The Federal Reserve has raised interest rates since last year, and it recently announced its tenth-rate hike of 25 basis points, taking the federal funds rate to a range of 5% to 5.25%, the highest since August 2007. Insurers benefit significantly from rising interest rates as their underlying bond investments yield high returns.
Although the Fed has signaled that there could be a pause in rate hikes, it is unlikely to cut interest rates this year. Therefore, it could be wise to buy fundamentally strong insurance stocks, Everest Re Group, Ltd. (RE), Reinsurance Group of America, Incorporated (RGA), and International General Insurance Holdings Ltd. (IGIC).
Before diving deeper into the fundamentals of these stocks, let me explain why the insurance industry is one of the best destinations for investors right now.
Insurance is often considered a boring industry to invest in. However, the industry performs steadily regardless of the economic cycle, as various types of insurance that protect us from significant financial harm always remain in demand.
Insurance companies generate revenue by collecting premiums from policyholders. These premiums are invested in various financial products, including bonds, stocks, and real estate. To provide the promised returns to policyholders, insurers invest a significant portion of the collected premiums in long-term safe bonds.
Their investments produce greater returns in a rising interest rate environment. Moreover, insurance companies charge higher premiums when the cost of capital increases due to rising interest rates. This leads to improved underwriting margins.
As interest rate cuts are unlikely this year, insurance companies should be able to capitalize on the high-interest rates. Investors’ interest in the insurance industry is evident from the SPDR S&P Insurance ETF’s (KIE) 5.1% returns over the past nine months.
Let’s discuss the fundamentals of the featured stocks.
Everest Re Group, Ltd. (RE)
Headquartered in Hamilton, Bermuda, RE provides reinsurance and insurance products in the United States, Bermuda, and internationally. The company operates through Reinsurance Operations and Insurance Operations segments.
In terms of forward EV/Sales, RE’s 1.16x is 38.9% lower than the 1.90x industry average. Its 1.06x forward Price/Sales is 44.1% lower than the 1.89x industry average. Likewise, its 0.26x forward non-GAAP PEG is 74.6% lower than the 1.02x industry average.
For the first quarter ended March 31, 2023, RE’s total revenues increased 13.5% year-over-year to $3.29 billion. Its net investment income rose 7% year-over-year to $260 million. The company’s net income increased 22.5% year-over-year to $365 million.
In addition, its EPS came in at $9.31, representing an increase of 23.1% year-over-year. Also, its net cash provided by operating activities increased 25.8% year-over-year to $1.06 billion.
For the quarter ending June 30, 2023, RE’s EPS and revenue are expected to increase 22% and 18.3% year-over-year to $11.95 and $3.57 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 40.8% to close the last trading session at $385.88.
RE’s POWR Ratings reflect this positive outlook. RE has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Insurance – Reinsurance industry, it is ranked #3 out of 9 stocks. It has an A grade for Growth and a B for Momentum. To see the other ratings of RE for Value, Stability, Sentiment, and Quality, click here.
Reinsurance Group of America, Incorporated (RGA)
RGA engages in the reinsurance business. The company offers individual and group life and health insurance products, such as term life, credit life, universal life, whole life, group life and health, joint and last survivor insurance, critical illness, disability, and longevity products; asset-intensive and financial reinsurance products; and other capital motivated solutions.
On May 9, 2023, RGA announced that it had completed the transformation of the Hodge Life Assurance Company Limited (HLAC) business it purchased in 2021. HLAC’s business was transferred to another group company, Omnilife Insurance Company Limited.
RGA’s U.K. Managing Director Peter Banthorpe said, “Omnilife is RGA’s U.K. consolidation vehicle with strategic plans to acquire additional insurance portfolios. The acquisition of HLAC is Omnilife’s second transaction, and the timely completion of the Part VII transfer demonstrates further the Omnilife team’s capability in executing and integrating these deals.”
In terms of forward EV/Sales, RGA’s 0.63x is 66.8% lower than the 1.90x industry average. Its 6.33x forward EV/EBIT is 40.9% lower than the 10.71x industry average. Likewise, its 0.66x forward non-GAAP PEG is 35.5% lower than the 1.02x industry average.
RGA’s net premiums for the first quarter ended March 31, 2023, increased 7.3% year-over-year to $3.39 billion. Its adjusted operating income rose 23.3% over the prior-year quarter to $349 million. The company’s adjusted operating return on equity (ex AOCI) came in at 11.2%, compared to 7.1% in the prior-year quarter.
Its total revenues increased 8.5% year-over-year to $4.25 billion. In addition, its net income available to RGA’s shareholders increased 27.9% year-over-year to $252 million.
For the quarter ending June 30, 2023, RGA’s revenue is expected to increase 10.8% year-over-year to $4.31 billion. Its EPS for fiscal 2023 is expected to increase 20.2% year-over-year to $17.35. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 29.9% to close the last trading session at $148.44.
RGA’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system.
Within the same industry, it is ranked first. It has an A grade for Sentiment and a B for Growth and Momentum. Click here to see the other ratings of RGA for Value, Stability, and Quality.
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.
On March 15, 2023, IGIC announced the completion of the acquisition of Norway-based managing general agency Energy Insurance Oslo AS (EIO).
IGIC Chairman and CEO Wasef Jabsheh said, “We are delighted to welcome the EIO team to the IGI group. The successful completion of our acquisition of EIO allows us to expand the existing book of energy and construction business and leverage our relationships to broaden our presence in the Nordic markets across other business lines.”
In terms of forward non-GAAP P/E, IGIC’s 5.03x is 37.7% lower than the 8.08x industry average. Its 0.60x forward Price/Sales is 68.1% lower than the 1.89x industry average. Likewise, its 0.42x forward EV/Sales is 77.9% lower than the 1.90x industry average.
IGIC’s net premiums earned for the fourth quarter ended December 31, 2022, increased 12.5% year-over-year to $97 million. Its profit for the period increased 182.4% over the prior-year quarter to $25.70 million. Also, its EPS came in at $0.53, representing an increase of 178.9% year-over-year.
Analysts expect IGIC’s revenue for the quarter ended March 31, 2023, to increase 5% year-over-year to $134.50 million. For fiscal 2024, its EPS is expected to increase 12.1% year-over-year to $1.85. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 9.4% to close the last trading session at $8.30.
IGIC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It is ranked #4 in the Insurance – Reinsurance industry. It has a B grade for Value, Momentum, Stability, and Sentiment. To see the other ratings of IGIC for Growth and Quality, click here.
The Bear Market is NOT Over…
That is why you need to discover this timely presentation with a trading plan and top picks from 40 year investment veteran Steve Reitmeister:
RE shares were unchanged in premarket trading Monday. Year-to-date, RE has gained 17.02%, versus a 8.24% 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. More…