Even with significant market turbulence, worsening inflation reports and a host of destructive natural catastrophes ranging from wildfires to hurricanes, some U.S. property and casualty insurers have seen their stocks rally significantly in 2022.
"Basically it's two words," CFRA analyst Cathy Seifert said in an interview. "Pricing power."
Seifert remains positive on P&C carriers and sees their year-to-date performance as a reflection of the industry's ability to retain that pricing control. Rising interest rates are helping net investment income as well, Siefert said, further bolstering their performance.
The Progressive Corp. and The Allstate Corp. are among the major P&C companies that have performed well thus far in 2022. The pricing power those behemoths have is in part due to inflation hitting auto repair and construction costs and raising overall claim amounts. With inflation running so hot, regulators have been, in the main, loathe to push back on rate increase requests, Seifert said.
Investors are also looking ahead to 2023, Seifert added, where the expectation is that inflationary pressures may begin to ease and create an attractive "combination of events."
As of close of business Oct. 6, Progressive's shares were up 18.77% year-to-date. Allstate's stock showed growth of 10.96% for the same period.
Other big-name P&C underwriters have not fared as well.
Chubb Ltd.'s stock is slightly in the red year-to-date. Seifert said Chubb is perceived to be a "very well-run franchise" that knows how to underwrite and get topline growth within the current market. However, the analyst said she will be watching during the upcoming earnings season to see the degree to which weakness in Europe and a stronger dollar might hurt Chubb.
The Hartford Financial Services Group Inc. is down about 6% year-to-date. Seifert pointed to The Hartford as an especially interesting case as it remains a multiline insurer in an industry that has been abandoning the multiline model to double down on core competencies. Seifert said there is a persistent belief that The Hartford may be a takeover candidate, especially given that its asset management arm will be hurt by the market sell-off and the decline in asset values.
Hurricane Ian impact
Hurricane Ian ravaged Florida and large parts of the Southeast last week, with some data modelers estimating that insured losses may reach as high as $80 billion.
Piper Sandler analyst Paul Newsome said in a note that the new estimates may actually be a positive as they will reduce uncertainty about the storm's impact.
"Our view is the losses will be significant earnings hits for many of the companies we follow, but not book value hits," Newsome said.
P&C insurers saw their stocks suffer last week in the immediate aftermath of Ian, but many recorded gains this week.
Allstate, The Travelers Cos. Inc. and Progressive saw their shares rise 4.91%, 2.40% and 4.95%, respectively for the week ending Oct. 7.
Ultimately, Newsome does not expect that the hurricane will have much of an impact on pricing because the industry typically factors in one to two large hurricanes hitting Florida every year.
"Hurricane Ian is a very large hurricane, but we don't think it is a unique event that will change how insurance companies contemplate risk," Newsome said.
The S&P 500 rose 1.51% for the week ending Oct. 7 to 3,639.66, while the S&P 500 U.S. Insurance Index gained 3.20% to 529.38.