In today’s world of uncertainties, the need for insurance is imperative. Given the long-term growth prospects of the insurance industry and the current high-interest rate environment, investing in insurance stocks Fairfax Financial Holdings Limited (FRFHF), Universal Insurance Holdings, Inc. (UVE), and Heritage Insurance Holdings, Inc. (HRTG), which possess solid growth attributes and gained momentum lately, could be wise.
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 insurers attractive as these businesses are known to perform steadily irrespective of economic cycles. That’s because the demand for insurance products is almost inelastic as they protect individuals or companies against unforeseen losses.
Insurance companies are known to do well in a rising interest rate environment. Although the Fed looked keen on pausing interest rate hikes, inflation remains way above the Fed’s target of 2%. This, along with robust job growth in May and strong consumer spending, is increasing the odds of another rate hike this month.
While the benchmark interest rate is at its highest level in 16 years, another rate hike could benefit insurance companies as insurers hold long-term safe bonds to meet their promised returns to policyholders.
Insurers generate revenue by charging premiums, and in exchange, they provide coverage. These premiums are invested in interest-generating assets, which generate higher yields when interest rates increase.
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) 5% returns over the past nine months.
Let’s take a closer look at the fundamentals of the featured stocks.
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 0.76x is 74.1% lower than the 2.92x industry average. Its 8.18x forward EV/EBIT is 26.8% lower than the 11.18x industry average. Likewise, its 0.60x forward Price/Sales is 73.8% lower than the 2.27x industry average.
FRFHF’s EBIT grew at a CAGR of 257.4% over the past three years. Its EBITDA grew at a CAGR of 74.8% over the past three years. In addition, its total assets grew at a CAGR of 5.5% in the same time frame.
FRFHF’s net premiums written for the first quarter ended March 31, 2023, increased 6% year-over-year to $5.66 billion. The company’s net earnings rose 100.9% year-over-year to $1.40 billion. In addition, its EPS came in at $49.38, representing an increase of 117.8% year-over-year.
Analysts expect FRFHF’s EPS and revenue for fiscal 2023 to increase 207.2% and 14.9% year-over-year to $133.58 and $32.24 billion, respectively. It surpassed Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 54.1% to close the last trading session at $763.44.
FRFHF’s stock is trading above its 50-day and 200-day moving averages of $690.98 and $598.89, respectively.
FRFHF’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 is ranked #2 out of 56 stocks in the B-rated Insurance – Property & Casualty industry. It has an A grade for Stability and a B for Growth, Value, Momentum, and Sentiment. Click here to see FRFHF’s rating for Quality.
Universal Insurance Holdings, Inc. (UVE)
UVE operates as an integrated insurance holding company. The company develops, markets, and underwrites insurance products for personal residential insurance, including homeowners, condo unit owners, and renters/tenants; and provides allied lines, coverage for other structures, personal property, liability, and personal articles coverages.
In terms of forward non-GAAP P/E, UVE’s 8.19x is 11.6% lower than the 9.27x industry average. Its 0.25x forward EV/Sales is 91.3% lower than the 2.92x industry average. Likewise, its 0.38x forward Price/Sales is 83.3% lower than the 2.27x industry average.
UVE’s revenue grew at a CAGR of 10.1% over the past three years. In addition, its total assets grew at a CAGR of 18.2% in the same time frame.
For the fiscal first quarter ended March 31, 2023, UVE’s total revenues increased 10.1% year-over-year to $316.51 million. Its adjusted operating income rose 25% over the prior-year quarter to $34.26 million. The company’s adjusted net income available to common stockholders increased 19.9% year-over-year to $24.04 million. In addition, its adjusted EPS came in at $0.79, representing an increase of 23.4% year-over-year.
For the quarter ending June 30, 2023, UVE’s EPS and revenue are expected to increase 66% and 12.2% year-over-year to $0.78 and $327.76 million, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 54.7% year-to-date to close the last trading session at $16.38.
UVE’s stock is trading above its 10-day and 200-day moving averages of $15.17 and $13.26, respectively.
UVE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Strong Buy in our proprietary rating system.
It is ranked #3 in the same industry. It has a B grade for Growth and Momentum. To see the other ratings of UVE for Value, Stability, Sentiment, and Quality, click here.
Heritage Insurance Holdings, Inc. (HRTG)
HRTG is a property and casualty insurance holding company that primarily provides personal and commercial residential insurance products through its insurance company subsidiaries. It is vertically integrated and controls or manages all aspects of insurance underwriting, customer service, actuarial analysis, distribution, claims processing, and adjusting.
In terms of forward Price/Book, HRTG’s 0.85x is 15.9% lower than the 1.01x industry average. Its 0.19x forward Price/Sales is 91.8% lower than the 2.27x industry average. Likewise, its 6.41x forward non-GAAP P/E is 30.8% lower than the 9.27x industry average.
HRTG’s revenue grew at a CAGR of 9% over the past three years. In addition, its total assets grew at a CAGR of 4.7% in the same time frame.
HRTG’s total revenues for the first quarter ended March 31, 2023, increased 11.5% year-over-year to $176.92 million. Its net income came in at $14 million, compared to a net loss of $30.76 million in the prior-year quarter. Its EPS came in at $0.55, compared to a loss per share of $1.15 in the year-ago quarter.
Street expects HRTG’s EPS and revenue for the quarter ending June 30, 2023, to increase 3% and 2.9% year-over-year to $0.11 and $168.53 million, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 204.2% year-over-year to $5.02.
HRTG’s stock is trading above its 50-day and 200-day moving averages of $3.88 and $2.62, respectively.
HRTG’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Momentum, and Sentiment. It is ranked first in the Insurance – Property & Casualty industry. Click here to see the other ratings of HRTG for Stability and Quality.
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FRFHF shares were unchanged in premarket trading Thursday. Year-to-date, FRFHF has gained 30.64%, versus a 11.96% 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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