10.62x industry average. Likewise, its 0.42x forward Price/Sales is 80.3% lower than the 2.16x industry average.
For nine months ended December 31, 2022, MSADY’s ordinary income increased 7.5% year-over-year to ¥4.02 trillion ($30.25 billion). Its investment income rose 23.8% over the prior-year period to ¥607.15 billion ($4.57 billion). Its net income attributable to owners of the parent came in at ¥87.95 billion ($661.71 million).
For fiscal 2023, MSADY’s revenue is expected to increase 166.8% year-over-year to $39.41 billion. Over the past six months, the stock has gained 16.6% to close the last trading session at $15.58.
MSADY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth, Momentum, and Stability. Within the same industry, it is ranked #3. To see the other ratings of MSADY for Value and Quality, click here.
Fairfax Financial Holdings Limited (FRFHF)
Headquartered in Toronto, Canada, FRFHF provides property and casualty insurance, reinsurance, and investment management services in the United States, Canada, Asia, and internationally. The company operates through Property and Casualty Insurance and Reinsurance, Life insurance and Run-off, and Non-Insurance companies segments.
In terms of forward EV/Sales, FRFHF’s 0.81x is 58.7% lower than the 1.95x industry average. Its 9.64x forward EV/EBIT is 9.2% lower than the 10.62x industry average. Likewise, its 0.53x forward Price/Sales is 75.3% lower than the 2.16x industry average.
FRFHF’s net premiums written for the fourth quarter ended December 31, 2022, increased 15.6% year-over-year to $5.61 billion. The company’s net earnings rose 112.9% year-over-year to $2.10 billion. In addition, its EPS came in at $78.33, representing an increase of 132.8% year-over-year.
Street expects FRFHF’s EPS and revenue for the quarter ending March 31, 2023, to increase 622.7% and 24.5% year-over-year to $32.45 and $7.45 billion, respectively. It surpassed Street EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 43.5% to close the last trading session at $663.82.
FRFHF’s strong prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Momentum, Stability, and Sentiment. It is ranked first in the Insurance – Property & Casualty industry. Click here to see FRFHF’s rating for Quality.
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TKOMY shares were unchanged in premarket trading Tuesday. Year-to-date, TKOMY has declined -9.66%, versus a 7.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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