The insurance industry has a great opportunity as the Fed announced its tenth rate hike in the last week. High interest rates are a boon to insurers. It may be wise to invest in insurance stocks like Everest Re Group and Hannover Ruck SE. Read more ....
The Federal Reserve announced an increase in interest rates of 25 basis points earlier this week. This is the tenth rate hike since March 2022. The rising interest rate benefits insurers as their bond investments are yielding high returns. It is therefore wise to invest in insurance stocks with strong fundamentals, such as Everest Re Group, Ltd. and Hannover Ruck SE.
Let me explain the reasons why the insurance sector is one of best investment areas.
Insurance is essential in today's world of uncertainty. Insurance companies thrive in any economic climate, which is why conservative investors flock to them. In addition, different types of insurances are required by law in order to protect individuals and businesses from unforeseen losses.
Premiums collected from policyholders are used to generate revenue for insurance companies. These premiums are then invested in a variety of financial products such as bonds, stocks and real estate.
In order to provide policyholders with the returns promised, insurers place a large portion of premiums collected in safe long-term bonds. In an environment of rising interest rates, their investments yield greater returns. Insurance companies also charge higher premiums as the cost of capital rises due to interest rate increases. It leads to higher underwriting margins.
The SPDR S&P Insurance ETF (KIE), which has returned 5.3% over the last nine months, shows that investors are interested in the insurance sector.
Let's talk about the fundamentals for the stocks featured.
Hannover Ruck SE
HVRRY is a German reinsurance company based in Hanover. The company is divided into two segments, Property & Casualty reinsurance as well as Life & Health reinsurance. Property & Casualty reinsurance is involved in marine and aviation reinsurance as well as credit and surety reinsurance. The Life & Health reinsurance business is divided into two parts: financial solutions and risks solutions.
HVRRY has a 0.78x EV/Sales ratio, which is 59% less than the industry average of 1.91x. The 0.64x price/sales ratio is 65.5% less than the industry average of 1.85x. Similarly, its 11,60x trailing-12 month EV/EBITDA (which is 4% less than the industry average of 12.08x) is 4% less than the 1.85x industry standard.
HVRRY's Net Premium Earned increased by 22.9% over the past year to EUR29.67 Billion ($32.77 Billion) for fiscal year ending December 31, 2022. Net investment income increased 6.1% over the past year to EUR2,06 billion ($2,27 billion). Operating profit increased by 20.3% to EUR2,09 billion ($2.31billion).
The group's net income increased 14.2% from the previous year to EUR1.41 (US$1.56 billion). Its EPS was EUR11.66 which represents a 14.2% increase year-over-year.
Analysts predict that HVRRY will increase its revenue by 8% to $10.69 Billion for the quarter ending March 31, 2023. The stock gained 39.9% in the past nine-month period to close at $103.23 during the last trading session.
HVRRY's PoWR Ratings reflect a positive outlook. HVRRY's POWR Ratings reflect this positive outlook. HVRRY is rated B in our proprietary system. The POWR ratings assess stocks based on 118 factors, each of which has its own weighting.
It is ranked 4th out of 9 stocks within the Insurance - Reinsurance sector. It is rated A for Stability and B for Growth and Momentum. Click here to view the other HVRRY ratings for Value, Sentiment and Quality.
Everest Re Group, Ltd.
RE is headquartered in Hamilton, Bermuda and provides insurance and reinsurance products to the United States, Bermuda and international markets. Reinsurance Operations, and Insurance Operations are the two segments of the company.
RE's 1,11x forward EV/Sales is 42.1% less than the industry average of 1.91x. The 1x price/sales ratio is 45.8% less than the industry average. Its 0.27x non-GAAP PEG forward is 73% less than the 0.99x average industry.
RE's revenues for the first quarter ending March 31, 2023 increased by 13.5% over the previous year to $3.29 Billion. Net investment income increased 7% over the past year to $260 millions. The net income of the company increased by 22.5% over the past year to $365 millions.
EPS was $9.31 and increased by 23.1% over the previous year. Its net cash generated by operating activities rose 25.8% to $1.06billion.
RE's revenue and EPS are expected to grow by 19.3% and 26.3% respectively, for the quarter ending June 30th, 2023. The figures will be $12.37 billion and $12.37 billion. In three of the last four quarters, it has exceeded the Street's EPS expectations. In the last nine months, this stock has gained 47.6% and closed the last trading day at $371.55.
The POWR ratings of RE reflect solid prospects. It is rated B overall, which in our rating system translates into Buy.
It is ranked second in the same industry. It is rated A for Growth, and B for Momentum. Click here to see the other RE ratings for Value, Sentiment and Quality.
This is why Steve Reitmeister, a 40-year investment veteran, has created a timely presentation that includes a trading strategy and his top picks.
HVRRY's shares traded at $102,98 per share, down $0.25 (0.24%) on Friday morning. HVRRY shares have gained 6.34% year-to-date compared to the S&P 500 benchmark index's 7.86% increase during the same time period.
About the Author: Dipanjan B.
Dipanjan has been interested in stock markets since he was in elementary school. Dipanjan obtained a Master's Degree in Finance and Accountancy. Dipanjan is a financial journalist and investment analyst. He has a keen interest in reading about and analyzing new trends in the financial markets.