We recently published a list of 10 Best Insurance Stocks for the Long Term. In this article, we are going to take a look at where Arch Capital Group Ltd. (NASDAQ:ACGL) stands against other best insurance stocks for the long term.
The Insurance Outlook in 2025
According to a report by Deloitte, the property and casualty insurance sector in the United States generated $9.3 billion in underwriting gain during the first quarter of 2024, a significant boost from an $8.5 billion loss in the first quarter of 2023. Similarly, the industry also saw a massive improvement to its combined ratio at 94.2%, driven by rate hikes in the personal lines sector, outweighing the cost of claims
Speaking of the commercial lines segment, insurers in the United States are expected to address growing loss trends across employment practices liability insurance and follow the industry more cautiously. In addition to that, social inflation remains a concern in the United States. At the same time, for the first time in six years, the globe saw insured losses from natural catastrophes worth $100 billion, with no single event exceeding $10 billion in damages. This pushes the need for the reinsurance industry to assess the situation and underwriting mechanisms as more and more geographic regions are considered high-risk zones.
As for 2025, the report is particularly optimistic that the non-life sector will perform really well. The reasons behind this are simple. The surge in claims severity due to higher inflation and supply chain problems is decreasing. This coupled with the increase in premiums due to rate increases and higher investment yields is expected to help the sector grow immensely. Estimates suggest that insurer’s return on equity could increase to 10.7% in 2025 from nearly 10% in 2024.
In addition to that, the non-life sector is also expected to benefit from a thorough cost reduction in claims due to declining inflation rates. At the same time, the report reiterates that emerging risks and transforming customer experience present a solid growth opportunity for non-life insurance carriers in 2025. Estimates suggest that insurers may garner nearly $4.7 billion in global annual premiums from AI-related insurance by 2032, growing at a compound annual growth rate (CAGR) of 80%.
Speaking of the life insurance segment, premiums from the sector are expected to grow at 1.5% through 2025 in well-developed markets with rapid sales coming from emerging markets such as China, India, and Latin America. These emerging markets are expected to boost premiums by 5.7% in 2025. Life insurers are also expected to benefit from better investment yields, boosting profitability throughout the year.
Now that we have touched upon the insurance sector and its performance expectations for the year 2025, let’s take a look at some of the names that have been performing exceptionally well over the years and boast a solid growth opportunity for the long term.
Our Methodology
We used Finviz to find companies in the insurance industry. We focused on companies with a market cap of at least $10 billion and revenue growth of more than 7% in the past 10 years. We then examined the hedge fund sentiment surrounding these 25 stocks and picked the 10 most popular ones. Our list is in ascending order of the number of hedge funds as of Q3 2024.
Why are we interested in the stocks that hedge funds pile into? 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).
A close-up image of an insurance policy with hands standing firmly on top, conveying security.
Arch Capital Group Ltd. (NASDAQ:ACGL)
Number of Hedge Fund Holders: 33
10-Year Revenue Growth Rate: 15.78%
Arch Capital Group Ltd. (NASDAQ:ACGL) ranks 8th on our list of the best insurance stocks to buy for the long term. The company is a leading provider of insurance, reinsurance, and mortgage insurance solutions. In the 12 months ending September 30, 2024, the company wrote $21 billion in gross premiums, of which its reinsurance line made up 53% and its insurance line made up 40% of the premiums written. Gross premiums for its re-insurance line grew the most rapidly, especially in the property and specialty insurance lines, contributing to the overall success of the firm.
The company logged a 256% growth in its net income from 2019 to the 12 months ending September 30, 2024, going from $1.6 billion to $5.7 billion in approximately five years. In addition to that, the company has grown its book value at a compound annual growth rate (CAGR) of 15.8% between 2001 and September 2024, an impressive feat for the overall growth trajectory of the firm. Similarly, Arch Capital Group Ltd. (NASDAQ:ACGL) has grown its revenue by nearly 16% over the past 10 years, explaining why 33 hedge funds were bullish on the stock at the close of Q3 2024.
Arch Capital Group Ltd. (NASDAQ:ACGL) boasts a solid growth opportunity given its sound financial performance and growing reinsurance business, especially across the property, casualty, and specialty insurance lines, segments expected to perform well in 2025.
Overall, ACGL ranks 8th on our list of best insurance stocks for the long term. While we acknowledge the potential of ACGL to grow, our conviction lies in the belief that certain 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 ACGL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
