Insurers benefit significantly from rising interest rates as their underlying bond investments yield high returns. Last month, the Federal Reserve paused rate hikes for the first time in 15 months. However, despite the lower-than-expected increase in inflation in June, the central bank is expected to raise interest rates again this month. This will likely benefit insurers.
Therefore, it could be wise to add fundamentally strong insurance stocks Hannover Rück SE (HVRRY), Reinsurance Group of America, Incorporated (RGA), SiriusPoint Ltd. (SPNT), and International General Insurance Holdings Ltd. (IGIC) to one’s portfolio.
Before diving deeper into the fundamentals of these stocks, let me explain why the insurance industry is worthy of your attention now.
In today’s uncertain world, insurance is crucial. Various types of insurance are required by law to help shield individuals or businesses against unforeseen losses. The industry performs steadily regardless of the economic cycle, and conservative investors are drawn to it.
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.
The 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 rates remain high worldwide, 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) 12.3% returns over the past year.
Let’s take a closer look at the fundamentals of the featured stocks.
Hannover Rück SE (HVRRY)
Based in Hanover, Germany, HVRRY provides reinsurance products and services. The company operates through two segments: Property & Casualty reinsurance and Life & Health reinsurance. The Property & Casualty reinsurance segment is engaged in marine and aviation reinsurance, credit, and surety reinsurance. Its Life & Health reinsurance segment has a business split into financial solutions and risk solutions.
In terms of forward EV/Sales, HVRRY’s 0.80x is 74.3% lower than the 3.10x industry average. Its 0.65x forward Price/Sales is 71.3% lower than the 2.27x industry average. Likewise, its 9.10x trailing-12-month EV/EBITDA is 28.9% lower than the 12.81x industry average.
HVRRY’s reinsurance revenue for the first quarter ended March 31, 2023, came in at €6.57 billion ($7.37 billion). Its group net income rose 13.2% over the prior-year quarter to €484.50 million ($543.84 million). The company’s operating profit increased 20.5% year-over-year to €720.30 million ($808.52 million). Also, its EPS came in at €4.02, representing an increase of 13.2% year-over-year.
Analysts expect HVRRY’s revenue and EPS for fiscal 2023 to increase 20.6% and 12.2% year-over-year to $14.88 and $39.52 billion, respectively. Over the past year, the stock has gained 59.7% to close the last trading session at $106.64.
HVRRY’s POWR Ratings reflect this positive outlook. HVRRY 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.
It is ranked #3 out of 8 stocks in the A-rated Insurance – Reinsurance industry. It has an A grade for Stability and a B for Momentum. Click here to see the other ratings of HVRRY for Growth, Value, Sentiment, and Quality.
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 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 0.60x is 80.7% lower than the 3.10x industry average. Its 6.14x forward EV/EBIT is 45% lower than the 11.17x industry average. Likewise, its 7.97x forward non-GAAP P/E is 12.2% lower than the 9.07x industry average.
For the first quarter ended March 31, 2023, RGA’s net premiums 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 ended June 30, 2023, RGA’s revenue is expected to increase 10.6% year-over-year to $4.30 billion. Its EPS for the quarter ending December 31, 2023, is expected to increase 39.9% year-over-year to $4.18. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 22.7% to close the last trading session at $140.31.
RGA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, translating to Buy in our proprietary rating system.
Within the same industry, it is ranked #2. It has a B grade for Growth, Value, and Momentum. Click here to see the other ratings of RGA for Stability, Sentiment, and Quality.
SiriusPoint Ltd. (SPNT)
Headquartered in Pembroke, Bermuda, SPNT provides multi-line insurance and reinsurance products and services. The company operates through two segments, Reinsurance and Insurance & Services. The Reinsurance segment covers various product lines, including aviation, casualty, etc. Its Insurance & Services segment offers coverage to various product lines, including accident and health, environmental, etc.
In terms of trailing-12-month EV/Sales, SPNT’s 0.71x is 76.8% lower than the 3.05x industry average. Its 0.59x trailing-12-month Price/Sales is 75% lower than the 2.35x industry average. Likewise, its 0.70x trailing-12-month Price/Book is 32.1% lower than the 1.04x industry average.
SPNT’s total revenues for the first quarter ended March 31, 2023, increased 89.5% year-over-year to $684.90 million. Its net premiums earned rose 12.5% year-over-year to $595.50 million. The company’s net income available to SPNT common shareholders came in at $138.60 million, compared to a net loss of $217 million in the prior-year quarter. Also, its EPS came in at $0.78, compared to a loss per share of $1.36 in the year-ago period.
Street expects SPNT’s EPS for the quarter ended June 30, 2023, to increase 126.3% year-over-year to $0.10. Over the past year, the stock has gained 103.9% to close the last trading session at $8.89.
SPNT’s POWR Ratings reflect this positive outlook. SPNT has an overall rating of B, which translates to a Buy in our proprietary rating system.
Within the Insurance – Reinsurance industry, it is ranked #4. It has an A grade for Growth and a B for Value and Momentum. To see the other ratings of SPNT for Stability, Sentiment, and Quality, click here.
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 4.03x is 55.6% lower than the 9.07x industry average. Its 0.55x forward Price/Sales is 75.6% lower than the 2.27x industry average. Likewise, its 0.34x forward EV/Sales is 89.2% lower than the 3.10x industry average.
IGIC’s net premiums earned for the first quarter ended March 31, 2023, increased 20.4% year-over-year to $105.10 million. Its profit for the period increased 52.7% over the prior-year quarter to $33.90 million. Also, its EPS came in at $0.71, representing an increase of 51.1% year-over-year.
Analysts expect IGIC’s revenue for the quarter ended June 30, 2023, to increase 20.1% year-over-year to $211.70 million. For the quarter ending December 31, 2023, its EPS is expected to increase 92.9% year-over-year to $0.54. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 17.7% to close the last trading session at $8.66.
IGIC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to Strong Buy in our proprietary rating system.
It is ranked first in the same industry. It has an A grade for Sentiment and a B for Value, Momentum, and Stability. Click here to see the other ratings of IGIC for Growth and Quality.
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HVRRY shares were trading at $106.64 per share on Monday morning, down $0.70 (-0.65%). Year-to-date, HVRRY has gained 10.13%, versus a 18.47% 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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