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5 Insurers in Focus as Fed Hikes Rate, Raises Economic View

Zacks

The rate hike announced in the recently concluded FOMC meeting comes as expected. With the latest raise of one-quarter percentage points at the last held FOMC meeting, the interest rate now stands at 2%. This decision was unanimously favored by all eight members of the regulatory body.

In fact, the odds for four hikes this year has increased. Media reports stated that odds for December hike followed by the one likely in September, increased to 58%, up from 50% according to traders. Federal funds rate is now projected at 2.4%, up from March projection of 2.1%.

For 2019, interest rate is estimated to be 3.1%, up from 2.9% projected at its May FOMC meeting while the same is expected to reach 3.4% at 2020 end.

Major indexes, namely S&P 500, Nasdaq and Dow Jones Industrial Average have lost in yesterday’s trading session.

Strengthening of the U.S. economy propelled the Federal Reserve’s rate raise from its near zero level. The recent increase marks the seventh hike since the financial crisis.

The Fed also provided an optimistic unemployment outlook. Per Bureau of Labor Statistics, unemployment rate in May was 3.8%, lowest in 18 years. Fed officials continue to expect the employment rate at 3.6% for 2018, 3.5% for both 2019 and 2020, down from 3.9% for 2018 and 2019, 4% for 2020 and 4.6% over the longer-term, predicted in its March 2018 FOMC meeting. However, 4.5% unemployment rate over the long run still remains so. A spurt in employment shows an average of 0.2 million jobs growth over the last three months.

Encouraging economic data instills hopes. The Fed now estimates GDP to gain at 2.8% in 2018, up from the March forecast of 2.7%. Expectations thereafter remain in line with the March projections of 2.4% in 2019, 2% in 2020 and 1.8% over the long term.

However, inflation might remain slightly above the targeted 2% through 2020, though the same will stay at 2% thereafter. Inflation is estimated at 2.1% till 2020.

Although an improving rate environment comes as a piece of good news for some, while for others, it descends as bad news. Capital intensive industries worry as cost of capital rises. Meanwhile, banks and insurers remain major beneficiaries of a rising rate environment because of their sensitivity to interest rates.

With the progressing rate environment, investment income — an important component of insurers’ top line — is also exhibiting an upward trend. This apart, tax rate overhaul, advancing economy, encouraging employment data and stringent underwriting standards infuse confidence in the stock among investors.

Insurance Stocks in Focus

Amid an improving macro backdrop, investors always look eagerly to add stocks with strong fundamentals, which are likely to generate better yields.

It’s an intimidating task to zero in on underpriced stocks with a high-growth offer. The Zacks Stock Screener makes this work relatively simpler. We have shortlisted five insurers with an expected long-term earnings growth rate of 6% or more and those, which also carry a favorable Value Scoreand Growth Score of A or B. Value Score helps investors identify the undervalued stocks. This deviation from their fair value is what creates an exceptional upside opportunity. Growth Score analyzes the growth prospects of a company and also evaluates its corporate financial statements.

Headquartered in Mayfield Village, OH, The Progressive Corporation PGR provides personal and commercial auto insurance, residential property insurance and other specialty property-casualty insurance and related services, primarily in the United States. The expected long-term earnings growth rate stands at 7.3%. The stock has a Value Score of B and a Growth Score of A, and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares have gained 13.4% versus the industry’s decline of 1% year to date.


Bloomfield, CT-based Cigna Corporation CI provides insurance and related products and services in the United States and internationally. The expected long-term earnings growth rate is pegged at 12.1%. The stock has an impressive Value Score and a Growth Score of A. It carries a Zacks Rank #2 (Buy).

Shares have lost 13.2% compared with the industry’s decline of 5.9% year to date.



Hartford, CT-based The Hartford Financial Services Group, Inc. HIG provides insurance and financial services to individual and business customers in the United States. The expected long-term earnings growth rate is pegged at 9.5%. The stock carries a Value Score of B and a Growth Score of A. It has a Zacks Rank #3 (Hold).

Shares of the company have lost 4.7% compared with the industry’s decline of 5.9% year to date.


Philadelphia, PA-based Radian Group Inc. RDN provides mortgage and real estate products and services in the United States. The expected long-term earnings growth rate stands at 6.5%. The stock carries impressive solid Value Score and a Growth Score of A. The company holds a Zacks Rank of 3.

Shares of the company have lost 19% compared with the industry’s decline of 5.9% year to date.


Milwaukee, WI-based MGIC Investment Corporation MTG provides private mortgage insurance and ancillary services to lenders and government sponsored entities in the United States. The expected long-term earnings growth rate is 7%. The stock carries a commendable Value Score of A and a Growth Score of B, and is a Zacks #3 Ranked player.

Shares of the company have lost 21.6% compared with the industry’s decline of 5.9% year to date.



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