We recently compiled a list of the 8 Undervalued Insurance Stocks To Invest In. In this article, we are going to take a look at where Prudential Financial Inc. (NYSE:PRU) stands against the other undervalued insurance stocks.
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.
Our 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 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).
A professional insurance agent at work in a modern office, representing the company’s independent agents.
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.
Overall, PRU ranks 5th on our list of the undervalued insurance stocks to invest in. While we acknowledge the potential of PRU as an investment, 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 PRU 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.