3 Insurance Stocks That Continue to Look Strong Despite a Catastrophic Economy

During economic uncertainty, the insurance sector could be worth looking at due to its relative stability compared to other sectors. The insurance industry could benefit as the Fed contemplates more interest rate hikes. Therefore, it could be wise to consider investing in fundamentally strong insurance stocks Allianz SE (ALIZY), Loews (L), and CNA Financial (CNA). Keep reading.

Insurance companies are known to do well in a rising interest rate environment and recessionary times. With the Fed keen on bringing inflation down further, more interest rate hikes could be in the offing. To that end, it could be wise to invest in fundamentally strong insurance stocks Allianz SE (ALIZY), Loews Corporation (L), and CNA Financial Corporation (CNA).

Before discussing these stocks in detail, let me explain why the insurance industry is worth looking at.

The need for insurance is imperative in today’s world of uncertainties. The insurance industry appeals to conservative investors since these businesses are known to prosper regardless of the state of the economy. Various types of insurance are required by law to help protect people against unforeseen losses.

Insurance companies generate revenue by charging premiums from policyholders for the policies. They invest these premiums in various financial instruments such as bonds, stocks, and real estate. Although rising interest rates affect most sectors, the financial sector, which includes insurers, benefits.

Insurers hold long-term safe bonds to meet their promised returns to policyholders. In a rising interest rate environment, their investments yield higher returns. Moreover, insurance companies may be able to charge higher premiums due to the increased cost of capital. This can lead to improved underwriting margins.

Although inflation has cooled for the ninth consecutive month annually, the Federal Reserve will likely raise interest rates at its next month’s policy meeting. The benchmark interest rate is expected to rise to the range between 5% and 5.25%.

The global property and casualty insurance market is expected to rise at a CAGR of 6.7% during the forecast period of 2023 to 2033. Investors’ interest in the property and casualty insurance industry is evident from the Invesco Property & Casualty Insurance ETF’s (KBWP) 9.5% returns over the past nine months.

Amid the uncertain economic climate, it could be wise to consider investing in ALIZY, L, and CAN.

Allianz SE (ALIZY)

Headquartered in Munich, Germany, ALIZY provides property-casualty insurance, life/health insurance, and asset management products and services worldwide. The company provides a range of reinsurance coverage, primarily to Allianz insurance entities and third-party customers. It operates in the Property-Casualty, Life/Health, Asset Management, Corporate and other segments.

In April 2023, ALIZY put its stake of about 5% in fintech N26 for sale. ALIZY is expected to make approximately $160 million from the stake sale, more than tripling its initial investment made over five years ago.

On March 23, 2023, Allianz Capital Partners, on behalf of ALIZY, signed an agreement in a consortium with Norges Bank Investment Management and AIP Management to purchase from German utility EnBW a 49.9% stake in the offshore windfarm He Dreiht. ALIZY will acquire a 16.6% stake in the 960MW project.

ALIZY’s Chief Investment Officer, Carsten Quitter, said, “Energy transition and energy security are high on our agenda. Allianz is keen to support the energy transition, which is underlined by our first direct investment into offshore wind in Germany. He Dreiht shall supply around 1.1 million households in Germany with green and safe energy while delivering stable and long-term cash yields for our insurance customers.”

In terms of forward EV/EBIT, ALIZY’s 8.11x is 24.3% lower than the 10.72x industry average. Its 0.58x forward Price/Sales is 72.2% lower than the 2.08x industry average. Likewise, its 0.76x forward EV/Sales is 59.9% lower than the 1.89x industry average.

ALIZY’s total revenues for the fiscal year ended December 31, 2022, increased 2.8% year-over-year to €152.67 billion ($167.76 billion). Its operating profit rose 5.7% over the prior-year period to €14.16 billion ($15.56 billion).

The company’s net income attributable to shareholders increased 1.9% year-over-year to €6.74 billion ($7.41 billion). In addition, its EPS came in at €16.26, representing an increase of 2.7% year-over-year.

Analysts expect ALIZY’s EPS for the quarter ended March 31, 2023, to increase 6.1% year-over-year to $48.48 billion. Its revenue for fiscal 2023 is expected to increase 4.2% year-over-year to $170.07 billion. Over the past six months, the stock has gained 42% to close the last trading session at $24.39.

ALIZY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated…