Earlier this week, the Federal Reserve announced a 25 basis-point interest rate increase, marking its tenth increase since March 2022. Insurers benefit significantly from rising interest rates as their underlying bond investments yield high returns. Therefore, it could be wise to buy fundamentally strong insurance stocks Hannover Rück SE (HVRRY) and Everest Re Group, Ltd. (RE).
Before diving deeper into the fundamentals of these stocks, let me explain why the insurance industry is one of the best investment spaces.
In today’s uncertain world, insurance is crucial. Conservative investors are drawn to the insurance sector since these companies are known to thrive regardless of economic conditions. Moreover, various types of insurance are required by law to help shield individuals or businesses against unforeseen losses.
Insurance companies generate revenue by collecting premiums from policyholders. These premiums are invested in various financial products, including bonds, stocks, and real estate.
To provide the promised returns to policyholders, insurers invest a significant portion of the collected premiums in long-term safe bonds. Their investments produce greater returns in a rising interest rate environment. Moreover, insurance companies charge higher premiums when the cost of capital increases due to rising interest rates. This leads to improved underwriting margins.
Investors’ interest in the insurance industry is evident from the SPDR S&P Insurance ETF’s (KIE) 5.3% returns over the past nine months.
Let’s discuss the fundamentals of the featured stocks.
Hannover Rück SE (HVRRY)
Based in Hanover, Germany, HVRRY provides reinsurance products and services. The company operates through two segments: Property & Casualty reinsurance and Life & Health reinsurance. The Property & Casualty reinsurance segment is engaged in marine and aviation reinsurance, credit, and surety reinsurance. Its Life & Health reinsurance segment has a business split into financial solutions and risk solutions.
In terms of forward EV/Sales, HVRRY’s 0.78x is 59% lower than the 1.91x industry average. Its 0.64x forward Price/Sales is 65.5% lower than the 1.85x industry average. Likewise, its 11.60x trailing-12-month EV/EBITDA is 4% lower than the 12.08x industry average.
HVRRY’s net premium earned increased 22.9% year-over-year to €29.67 billion ($32.77 billion) for the fiscal year ended December 31, 2022. Its net investment income rose 6.1% year-over-year to €2.06 billion ($2.27 billion). The company’s operating profit increased 20.3% year-over-year to €2.09 billion ($2.31 billion).
Its group net income rose 14.2% over the prior-year period to €1.41 billion ($1.56 billion). Also, its EPS came in at €11.66, representing an increase of 14.2% year-over-year.
Analysts expect HVRRY’s revenue for the quarter ended March 31, 2023, to increase 8% year-over-year to $10.69 billion. Over the past nine months, the stock has gained 39.9% to close the last trading session at $103.23.
HVRRY’s POWR Ratings reflect this positive outlook. HVRRY has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #4 out of 9 stocks in the A-rated Insurance – Reinsurance industry. It has an A grade for Stability and a B for Growth and Momentum. Click here to see the other ratings of HVRRY for Value, Sentiment, and Quality.
Everest Re Group, Ltd. (RE)
Headquartered in Hamilton, Bermuda, RE provides reinsurance and insurance products in the United States, Bermuda, and internationally. The company operates through Reinsurance Operations and Insurance Operations segments.
In terms of forward EV/Sales, RE’s 1.11x is 42.1% lower than the 1.91x industry average. Its 1x forward Price/Sales is 45.8% lower than the 1.85x industry average. Likewise, its 0.27x forward non-GAAP PEG is 73% lower than the 0.99x industry average.
For the first quarter ended March 31, 2023, RE’s total revenues increased 13.5% year-over-year to $3.29 billion. Its net investment income rose 7% year-over-year to $260 million. The company’s net income increased 22.5% year-over-year to $365 million.
In addition, its EPS came in at $9.31, representing an increase of 23.1% year-over-year. Also, its net cash provided by operating activities increased 25.8% year-over-year to $1.06 billion.
For the quarter ending June 30, 2023, RE’s EPS and revenue are expected to increase 26.3% and 19.3% year-over-year to $12.37 and $3.61 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 47.6% to close the last trading session at $371.55.
RE’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system.
Within the same industry, it is ranked #2. It has an A grade for Growth and a B for Momentum. To see the other ratings of RE for Value, Stability, Sentiment, and Quality, click here.
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HVRRY shares were trading at $102.98 per share on Friday morning, down $0.25 (-0.24%). Year-to-date, HVRRY has gained 6.34%, versus a 7.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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