The Zacks Property and Casualty Insurance industry has performed well so far this year, riding on better pricing, prudent underwriting standards, increased exposure, streamlined operations, a wider global presence and a solid capital position. Increased technology advancements and an improving rate environment have added to the upside. However, geopolitical tensions, particularly conflicts in the Middle East and Ukraine, high inflation and catastrophe events, both natural and man-made put pressure on non-life insurance lines’ profitability over the past few years.
Despite these challenges, certain P&C insurance companies defied the odds and delivered impressive performances in 2024. These include Mercury General Corporation MCY, Axis Capital Holdings Limited AXS and Palomar Holdings, Inc. PLMR. These insurance players have not only outperformed the industry but have also crushed the Zacks S&P 500 composite and the Finance sector. These top-ranked stocks have rallied more than 50% year to date.
The insurance industry has returned 26.5% year to date, outperforming the Finance sector and the Zacks S&P 500 composite’s growth of 17.2% and 25.3%, respectively. Looking ahead to 2025, this upward momentum is expected to persist.
Year-to-Date Price Perfromance
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Looking Back at the P&C Insurers in 2024
The economy has improved throughout 2024. For 2024, the Fed upgraded its gross domestic product (GDP) growth forecast to 2.5% compared to the 2% projected in September. The December Summary of Economic Projections indicates continued economic expansion.
After 27 consecutive quarters of increases, Global commercial insurance rates declined 1% in the third quarter of 2024, per Marsh Global Insurance Market Index. Per Marsh, property rates declined 2% while casualty rates increased 6% globally.
Price hikes, operational strength, higher retention, strong renewal and the appointment of retail agents should help write higher premiums. Per Deloitte Insights, gross premiums are estimated to exceed $722 billion by 2030.
However, industry players continue to grapple with issues like higher catastrophe events, both natural and man-made, which drag down underwriting profit. The United States has been affected by Hurricane Helene, Hurricane Milton and a high frequency of severe thunderstorms in 2024. Swiss Re estimated insured losses from these events to exceed $135 billion in 2024. Swiss Re Institute marked this year as the fifth consecutive year with insured natural catastrophe losses above $100 billion due to hurricanes, severe thunderstorms and floods. Per Swiss Re, total insured losses are estimated at $144 billion, which increased 16% year over year and the total economic loss from these events amounted to $320 billion.
Per Aon plc in its third-quarter Global Catastrophe Recap – October 2024 report, the first and third quarters of 2024 witnessed at least 280 notable natural disaster events, which drove year-to-date economic losses above at least $258 billion and insured losses of at least $102 billion. Further, the impacts of Hurricane Milton and additional events are anticipated to increase the total annual insured losses above $125 billion, according to Aon.
The U.S. property and casualty industry recorded a net underwriting gain of $4.1 billion in the first nine months of 2024, per a new AM Best report. According to the AM Best report, the industry’s combined ratio improved to 97.9 in the first nine months of 2024, while catastrophe losses accounted for an estimated 8.8 percentage points on the combined ratio in the time period.
Exposure growth, better pricing, prudent underwriting and favorable reserve development will help non-life insurers withstand the blow despite an above-average hurricane season. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.
The insurance industry is rate-sensitive. An improving rate environment is a boon for insurers, especially long-tail insurers. At the December 2024 Federal Open Market Committee meeting, the Fed cut interest rates by 0.25% in December 2024 and brought its borrowing costs to a range of 4.25-4.5%. The Fed’s decision marked the third consecutive reduction in 2024 and reflects the Fed’s commitment to achieve its dual goals of maximum employment as well as price stability. With a large invested asset base, investment income should remain healthy.
A solid capital level supports insurers in pursuing strategic mergers and acquisitions to gain market share, expand in niche areas and diversify operations into new business lines and geography, as well as increase dividends, pay special dividends and buy back shares.
The P&C insurance industry is undergoing accelerated digitalization. Players are investing heavily in technology to expedite business operations. Increased use of technology like blockchain, artificial intelligence, advanced analytics, telematics, cloud computing and Chatbot and RoboAdvisory, and insurtech solutions curb costs and improve basis points.
Outlook for 2025
Swiss Re estimated global real GDP growth at 2.8% in 2025 and 2.7% in 2026. In the upcoming years, the Fed officials project GDP to slow down to its long-term projection of 1.8%. Per December Economic Projections, the Fed revised core inflation higher from 2.2% to 2.5%, while the unemployment rate was revised downward to 4.3% from 4.4%, reflecting stronger-than-expected economic growth for 2025.
According to Goldman Sachs Research, U.S. GDP is projected to increase 2.5% in 2025 and another solid year of global economic growth is expected in 2025.
Per Deloitte economists, U.S. unemployment is projected to increase more than 4% by 2026 and the employment cost index to decrease to 3.3% in 2025. The U.S. Fed chair Jerome Powell anticipates only two rate cuts in 2025. The Fed projects a solid U.S. economy in 2025 without any recession. The Fed officials also predicted sturdier growth and higher inflation in 2025. Inflation is projected to reach the 2% target by 2027.
Swiss Re estimated global total insurance premiums to increase 2.6% on average in real terms in 2025 and 2026, which is lower than the 4.6% growth in 2024, but higher than the past five years (2019-2023) average of 1.6%. The industry will be fueled by steady economic growth, buoyant labor markets, rising real incomes as inflation moderates, and still-elevated long-term interest rates that support investment yields.
According to Swiss Re, global non-life premium growth will slow as pricing conditions become less favorable, led by advanced markets. Swiss Re forecasts global non-life premiums to witness a negative CAGR of 2.3% over the 2025-2026 period, below the 4.3% growth rate of 2024 and the 3.1% CAGR of the last five years.
Per the Deloitte FSI Predictions article, the insurers are likely to generate around $4.7 billion in annual global premiums from AI-related insurance by 2032, which will yield a compounded annual growth rate of nearly 80%. Therefore, property and casualty insurers should continue to invest heavily in technology to improve scale and efficiencies.
Per a report from Willis Towers Watson’s Quarterly Deal Performance Monitor, Merger and acquisition (M&A) activity is projected to get momentum in 2025 riding on improved economic conditions, curbed inflation, technology-driven deals and stabilized interest rates. Consolidation in core revenue-generating sectors and the divestment of non-core assets are expected to fuel mid-market M&A activity in 2025, according to WTW data.
Top 3 P&C Insurance Stocks to Bet on
We have shortlisted three insurance stocks with the help of the Zacks Stock Screener that currently have a Zacks Rank #1 (Strong Buy) or 3 (Hold) and have a market cap of more than $1 billion. You can see the complete list of today’s Zacks #1 Rank stocks here.
Mercury General Corporation: Los Angeles, CA-based Mercury General is a leading provider of personal automobile insurance and is engaged primarily in writing all risk classifications of automobile insurance in a number of states. MCY offers automobile policyholders the following types of coverage: bodily injury liability, underinsured and uninsured motorist, property damage liability, comprehensive, collision and other hazards specified in the policy. Mercury General currently flaunts a Zacks Rank #1 and has a Value Score of A.
Premium growth is expected to gain from rate increases in the California automobile and homeowners lines of insurance business as well as an increase in the number of policies written in the California homeowners line of insurance business. Higher average yield combined with higher average invested assets and cash should drive the net investment income. It also has an impressive VGM Score of A.
The Zacks Consensus Estimate for Mercury General’s 2024 earnings per share indicates a year-over-year increase of 2,016.6%. The consensus estimate for revenues is pegged at $5.35 billion, implying a year-over-year improvement of 18.2%. The consensus estimate for 2025 earnings per share and revenues indicates a year-over-year increase of 8.6% and 9.1%, respectively, from the corresponding 2024 estimates. Mercury General has a Growth Score of B. The consensus estimate for 2024 and 2025 has moved up 58.7% and 15%, respectively, in the past 60 days. The company delivered a four-quarter average earnings surprise of 694.28%. Shares of MCY have rallied 82.6% year to date.
Axis Capital Holdings: Bermuda-based Axis Capital provides a broad range of specialty insurance and reinsurance solutions to its clients on a worldwide basis through operating subsidiaries and branch networks based in Bermuda, the United States, Europe, Singapore, Canada, Latin America and the Middle East. AXS focuses on growth areas, including wholesale insurance and lower middle markets, deploying resources prudently while enhancing efficiencies and improving its portfolio mix and underwriting profitability. AXIS Capital is also working with its distribution partners to use expanding digital capabilities to create new business growth in desirable smaller accounts.
Rate increases, increased new business opportunities and a focus on driving growth in its most attractive lines, underwriting excellence, a compelling and diversified product portfolio, digital capabilities and a solid capital position poise this insurer well for growth.
AXS, aiming for leadership in specialty risks, has an impressive dividend history. It has hiked dividends for 18 straight years and boasts one of the highest dividend yields among its peers. Its dividend yield of 1.96% is higher than the industry average of 0.2%. This Zacks Rank #3 insurer has an impressive VGM Score of A.
The Zacks Consensus Estimate for AXS’ 2024 earnings per share indicates a year-over-year increase of 10.4%. The consensus estimate for revenues is pegged at $6.14 billion, implying a year-over-year improvement of 7.3%. The consensus estimate for 2025 earnings per share and revenues indicates a year-over-year increase of 5.7% and 10.4%, respectively, from the corresponding 2024 estimates. Earnings have improved 82.7% in the past five years, better than the industry average of 11.4%.
The company delivered a four-quarter average earnings surprise of 90.26%. The expected long-term earnings growth rate is pegged at 26.7%, better than the industry average of 11.2%. Shares of AXS have rallied 62.3% year to date.
Palomar Holdings: La Jolla, CA-based Palomar is a rapidly growing and profitable company focused on the provision of catastrophe insurance for personal and commercial property. Focus on new business, strong premium retention rates for existing business and renewal of existing policies strategic expansion of geographic and distribution footprint and new partnerships combined with better pricing poise it well for growth. This Zacks Rank #3 insurer has an impressive VGM Score of B.
PLMR should benefit from its solid product portfolio as well as geographic expansion and rate increases. PLMR’s net investment income is expected to grow on the back of a higher average balance of investments. Higher return on capital indicates efficient utilization of shareholders’ value. Palomar expects to generate adjusted net income between $113 million and $118 million in 2024. Backed by a sustained operational performance, Palomar has maintained a solid capital position and also boasts a debt-free balance sheet with no exposure to the equity markets.
The Zacks Consensus Estimate for PLMR’s 2024 earnings per share indicates a year-over-year increase of 30.3%. The consensus estimate for revenues is pegged at $538.28 million, implying a year-over-year improvement of 44.3%. The consensus estimate for 2025 earnings per share and revenues indicates a year-over-year increase of 22.8% and 27%, respectively, from the corresponding 2024 estimates. Palomar has a Growth Score of A. The consensus estimate for 2025 earnings has moved 0.6% north in the past 60 days. It delivered a four-quarter average earnings surprise of 14.90%. Shares of PLMR have rallied 84.8% year to date.
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