Free Trial

Interest rates propel insurers' earnings to new highs

word insurance on blue background with descriptive illustrations

Key Points

  • The iShares U.S. Insurance ETF is on a month-long uptrend driven by factors including higher interest rates and increased net premiums.
  • Progressive, Chubb and Allstate are among the S&P large-cap leaders in the property and casualty industry. 
  • In addition to higher rates resulting in better investment returns, the industry is benefiting from automation that's boosting efficiency. 
  • 5 stocks we like better than Chubb

It's not as exciting or cutting-edge as technology stocks, but the iShares U.S. Insurance ETF NYSEARCA: IAK has been edging higher in the past month.

Ignore this so-called "boring" industry at your own peril. 

Drivers behind the move include higher interest rates and volume of net premiums.

It's understandable that investors gravitate toward the more exciting and fast-moving tech stocks, but any industry can suddenly become interesting if it's on the upswing. 

Fast-moving small-cap insurer

The fastest-moving property and casualty stock is small-cap HCI Group Inc. NYSE: HCI, which gapped up 21.52% on November 8 after a better-than-expected quarterly report.

Earnings grew to $1.41 a share, up from a loss in the year-earlier quarter. Factors behind the growth included insurance reforms in the company's home state of Florida, as well as a favorable environment for interest rates.

HCI is little known, but the industry's S&P components definitely don't fly under the radar. 

One of the industry's best large-cap performers is Progressive Corp. NYSE: PGR, a company you might think of via its commercials featuring fictional saleswoman Flo.

Progressive stock is up 11.02% in the past month and up 25.46% in the past three months. The Progressive chart shows the stock gapping up 8.13% on October 13 on the heels of a better-than-expected third-quarter report.

MarketBeat's Progressive earnings data show the company’s steady history of earnings and revenue growth in recent quarters.  

Among the market's best-performing industries 

Insurance stocks as a group are among the market's best performers, with life insurance stocks, in particular, among the market's best industries.  

The company's net premiums written climbed by 20% to $15.59 billion versus the year-ago quarter. Net premiums earned also grew by 20% to $14.89 billion.

Net premiums written encompass total premiums collected, regardless of coverage timing. Net premiums earned represent recognized revenue based on coverage provided during a specific period, considering policy timing.

Chubb Limited NYSE: CB is another S&P insurance company that's a component of the Financial Select Sector SPDR Fund NYSEARCA: XLF. Chubb recently cleared a cup-with-handle base with a buy point above $216.10.

The stock is up 4.51% in the past month.

Accelerating earnings growth

Chubb reported third-quarter results on October 24, beating net income views but missing on the revenue side, as you can see using Chubb earnings data. 

Chubb's earnings growth accelerated in the past three quarters, while revenue grew at double-digit rates in the past three quarters. 

Market conditions are favorable for Chubb and other insurers. The industry has been developing new products and fine-tuning its process to drive better revenue and profit. 

Industry developments, including automation, are boosting industry efficiency, which in turn is helping profitability. 

Another top performer in the S&P financials sector is Allstate Corp. NYSE: ALL, which is up 14.26% in the past three months and up 17.86% in the past six months.

Claims offset investment gains

A glance at Allstate earnings data shows that the insurer pivoted to profitability after posting losses in the previous five quarters, as claims for many catastrophic events offset investment gains.

Insurers are among the biggest institutional investors, and insurance company earnings benefit from higher interest rates. 

As insurers invest a large portion of the premiums collected, they have become major beneficiaries of the higher-rate environment.  

They typically invest significant amounts in fixed-income securities such as bonds. When interest rates rise, the yields on these bonds also increase, leading to higher investment income for insurance companies.

Reinvesting bond proceeds at higher rates

As these bonds mature, insurers can reinvest the proceeds at even higher rates if the opportunity presents itself, as it has recently. That means insurers can capture better returns throughout the life of their investments.

In addition, insurance companies generally hold substantial reserves to cover policyholder claims and obligations. This is how insurers are able to pay those claims that roll in while remaining profitable. 

Higher interest rates contribute to greater returns on these reserves, strengthening the insurer's financial position.  

While that doesn't necessarily work in every quarter, as we saw in the case of Allstate, investment income is a key component of insurance industry profitability.

→ Kiss of death from Joe Biden (From Porter & Company) (Ad)

Should you invest $1,000 in Chubb right now?

Before you consider Chubb, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Chubb wasn't on the list.

While Chubb currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

7 AI Stocks to Invest In: An Introduction to AI Investing For Self-Directed Investors Cover

As the AI market heats up, investors who have a vision for artificial intelligence have the potential to see real returns. Learn about the industry as a whole as well as seven companies that are getting work done with the power of AI.

Get This Free Report
Kate Stalter
About The Author

Kate Stalter

Contributing Author

Retirement, Asset Allocation, and Tax Strategies

Like this article? Share it with a colleague.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Chubb (CB)
4.507 of 5 stars
4.51 / 5 stars
Financial Select Sector SPDR Fund (XLF)N/A$43.09+0.6%1.62%18.32N/AN/A
HCI Group (HCI)
3.9546 of 5 stars
3.95 / 5 stars
iShares U.S. Insurance ETF (IAK)N/A$117.36+0.8%1.32%17.19N/AN/A
Allstate (ALL)
4.7609 of 5 stars
4.76 / 5 stars
$174.96+0.3%2.10%38.62Moderate Buy$178.06
Progressive (PGR)
4.7947 of 5 stars
4.79 / 5 stars
Compare These Stocks  Add These Stocks to My Watchlist 

Featured Articles and Offers

Recent Videos

Opportunities Arise as Stock Market Rotates from Big Tech
3 Top Market Leaders Splitting Their Stocks
How to Navigate Stock Downgrades

Stock Lists

All Stock Lists

Investing Tools

Calendars and Tools

Search Headlines