In today’s unpredictable world, having insurance is more crucial than ever. With the insurance industry poised for growth amid a volatile macroeconomic environment, investors could be wise to scoop up the shares of quality insurance stocks such as The Progressive Corporation (PGR), HCI Group, Inc. (HCI), and Universal Insurance Holdings, Inc. (UVE).
Even though GDP growth slowed to around 1.4% annually in the first quarter of 2024, there's hope on the horizon. As inflation cools and the Fed hints at possible rate cuts, the U.S. economy is expected to pick up later this year. This uptick will boost economic activity and consumer confidence, benefiting businesses, especially those in the insurance sector. Plus, the insurance market is on the rise, driven by growing demand from emerging economies.
Insurance isn't just a safety net; it's a staple. Conservative investors love insurance stocks because they tend to perform steadily regardless of economic cycles, and the demand for insurance products is almost inelastic.
When we talk about property and casualty insurance, we're looking at a broad category that includes homeowners’ insurance, renters’ insurance, auto insurance, and more. This sector is set for significant growth, fueled by greater awareness of insurance benefits and better risk prediction tools.
With the U.S. economy showing resilience through solid business investment and overcoming temporary challenges, this market is expected to grow from $2 trillion in 2024 to $3.79 trillion by 2032, achieving an 8.3% CAGR.
Moreover, investors’ interest in insurance stocks is evident from SPDR S&P Insurance ETF’s (KIE) 26.8% returns over the past year.
Considering this favorable industry backdrop, let’s evaluate the three Insurance - Property & Casualty picks, beginning with the third choice.
Stock #3: HCI Group, Inc. (HCI)
In Florida, HCI engages in property and casualty insurance, insurance management, reinsurance, real estate, and information technology businesses. It offers residential insurance products, including homeowners, fire, flood, and wind-only insurance, to homeowners, condominium owners, and tenants and provides reinsurance programs.
On July 8, 2024, HCI’s Board of Directors declared a regular quarterly dividend of $0.40 per common share. The dividend is scheduled to be paid on September 20, 2024, to shareholders of record at the close of business on August 16, 2024. In addition, HCI pays an annual dividend of $1.60 per share, which translates to a yield of 1.78% on the current share price. Its four-year average yield is 2.51%.
In terms of the trailing-12-month EBITDA margin, HCI’s 30.11% is 30.3% higher than the 23.10% industry average. Similarly, its 40.76% trailing-12-month levered FCF margin is 133.6% higher than the industry average of 17.45%. Also, its trailing-12-month ROTA of 6.04% compares to the industry average of 1.07%.
HCI’s total revenues for the fiscal first quarter ended March 31, 2024, and increased by 60.1% year-over-year to $206.61 million. Its net premiums earned rose 72.1% from the year-ago value to $188.54 million. The company’s non-GAAP adjusted net income improved 216% over the prior year’s quarter to $54.98 million, while its adjusted net income per share stood at $3.65, up 143.3% year-over-year.
The consensus revenue estimate of $197.34 million for the fiscal second quarter (ended June 2024) represents a 54.9% increase year-over-year. The consensus EPS estimate of $3.56 for the about-to-be-reported quarter indicates a 191.4% improvement year-over-year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of HCI have surged 53% over the past year to close the last trading session at $90.08.
HCI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
HCI has an A grade for Momentum and a B for Growth and Quality. It is ranked #20 out of 56 stocks in the A-rated Insurance - Property & Casualty industry. Click here to see HCI’s Value, Stability, and Sentiment ratings.
Stock #2: The Progressive Corporation (PGR)
PGR is an insurance holding company that offers personal and commercial auto, personal residential and commercial property, business-related general liability, and other specialty property-casualty insurance products. The company operates in three segments: Personal Lines; Commercial Lines; and Property.
In January, PGR’s Progressive Insurance®, a prominent Commercial Auto insurer in the U.S., was renamed Progressive Fleet & Specialty Programs (Progressive Fleet), aiming to benefit agents and customers with a nationally recognized brand.
The new name highlights the integration of businesses and captures Progressive’s enhanced capabilities in large fleet transportation and niche insurance programs tailored for the transportation and delivery sectors.
PGR's trailing-12-month levered FCF margin of 19.73% is 13.1% higher than the industry average of 17.45%. In addition, its trailing-12-month ROCE and ROTA of 30.06% and 6.15% compare favorably with their respective industry averages of 10.61% and 1.07%.
For the first quarter that ended March 31, 2024, PGR’s net premiums earned increased 19.3% year-over-year to $16.15 billion. Its total revenues grew 20.3% from the prior year’s quarter to $17.24 billion. The company’s net income came in at $2.33 billion, or $3.94 per common share, up 417.8% and 425.3% year-over-year, respectively.
Street expects PGR’s revenue for the second quarter (ended June 2024) to increase 18.7% year-over-year to $17.46 billion. The consensus EPS estimate of $2.01 for the to-be-reported quarter indicates a 382.8% year-over-year improvement. Moreover, the company surpassed consensus EPS estimates in three of the trailing four quarters.
PGR’s stock has gained 40.1% over the past nine months and 85.9% over the past year to close the last trading session at $217.10.
PGR’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Momentum and a B for Growth and Quality. Within the same industry, it is ranked #11 out of 56 stocks. Click here to see additional ratings of PGR for Value, Stability, and Sentiment.
Stock #1: 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.
UVE’s trailing-12-month levered FCF margin of 31.18% is 78.7% higher than the industry average of 17.45%. Similarly, its trailing-12-month ROCE and ROTC of 22.23% and 14.14% are 109.4% and 104.3% higher than their respective industry averages of 10.61% and 6.92%.
In the first quarter that ended March 31, 2024, UVE’s total revenues increased 16.3% year-over-year to $367.96 million. Its adjusted operating income came in at $46.08 million, reflecting a 34.5% improvement from the year-ago period.
The company’s adjusted net income available to common stockholders stood at $31.37 million, up 30.5% year-over-year, while its adjusted EPS for the quarter rose 35.4% from the year-ago value to $1.07. In addition, UVE’s net premiums earned increased 18.4% year-over-year to $334.03 million.
Analysts expect UVE’s EPS to increase 32.2% year-over-year to $1.15 for the quarter ended June 2024. The company’s revenue for the same period is expected to grow marginally from the previous year to $340.09 million. Moreover, it topped the consensus EPS and revenue estimates in each of the trailing four quarters, which is excellent.
Over the past nine months, the stock has gained 40.9%, closing the last trading session at $19.19.
It’s no surprise that UVE has an overall rating of A, which equates to Strong Buy in our proprietary rating system. It has an A grade for Momentum and a B for Growth, Value, and Quality. Out of 56 stocks in the same A-rated industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we have also rated UVE for Stability and Sentiment. Get all UVE ratings here.
What To Do Next?
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PGR shares were trading at $213.62 per share on Tuesday morning, down $3.48 (-1.60%). Year-to-date, PGR has gained 34.92%, versus a 19.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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