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RE or MKL: Which P&C stocks are better placed? – December 5, 2022

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Better pricing, an improved rate environment, exposure growth, prudent underwriting and a strong capital position balance P&C insurers well amid a volatile market. However, an active catastrophic environment could weigh to the upside.

Global commercial insurance prices have risen for 20 consecutive quarters, though the magnitude has slowed in the past seven quarters, according to the Marsh Global Insurance Market Index.

Better prices ensure improved premiums and prudent claims payment. According to Deloitte Insights, gross premiums are estimated to grow six-fold to $722 billion by 2030. China and North America should account for more than two-thirds of the global market, according to the report.

The insurance industry is sensitive to rates. The interest rate environment has started to improve. The Fed has already made six hikes in 2022 and there will be more to come. An improving rate environment is a boon for insurers, especially long-tail insurers.

Catastrophic events weigh on the technical profitability of insurers. Colorado State University expects an active Atlantic hurricane season this year with 18 named storms. These include eight hurricanes and four major hurricanes.

However, the insurance industry continues to witness accelerated digitization. Players are investing heavily in technology to improve scale and efficiency. According to Deloitte Insights, the technology budget is expected to increase by 13.7% in 2022.

While strong policyholder surplus will help the industry absorb losses, a strong level of capital continues to help insurers pursue strategic M&A, invest in growth initiatives, engage in share buybacks, increase dividends or pay special dividends.

The industry is up 6.7% year-to-date versus a 11.6% decline in the financial sector and a 15.8% decline in the Zacks S&P 500 composite.

Here we focus on two property and casualty insurers, namely Everest Limited (RE free report) and Markel Corporation (MKL free report). Everest Re, with a market capitalization of $13.1 billion, writes property and casualty, reinsurance and insurance in the United States, Bermuda and international markets. Markel, with a market capitalization of $18.1 billion, markets and underwrites specialty insurance products in the United States, the United Kingdom, Canada and internationally. Both companies have a Zacks Rank #3 (hold). You can see Full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Now let’s take a look at how these P&C insurers have fared in terms of some of the key metrics.

price performance

Everest Re is up 21.7% year-to-date, outpacing Markel’s gain of 8.9% and industry gain of 6.7%.

Return on Equity (ROE)

Markel has a return on equity of 10.5%, which is better than Everest Re’s ROE of 6.4% and the industry average of 5.4%.

dividend yield

Everest Re’s dividend yield of 1.98% exceeds the industry average of 0.4%. Markel does not pay dividends.

debt to equity

Everest Re’s debt-to-equity ratio of 40.3 is higher than the industry average of 25.3, as well as Markel’s reading of 33.4.

History of earnings surprises

Everest Re beat expectations in three of the four subsequent quarters, with an average surprise of 10.26%. MKL has missed expectations over the past four quarters, delivering a surprise average negative earnings of 24.65.

growth projection

The Zacks Consensus Estimate for 2022 earnings indicates an 11.4% increase from the figure reported a year ago for MKL, but a 19.3% decrease for RE.

The consensus estimate for 2023 earnings indicates an increase of 29.8% from the figure reported a year ago for MKL and 75% for RE.

MKL has a growth score of B while RE has a growth score of C.

MKL has an advantage over RE.

combined relationship

The combined index represents the technical profitability of an insurer. RE’s combined ratio was 98.8 in the first nine months of 2022, while Markel’s was 91 in the first nine months of 2022.

style score

Both MKL and RE have a VGM rating of B.

In conclusion

Our comparative analysis shows that Everest Re has an advantage over Markel with respect to price performance, dividend yield and track record of earnings surprises. MKL outperforms RE on ROE, growth forecast, combined ratio and leverage.