The insurance business is a relatively stable industry within the broader economy, and insurance revenue and profits typically don't fluctuate significantly with the economic cycle. In addition to selling policies, insurance companies profit by investing the money they take in.
Elevated inflation levels have most investors anticipating interest rates will rise aggressively in coming quarters, which could be good news for insurance stocks. Rising interest rates may help insurance stocks earn more income on their debt, and insurance stock multiples have historically expanded as interest rates rise.
Here are five of Bank of America's top insurance stocks to buy.
Progressive Corp (NYSE:PGR)
Progressive is one of the largest U.S. auto, motorcycle and commercial auto insurers. Analyst Joshua Shanker says few of Progressive's insurance peers appear to be beefing up their loss reserves to the same degree as Progressive, suggesting the company could be a particularly defensive play in the event of a broad economic downturn.
Shanker says Progressive has demonstrated superior execution and is well-positioned to deliver both long-term premium growth and margin expansion. He says analysts don't seem to fully appreciate Progressive's earnings power. Bank of America has a Buy rating and $132 price target for the stock.
MetLife Inc (NYSE:MET)
MetLife is a leading diversified U.S. life insurance and financial services company. The company recently reported a fourth-quarter earnings beat and issued ambitious guidance for 2022. Shaker says U.S. COVID-19 claims weighed on overall results in the fourth quarter, but U.S. COVID-19 cases are now down 90% from their peak in January.
Management has said the company plans to liquidate $1 billion in private equity investments by the end of 2022, but will continue to maintain a $12 billion private equity portfolio. Bank of America has a Buy rating and $80 price target.
American International Group Inc (NYSE:AIG)
U.S. insurer American International Group has also been weathering COVID-19-related claims since the beginning of 2020, and those pressures may soon be easing. Shanker says AIG's General Insurance and Life & Retirement businesses both exceeded fourth-quarter expectations.
Bank of America is projecting 6% growth in net premiums written for AIG in 2022, including 8% growth in its Commercial premiums. Shanker says AIG's forward earnings multiple of just 10.1 makes the stock relatively attractive based on its historical valuation. Bank of America has a Buy rating and $66 price target.
Allstate Corp (NYSE:ALL)
Allstate is the leading publicly-traded U.S. personal lines property-casualty insurer, and it recently divested its life insurance and retirement products business. Shanker says Allstate is being aggressive in fighting margin deterioration by increasing auto insurance prices by an average of 7.1% in 25 states and homeowners insurance prices by an average of 6.7% in 11 states.
Shanker forecasts a 16% return on equity for Allstate in fiscal 2023, within the company's guidance range of 14% to 17%. Bank of America has a Buy rating and $164 price target.
Hartford Financial Services Group Inc (NYSE:HIG)
Hartford Financial is one of the largest U.S. multi-line insurance holding companies and writer of property & casualty insurance. Shanker says Hartford's fourth-quarter earnings beat was driven by $170 million in alternative investment income, substantial net loss reserve releases, lower-than-expected COVID-19 losses in Group benefits and lower catastrophic losses than forecast.
Shanker is projecting 12.6% EPS growth in 2022 and 14.4% growth in 2023. He says the company is on track for at least 13% ROE this year. Bank of America has a Buy rating and $89 price target.
