In times of economic uncertainty, it may be worthwhile to consider the insurance industry due to its relative security compared to others. As the Fed considers further interest rate increases, the insurance industry may benefit. It may be a good idea to invest in insurance stocks with strong fundamentals, such as Allianz SE ALIZY, Loews l (L) and CNA Financial c (CNA). Continue reading.
In a recession and a rising rate environment, insurance companies have been known to thrive. Interest rate increases could be on the way as the Fed is keen to bring inflation down. It would be prudent to invest in insurance stocks with strong fundamentals, such as Allianz SE(ALIZY), Loews Corporation(L) and CNA Financial Corporation(CNA).
Let me explain the importance of the insurance sector before I discuss these stocks in more detail.
In today's uncertain world, insurance is a necessity. Insurance companies are attractive to conservative investors because they thrive regardless of economic conditions. Laws require that people purchase different types of insurance to protect them against unexpected losses.
The premiums that policyholders pay to insurance companies are used by the insurance companies to generate revenue. These premiums are invested in different financial instruments, such as stocks, bonds, and real estate. The financial sector, including insurers, is a beneficiary of rising interest rates, even though they affect all sectors.
To meet the returns promised to policyholders, insurers hold bonds with a long-term maturity. Their investments will yield higher returns in an environment of rising interest rates. A rising cost of capital may also allow insurance companies to increase premiums. This can result in improved margins for underwriting.
The Federal Reserve is likely to raise interest rates next month, despite the fact that inflation has been slowed for nine consecutive months. The benchmark rate is expected rise between 5% and 5.25 percent.
Global property and casualty market growth is forecast to be 6.7% CAGR from 2023-2033. Investors' interest is evident in the property and Casualty Insurance industry, as evidenced by the Invesco Property & casualty Insurance ETF (KBWP), which has returned 9.5% over the last nine months.
In an uncertain economic climate it may be prudent to invest in ALIZY L and CAN.
Allianz SE (ALIZY)
ALIZY, with its headquarters in Munich, Germany provides worldwide property-casualty, life/health, and asset management services. The company offers reinsurance to Allianz and third-party clients. It is divided into segments such as Property-Casualty Insurance, Life/Health Insurance, Asset Management, and Corporate.
ALIZY will sell its 5% stake in the fintech company N26, which is expected to happen in April 2023. ALIZY expects to earn approximately $160,000,000 from the stake sales, which is more than triple its original investment of five years ago.
Allianz Capital Partners signed a contract on March 23, 2023 for ALIZY to buy a 49.9% share of the offshore windfarm He Dreiht from German utility EnBW. ALIZY will purchase a 16.6% share in the 960MW Project.
Carsten Quitter is ALIZY's Chief Investor. He said: "Energy security and transition are top priorities for us." Allianz wants to support energy transition. This is reflected in our first direct investment in offshore wind power plants. He Dreiht will provide green energy to around 1.1m households in Germany while providing stable and long-term returns for our insurance clients.
ALIZY's 8,11x forward EV/EBIT is 24.3% less than the 10,72x industry average. The 0.58x price/sales ratio is 72.2% less than the industry average. Its 0.76x EV/Sales forward is 59.9% less than the industry average of 1.89x.
The total revenue of ALIZY for the fiscal period ending December 31, 2022 increased by 2.8% over the previous year to EUR152.67 ($167.76) billion. The operating profit increased by 5.7% to EUR14.16 ($15.56) billion over the previous year period.
The net income attributable by the company to its shareholders increased 1.9% over the past year to EUR6.74billion ($7.41billion). EPS was EUR16.26 and grew by 2.7% over the past year.
Analysts anticipate that ALIZY's earnings per share for the quarter ending March 31, 2023 will increase by 6.1% over last year to $48.48 Billion. The company's revenue is expected to grow 4.2% over the past year to $170.07 Billion. The stock gained 42% in the past six-months to close last trading at $24.39
The strong fundamentals of ALIZY are reflected by its POWR ratings. Its overall rating is B, which is equivalent to a buy in our proprietary rating. The POWR ratings are calculated by weighing 118 factors to the optimal degree.
It is rated B for Momentum and Stability. It is ranked #12 out of 56 stocks within the Insurance - Property & Casualty B-rated industry. Please click here to view the additional ratings for ALIZY in terms of Growth, Value and Quality.
L offers commercial property and casualty coverage in the United States as well as internationally. The company provides specialty insurance products such as management and professional liabilities, other coverage, surety bonds and fidelity, property and casualty, insurance.
L's trailing-12 month EV/EBITDA is 10.57x, 12.9% less than the industry average of 12.13x. The 0.98x trailing-12 month Price/Sales of L is 58.7% less than the 2.36x average industry. Its 1.62x trailing-12 month EV/Sales, meanwhile, is 26.6% less than the industry average of 2.21x.
L's total revenue for the fourth quarter ending December 31, 2022 increased 3.6% over the prior-year quarter to $3.79 Billion. The company's adjusted EBITDA increased 32.8% compared to the previous quarter, reaching $85 million. The net income attributable for L rose 6.1% over the past year to $364 millions. EPS was $1.53, which represents a 12.5% increase year-over-year.
In the last six months, L stock closed the last trading day at $56.44.
L's POWR ratings reflect this positive outlook. The stock is rated B overall, which is equivalent to Buy according to our proprietary rating system.
It is rated B for Momentum and Stability. It is ranked #11 in the same sector. Click here to view the other L ratings for Value, Growth and Quality.
CNA Financial Corporation (CNA)
CNA is a holding company for insurance. Specialty Insurance, Commercial, International Life & Group and Corporate & Other are the company's segments.
CNA's 1,02x forward EV/Sales is 46% less than the industry average of 1.89x. The 0.82x price/sales ratio is 60.3% less than the 2.08x average. Its 1.02x forward EV/Sales ratio is also 46% less than the industry average of 1.89x.
CNA's Net Earned Premiums for the Fourth Quarter ended December 31, 2020 increased by 5% over the previous year to $2.23 Billion. Total revenues increased by 2% compared to the previous quarter, reaching $3.11 Billion. Net income and earnings per share were $248 million and $91 respectively.
Street estimates that CNA's earnings per share (EPS) and revenue will increase by 5.5% and 9.3%, respectively, for the quarter ending March 31, 2023. These figures are $1.22 billion and $3.17billion. In the last month, CNA's stock gained 1.1% and closed the last trading day at $39.21.
CNA's POWR ratings reflect solid prospects. The stock is rated B overall, which in our rating system translates into a Buy.
It is rated B for Momentum and Stability. It is ranked 13th in the Insurance - Property & Casualty Industry. Click here to see CNA's other ratings for Value, Sentiment and Quality.
ALIZY's shares were unchanged during premarket trading on Monday. ALIZY shares have gained 13.71 % year-to-date compared to an 8.20 % rise in the benchmark S&P 500 during the same time period.
About the Author: Dipanjan B.
Dipanjan has been interested in stock markets since he was in elementary school. Dipanjan obtained a Master's Degree in Finance and Accountancy. Dipanjan is a financial journalist and investment analyst. He has a keen interest in reading about and analyzing new trends in the financial markets.