In this article, we will explore the 8 undervalued insurance stocks to invest in.
The State of the US Insurance Market: What Investors Need to Know
The insurance industry is currently facing significant challenges, particularly in regions prone to extreme weather events. Recent hurricanes, including Helene and Milton, have caused substantial damage in Florida, leading to billions in insurance losses.
Florida has faced significant challenges in its insurance market due to the impact of 4 major hurricanes in the past 4 years. On October 17, Reuters reported that homeowners contacted by Reuters in areas including both Florida coasts and the Keys are increasingly worried about rising premiums and the possibility of losing their insurance coverage altogether. Average homeowner premiums in Florida surged nearly 60% from 2019 to 2023. The state-backed insurer, Citizens Property Insurance Corp., has seen its policies increase from about 1.14 million at the end of 2022 to over 1.2 million as of June 2024, indicating a growing reliance on this insurer of last resort.
Analysts and experts predict that the recent back-to-back hurricanes, Helene and Milton, will further worsen the situation. Analysts warn that these storms will likely lead to even higher insurance costs and stricter coverage exclusions. Marc Ragin, an associate professor of risk management and insurance at the Terry College of Business at the University of Georgia, expressed concerns that insurers may become hesitant to continue offering policies in Florida due to the increasing frequency of severe weather events. As a result, many homeowners are left feeling anxious about their insurance options and financial security.
Ken Gregg, CEO of Orion180, told Reuters that the hope for a softer insurance market has vanished following Helene and Milton. Brian Schneider, senior director of insurance at Fitch Ratings, noted that price increases from reinsurers are forcing primary insurance companies to raise their rates as well. Despite these challenges, some private insurers remain committed to the Florida market, but homeowners continue to feel the pressure as they navigate an uncertain insurance landscape.
Resilience of the Insurance Market
Overall, the US insurance industry is proving resilient in the face of adversity. According to Mordor Intelligence, the US life and non-life insurance market’s size in terms of net written premiums was valued at $2.02 trillion in 2024. Looking forward, the market is expected to grow at a compound annual growth rate (CAGR) of 6.95% during 2024-2029 to reach $2.83 trillion by the end of the forecast period.
The insurance market is experiencing significant growth driven by several key trends that enhance its resilience despite facing catastrophic events. One of the primary factors is the rapid digital transformation within the industry, which has improved operational efficiency and customer engagement. Insurers are increasingly adopting technologies like artificial intelligence (AI) and big data analytics to streamline processes, personalize offerings, and enhance risk assessment.
Here’s a short excerpt from our article “7 Hot Insurance Stocks To Buy Right Now” that discusses this in more detail:
“Advancements in artificial intelligence (AI) continue to revolutionize how insurers assess risk and manage claims. AI technologies enable better data analysis and faster decision-making processes, which can enhance customer service and operational efficiency.
On October 22, CNBC reported that Near Space Labs, a Brooklyn, New York-based startup, has developed innovative technology to enhance the insurance claims process following natural disasters like hurricanes Helene and Milton. Their invention, called “Swifts,” consists of AI-enabled cameras mounted on weather balloons that fly at altitudes higher than airplanes. This allows them to capture high-resolution images over vast areas quickly, significantly speeding up damage assessments from weeks to just days. CEO Rema Matevosyan highlighted that their technology can gather data equivalent to what 800,000 drones would capture in one flight. The company has already conducted over 1,000 missions and is scaling operations to respond immediately to climate-related disasters, aiming to provide insurance companies with timely information for risk analysis and claims processing.”
Overall, these trends indicate that the insurance market is poised for growth and capable of withstanding challenges, making it an attractive sector for investors.
With this background in mind, let’s take a look at the 8 undervalued insurance stocks to invest in.
An insurance agent at their desk consulting a customer about property & casualty insurance.
Methodology
To compile our list of the 8 undervalued insurance stocks to invest in, we used the Finviz and Yahoo stock screeners to find the largest insurance companies. We also reviewed our own rankings and consulted various online resources.
From an initial pool of over 30 insurance stocks, we focused on those trading at under 15 times their forward earnings as of October 25. We further narrowed down our selection by looking for insurance stocks expected to show positive earnings growth this year.
Next, we focused on the top 8 stocks most favored by institutional investors and ranked the best insurance stocks based on hedge fund holdings. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s database of 912 elite hedge funds. The 8 undervalued insurance stocks to invest in are ranked below in ascending order based on the number of hedge funds holding stakes in them as of Q2 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Undervalued Insurance Stocks To Invest In
8. Arch Capital Group Ltd. (NASDAQ:ACGL)
Forward P/E: 11.39
Earnings Growth: 7.00%
Number of Hedge Fund Holders: 37
Arch Capital Group Ltd. (NASDAQ:ACGL) is a Bermuda-exempted company that provides insurance, reinsurance, and mortgage insurance services on a worldwide basis.
Strategically, the company has been active in expanding its operations through acquisitions. In the second quarter of 2024, the company completed the acquisition of RMIC Companies and its subsidiaries to enhance its mortgage insurance business. Additionally, on August 1, Arch Capital Group Ltd. (NASDAQ:ACGL) reported that Arch Insurance North America acquired the U.S. MidCorp and Entertainment insurance businesses from Allianz, expected to strengthen its middle-market offerings significantly.
In the second quarter of 2024, Arch Capital Group Ltd. (NASDAQ:ACGL) reported strong financial results, showcasing the effectiveness of its strategies. In Q2 2024, the combined underwriting income from its Reinsurance and Insurance segments reached $475 million, supported by more than $5 billion in gross premiums. Notably, the Reinsurance segment alone generated $366 million in underwriting income, demonstrating resilience despite facing increased catastrophic events. This performance reflects the company’s robust risk management practices and solid market positioning.
The Insurance segment also contributed $109 million in underwriting income with a 7% rise in net written premiums compared to the second quarter of 2023. Furthermore, the Mortgage segment experienced impressive growth, generating $287 million in underwriting income and increasing new insurance written by 12% year-over-year in the US. This diversified performance across segments underscores Arch Capital Group Ltd.’s (NASDAQ:ACGL) ability to leverage various market opportunities.
With a compound annual growth rate (CAGR) of 19% in revenue and 33% in net income over the past five years, Arch Capital Group Ltd. (NASDAQ:ACGL) stands out as one of the best insurance stocks to buy.
Arch Capital Group Ltd.’s (NASDAQ:ACGL) robust financial performance, strategic acquisitions, and strong market presence make it a compelling choice for investors looking for solid growth potential in the insurance sector.
According to the Q2 data from Insider Monkey, which covers over 900 hedge funds, 37 hedge funds owned stakes in ACGL in the second quarter of 2024. Baron Funds stated the following regarding Arch Capital Group Ltd. (NASDAQ:ACGL) in its Q2 2024 investor letter:
“Specialty insurer Arch Capital Group Ltd. (NASDAQ:ACGL) contributed to performance after reporting positive financial results that exceeded Street expectations. Operating ROE was 21% in the first quarter, and book value per share rose 40% due to strong underwriting profitability and the establishment of a deferred tax asset at the end of 2023. Favorable conditions persist in the P&C insurance market with strong growth and attractive returns despite signs of increasing competition. We continue to own the stock due to Arch’s capable management team and our expectation of significant growth in earnings and book value.”
7. The Travelers Companies Inc. (NYSE:TRV)
Forward P/E: 11.72
Earnings Growth: 44.20%
Number of Hedge Fund Holders: 38
The Travelers Companies Inc. (NYSE:TRV) is a leading American insurance provider that ranks among the best insurance stocks to buy. As one of the largest writers of commercial property casualty and personal insurance in the US, the company offers a comprehensive range of coverage options for auto, home, and business insurance. Outside of the US, The Travelers Companies Inc. (NYSE:TRV) company also has a strong market presence in Canada, the UK, and Ireland.
The company recently showcased its commitment to customer service, particularly in managing claims after hurricanes Helene and Milton. In its Q3 2024 earnings call, the management highlighted that The Travelers Companies Inc. (NYSE:TRV) activated its national catastrophe center in Hartford, deploying hundreds of claims professionals to assist affected customers.
Financially, The Travelers Companies Inc. (NYSE:TRV) reported impressive results for the third quarter of 2024. The company achieved a net income of $1.26 billion, or $5.42 per diluted share, a significant increase from $404 million in the same quarter last year. Core income also rose to $1.218 billion, driven by higher underwriting gains and net investment income despite facing some catastrophe losses. Notably, net written premiums reached a record $11.3 billion, reflecting an 8% increase from the previous year.
The company’s Business Insurance segment also performed well as it grew by 9% year-over-year, generating $5.5 billion in net written premiums in Q3 2024. The Bond & Specialty Insurance segment experienced a 7% increase to $1.1 billion in premiums. Personal Insurance saw similar growth, with net written premiums rising by 7% to $4.7 billion, driven by strong renewals in homeowners insurance.
Over the past 5 years, The Travelers Companies Inc. (NYSE:TRV) has grown its revenue at a compound annual growth rate (CAGR) of 7%, while its net income has increased at a CAGR of 13% during the same period.
TRV can be considered cheap at current levels. It is trading at 11.72 times its forward earnings. The Travelers Companies Inc. (NYSE:TRV) is anticipated to experience 44.20% earnings growth this year.
According to Insider Monkey’s database of over 900 hedge funds, 38 hedge funds held stakes in The Travelers Companies Inc. (NYSE:TRV) in Q2 2024. This brings TRV to the 7th spot on our list of the undervalued insurance stocks to invest in.
6. Reinsurance Group of America Incorporated (NYSE:RGA)
Forward P/E: 8.85
Earnings Growth: 11.00%
Number of Hedge Fund Holders: 40
Reinsurance Group of America, Incorporated (NYSE:RGA) is a holding company that ranks among the best insurance stocks to buy. It specializes in life and health reinsurance, operating in over 100 countries. The company helps clients manage risk and optimize capital through various reinsurance products, including term life, disability, and long-term care. As of December 31, 2023, RGA had $3.7 trillion in life reinsurance in force.
In its Q2 2024 earnings call, RGA’s management noted impressive growth in its Longevity and Pension Risk Transfer (PRT) business. Reinsurance Group of America, Incorporated (NYSE:RGA) completed major transactions in both the US and the UK, including a noteworthy longevity deal in Japan and its largest PRT transaction in the US.
The company is also focused on innovation, recently launching a digital underwriting solution designed to streamline the insurance purchasing process for Mainland Chinese visitors in Hong Kong. This initiative demonstrates RGA’s commitment to developing comprehensive products that support client growth.
For Q2 2024, Reinsurance Group of America, Incorporated (NYSE:RGA) reported pre-tax adjusted operating income of $491 million and adjusted earnings per share of $5.48. The company achieved a 17.5% increase in consolidated net premiums, totaling $3.9 billion in Q2 2024. This growth included $282 million from a single premium PRT transaction in the US.
On August 27, 2024, RGA announced a partnership with American National Insurance Company to reinsure approximately $3.5 billion of life business through a coinsurance arrangement. This deal strengthens the reputation of Reinsurance Group of America, Incorporated (NYSE:RGA) as a reliable partner in the reinsurance market.
RGA stock is undervalued with a forward P/E ratio of 8.85. Analysts expect Reinsurance Group of America, Incorporated (NYSE:RGA) to grow its earnings by 11% in the current year.
Analysts are also bullish on RGA. Analysts currently hold a consensus buy rating on the stock and the 1-year median price target of $246.50 set by analysts indicates a potential upside of 17% from current levels.
According to Insider Monkey’s Q2 2024 database of over 900 hedge funds, 40 hedge funds held stakes in Reinsurance Group of America, Incorporated (NYSE:RGA).
5. Prudential Financial Inc. (NYSE:PRU)
Forward P/E: 8.40
Earnings Growth: 14.80%
Number of Hedge Fund Holders: 40
Prudential Financial Inc. (NYSE:PRU) is an American insurance company that has operations in the United States, Asia, Europe and Latin America. The company offers a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, and investment management.
One of Prudential’s (NYSE:PRU) key growth areas is its focus on retirement products, driven by the aging population. In the Q2 2024 earnings call, the company’s management noted that a record number of Americans will turn 65 this year, creating a significant demand for retirement solutions. This demographic shift is expected to result in a $137 trillion retirement market opportunity in the US by 2050.
The company’s Retirement Strategies segment is delivering attractive products and solutions. As a result, Prudential Financial Inc. (NYSE:PRU) is well-positioned to capitalize on this trend. The company reported nearly $22 billion in sales in Retirement Strategies in the first half of 2024, a remarkable 67% increase from the previous year.
The company also saw strong performance in its annuity sales, particularly with its FlexGuard Indexed Variable Annuity product suite, which has helped generate over $21 billion in sales since its launch in 2020. In Japan, Prudential Financial Inc. (NYSE:PRU) has expanded its product offerings, resulting in a 20% increase in retirement and savings product sales year-over-year.
For Q2 2024, Prudential Financial Inc. (NYSE:PRU) reported net income of $1.198 billion, or $3.28 per share, compared to $511 million or $1.38 per share in the same quarter last year. The Retirement Strategies segment achieved an adjusted operating income of $1.036 billion, up from $876 million in Q2 2023.
Prudential Financial Inc. (NYSE:PRU) is also focused on using technology to improve customer experience and expand its market reach, making it a forward-thinking player in the insurance industry. On October 21, 2024, Prudential (NYSE:PRU) announced a strategic partnership with 123Seguro to enhance its digital insurance offerings in Latin America. This collaboration aims to distribute accident & health, life and ancillary products to customers in Brazil and Mexico through a user-friendly digital platform.
PRU is one of the best insurance stocks to buy. With its strong financial results, innovative strategies for retirement solutions, and expanding global presence, Prudential Financial Inc. (NYSE:PRU) presents a compelling investment opportunity for those looking to invest in the insurance sector.
As of the second quarter of 2024, PRU was held by 40 hedge funds, according to Insider Monkey’s database. Prudential Financial Inc. (NYSE:PRU) ranks among the top 5 on our list of undervalued insurance stocks to invest in.
4. Equitable Holdings Inc. (NYSE:EQH)
Forward P/E: 6.34
Earnings Growth: 31.80%
Number of Hedge Fund Holders: 44
Equitable Holdings Inc. (NYSE:EQH) is an American financial services and insurance company that ranks among the best insurance stocks to buy. The company operates through two main divisions: Equitable Financial Life Insurance Company, which provides annuity and life insurance products, and AllianceBernstein, which focuses on asset management.
In the second quarter of 2024, the company demonstrated strong earnings growth fueled by organic expansion in its Retirement, Asset Management, and Wealth Management businesses. The US retirement market is currently favorable and that allows Equitable Holdings Inc. (NYSE:EQH) to capitalize on demographic trends and macroeconomic conditions.
A significant recent development was the partnership with BlackRock announced in April 2024. This collaboration introduced the LifePath Paycheck retirement income solution to defined contribution plans, enabling employees to access guaranteed income through annuity contracts issued by Equitable Holdings Inc. (NYSE:EQH). This initiative addresses the growing retirement savings crisis and underscores Equitable’s commitment to providing effective financial solutions.
For Q2 2024, Equitable Holdings Inc. (NYSE:EQH) reported impressive financial results with non-GAAP operating earnings per share of $1.43, a 23% increase from the same quarter last year. The company achieved record Retirement net inflows of $2.3 billion, supported by $500 from the LifePath Paycheck initiative. Additionally, AllianceBernstein contributed $1.3 billion in active net inflows.
Equitable Holdings Inc. (NYSE:EQH) also expects to generate between $1.4 billion and $1.5 billion in cash for 2024, reflecting an increase of 8% to 15% compared to 2023. The company aims to expand this cash generation to $2 billion annually by 2027.
Over the past 5 years, Equitable Holdings Inc. (NYSE:EQH) has recorded a compound annual growth rate of 8% for its revenue and 16% for its levered free cash flow.
With its solid financial performance, innovative offerings like LifePath Paycheck, and effective cash management strategies, Equitable Holdings Inc. (NYSE:EQH) presents a compelling investment opportunity for those looking to invest in the insurance sector.
According to Insider Monkey’s database, Equitable Holdings Inc. (NYSE:EQH) has gained significant interest from institutional investors. The number of hedge funds holding stakes in EQH increased from 32 in Q1 2024 to 44 in Q2 2024.
3. Chubb Limited (NYSE:CB)
Forward P/E: 11.85
Earnings Growth: 8.10%
Number of Hedge Fund Holders: 46
Chubb Limited (NYSE:CB) is a leading global insurance company that ranks among the top 3 on our list of the 8 undervalued insurance stocks to invest in. With operations in 54 countries, the company provides a wide range of insurance products, including commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance, and life insurance to individuals, families, and businesses of all sizes.
During the second quarter of 2024, the company closed two acquisitions of Healthy Paws, a US-based pet insurance company, and Catalyst Aviation Insurance, a Melbourne-based managing general agent specializing in general aviation insurance. This highlights Chubb Limited’s (NYSE:CB) strategic focus on expanding its market presence and diversifying its product offerings.
In Q2 2024, Chubb Limited (NYSE:CB) reported impressive financial results, with net income reaching $2.23 billion, a 24.3% increase from the previous year. Core operating income also rose to $2.20 billion, up 7.5%. For the first half of 2024, net income was $4.37 billion, reflecting an 18.7% increase, while core operating income hit a record $4.41 billion, up 13.5%. This growth is reflective of the company’s effective business strategies and strong market demand.
Total net premiums increased by 11.8% in Q2 2024 year-over-year, driven by a 24.5% rise in life insurance premiums and an 11.2% increase in global property and casualty (P&C) insurance. In North America, high-net-worth personal insurance grew by 12.3%, while commercial lines saw a 6.7% increase. Internationally, premiums were up over 15.5%, with notable growth in Asia-Pacific.
Chubb Limited’s (NYSE:CB) solid underwriting and investment results continue to generate significant capital and positive cash flow. The company reported an adjusted operating cash flow of $3.6 billion for the quarter and a record $7.2 billion for the first half of the year. Additionally, Chubb Limited (NYSE:CB) returned $939 million to shareholders through share repurchases and dividends in Q2 2024.
Over the past 5 years, Chubb Limited (NYSE:CB) has increased its revenue at a rate of 10% each year. At the same time, its net income has grown even faster, with a 20% annual growth rate.
With its robust financial performance, diverse product offerings, and strategic acquisitions, Chubb Limited (NYSE:CB) presents a compelling investment opportunity for those looking to invest in the insurance sector.
Chubb Limited (NYSE:CB) is one of the best insurance stocks to buy. As of the second quarter of 2024, the stock is held by 46 hedge funds.
2. The Allstate Corporation (NYSE:ALL)
Forward P/E: 10.85
Earnings Growth: 1,396.80%
Number of Hedge Fund Holders: 61
The Allstate Corporation (NYSE:ALL) is an American insurance company that ranks among the best insurance stocks to buy. It offers a wide range of products, including auto, home, renters, business, and life insurance. The Allstate Corporation (NYSE:ALL) is known for its comprehensive protection plans as it provides a wide variety of coverage options for cars, homes, electronic devices, and even identity theft.
A key milestone for The Allstate Corporation (NYSE:ALL) was the acquisition of National General in January 2021 for $4 billion. This strategic move significantly expanded the company’s independent agent channel and added various businesses to its portfolio, including personal auto insurance and group health services. Since the acquisition, The Allstate Corporation (NYSE:ALL) has seen significant growth in customers through independent agents and added nearly 1.7 million policies, achieving a compound annual growth rate (CAGR) of 8% in policies over the past four years. This contributed to over $5.1 billion in premiums written in the first half of 2024.
In Q2 2024, The Allstate Corporation (NYSE:ALL) reported revenues of $15.7 billion, a 12% increase year-over-year, driven by higher insurance premiums and increased investment income. The net income applicable to common shareholders reached $301 million, or an adjusted net income of $1.61 per diluted share.
The Allstate Corporation (NYSE:ALL) reported a 13.1% increase in written premiums compared to Q2 2023. This growth was driven by a 10% rise for the Allstate brand and a remarkable 29.1% increase for National General.
As the company continues to adapt and expand its operations, it presents a strong investment opportunity for those seeking stability and growth in the insurance sector.
Analysts are also bullish on The Allstate Corporation (NYSE:ALL). The 12-month median price target of $215.00 for the stock set by analysts indicates a potential upside of 14% from the current stock price.
ALL ranks second on our list of undervalued insurance stocks to invest in. As of the second quarter of 2024, the stock is held by 61 hedge funds. Ariel Investments stated the following regarding The Allstate Corporation (NYSE:ALL) in its “Ariel Global Fund” second-quarter 2024 investor letter:
“We added property and casualty insurer, The Allstate Corporation (NYSE:ALL). A challenging macro-environment, inflation and lower reserve development led to significant underwriting losses across key markets, presenting us with an attractive entry point. Looking ahead, we expect the strong pricing environment, coupled with lower inflationary pressure and future premium growth to yield upside for shares. Additionally, management is committed to improving its adjusted expense ratio and recently made upgrades to its claims handling processes to minimize loss development and lower claim severities.”
1. American International Group Inc. (NYSE:AIG)
Forward P/E: 10.57
Earnings Growth: 16.60%
Number of Hedge Fund Holders: 61
American International Group Inc. (NYSE:AIG) is a global insurance company that ranks among the best insurance stocks to buy. Operating in about 190 countries and jurisdictions, AIG provides various insurance products, including liability, property, financial lines, and personal accident coverage. The company offers its products and solutions to both businesses and individuals.
The company has made significant strides in recent years to enhance its business and maximize shareholder value. In October 2020, American International Group Inc. (NYSE:AIG) announced its intention to separate its life and retirement business, which became Corebridge. Since then, Corebridge has entered into strategic partnerships with major firms like Blackstone and BlackRock. These partnerships have allowed the company to manage substantial assets and attract significant investments.
In 2023, American International Group Inc. (NYSE:AIG) executed 3 marketed deals and reduced its ownership in Corebridge to 52% by year-end. These strategic divestitures generated over $1.2 billion for Corebridge investors. In May 2024, the company announced its plan to sell approximately 20% stake in Corebridge to Nippon Life Insurance company.
Additionally, American International Group Inc. (NYSE:AIG) has streamlined its operations by selling its global individual personal travel insurance business during the second quarter of 2024. This simplifies the company’s portfolio allowing it to focus on core areas.
American International Group Inc. (NYSE:AIG) is actively transforming its high-net-worth business to better meet future demands. In July, AIG announced a strategic partnership with Ryan Specialty to become the exclusive wholesale broker for AIG’s Private Client Select Insurance Services (PCS). This collaboration aims to enhance service delivery in the high and ultra-high-net-worth markets by leveraging Ryan Specialty’s extensive broker network. AIG has invested over $100 million in infrastructure and digital capabilities for this segment, demonstrating its commitment to growth and innovation.
The company is focused on simplifying its operations and improving efficiency. American International Group Inc. (NYSE:AIG) has reduced its expense base by approximately $1.5 billion since 2018 while investing in technology and data management. As part of its ongoing efforts, American International Group Inc. (NYSE:AIG) launched the AIG Next program in early 2024 to streamline operations further. These strategic initiatives not only position AIG for long-term success but also enhance its competitive edge in the insurance market, making it an attractive investment opportunity.
AIG is undervalued at current levels. It is trading at 10.57 times its forward earnings. Analysts expect American International Group Inc. (NYSE:AIG) to experience 16.60% earnings growth this year.
According to Insider Monkey’s database, American International Group Inc. (NYSE:AIG) has gained interest from institutional investors, with the number of hedge fund holders increasing to 61 in Q2 2024, up from 54 in the previous quarter.
Overall, AIG ranks first among the 8 undervalued insurance stocks to invest in. While we acknowledge the potential of insurance companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AIG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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