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RE or RNR: Which P&C Stock is Better-Placed at the Moment?

The Zacks Property and Casualty Insurance industry has been gaining momentum on the back of improved pricing, increased technology advancements, exposure growth, underwriting profitability, favorable reserve development and global expansion as well as impressive solvency level.

The industry has lost 4.8% in the past year compared with the Zacks S&P 500 composite’s decline of 10.3% and the Finance sector’s 9.8% decline.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Here we focus on two property and casualty insurers, namely Everest Re Group, Ltd. RE and RenaissanceRe Holdings Ltd. RNR.

Everest Re, with a market capitalization of $11.2 billion, provides reinsurance and insurance products in the United States, Bermuda, and internationally. RenaissanceRe, with a market capitalization of $6.2 billion, provides reinsurance and insurance products in the United States and internationally. Both insurers carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Per the Global Insurance Market Index by Marsh, global commercial insurance prices increased 9% in the second quarter of 2022. This marked the 19th consecutive quarter in which composite pricing rose, continuing the longest run of increases since the inception of the index in 2012. Per Marsh, global property insurance pricing and casualty pricing increased 6% each on average in the second quarter of 2022. Pricing in financial and professional lines had the highest rate of increase across the major insurance product categories at 16%. Per Willis Towers Watson’s 2022 Insurance Marketplace Realities report, rates will continue to rise but by a small margin. Price hikes, operational strength, higher retention, strong renewal and the appointment of retail agents should help write higher premiums. Per Deloitte insights, global non-life premiums are estimated to grow 3.7% in 2022.

The P&C insurers remain exposed to catastrophe loss from natural disasters and weather-related events, which induce volatility in their underwriting results. Per Colorado State University (CSU), the 2022 above-average hurricane season may have 19 named storms, including nine hurricanes and four major hurricanes. This year’s hurricane season could be about 130% of the average season per CSU. Global estimated insured losses from natural catastrophes in the first half of 2022 were $35 billion, 22% above average of the past 10 years ($29 billion), per a report by Swiss Re Institute.

Exposure growth, better pricing, prudent underwriting and favorable reserve development will help withstand the blow. Also, frequent occurrences of natural disasters should accelerate the policy renewal rate.

The solid capital level continues to aid insurers in pursuing strategic mergers and acquisitions, investing in growth initiatives, engaging in share buybacks, increasing dividends or paying out special dividends. Consolidation is likely to continue as players look to diversify their operations into new business lines and geographies.

The interest rate environment has started to improve. The Fed officials raised interest rates by 75 basis points. Currently, the interest rate stands at a range of 2.25%-2.5%. The Fed signaled raising interest rates to 4% next year. Thus, insurers are poised to benefit as net investment income is an important component of their top line.

In an effort to improve scale and efficiencies, the insurance industry is now adopting technological changes like blockchain, Artificial Intelligence (AI), advanced analytics, telematics, cloud computing, and robotic process automation. Accelerated digitization ensures smooth functioning of the insurers and is also likely to save costs, in turn driving margin expansion. Deloitte’s Global survey projects insurers’ technology budget to increase 13.7% in 2022.

Let’s now see how RE and RNR fare in terms of some of the key metrics.

Price Performance

Everest Re has gained 9.9% in the past year versus the industry’s decrease of 4.9%. RenaissanceRe shares have declined 3.2% in the said time frame.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Return on Equity (ROE)

Everest Re, with a return on equity (ROE) of 11.4%, exceeds RenaissanceRe’s ROE of 3.88% and the industry average of 6.4%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Valuation

The price-to-book value is the best multiple used for valuing insurers. Compared with Everest Re’s P/B ratio of 1.26, RenaissanceRe is cheaper, with a reading of 1.24. The P&C insurance industry’s P/B ratio is 1.38.

Dividend Yield

RenaissanceRe’s dividend yield of 1.04% betters Everest Re’s dividend yield of 0.01%. Thus, RenaissanceRe has an advantage over Everest Re on this front.

Debt-to-Capital

Everest Re’s debt-to-capital ratio of 25.8 is higher than the industry average of 20.6 and RenaissanceRe’s reading of 16.9. Therefore, RenaissanceRe has an advantage over Everest Re on this front.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Growth Projection

Earnings growth along with stock price gains is often indicative of a company’s strong prospects.

The Zacks Consensus Estimate for RenaissanceRe’s 2022 earnings implies a 739.5% rise from the year-ago reported figure, while that of Everest Re suggests an increase of 14.8% from the prior-year reported number.

The consensus estimate for 2023 earnings indicates a 43.3% increase from the year-ago reported figure for RenaissanceRe and a 25.6% rise for Everest Re.
Therefore, RenaissanceRe is at an advantage on this front.

VGM Score

VGM Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth, and most promising momentum. Everest Re has a VGM Score of A while RenaissanceRe has a VGM Score of C. Everest Re thus is better placed.

Combined Ratio

Everest Re’s combined ratio was 91.7 in the first half of 2022, whereas that of RenaissanceRe was 82.4% in the said time frame. Thus, the combined ratio of RenaissanceRe betters that of Everest Re.

To Conclude

Our comparative analysis shows that RenaissanceRe is better positioned than Everest Re with respect to dividend yield, combined ratio, leverage, valuation and growth projection. Meanwhile, Everest Re scores higher in terms of VGM Score, price, and return on equity. With the scale significantly tilted toward RenaissanceRe, the stock appears to be better poised.


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