Selective Insurance or Mercury General: Which is Better?

A benign catastrophe environment, is largely responsible for profitability of the property and casualty industry, strongly places the players at present. Other favorable factors like improving rate environment, tax overhaul and economic progression should boost insurers for growth.

After last year’s severe damages, the property and casualty insurers are benefiting from a benign cat environment.

While the first quarter had to weather the California mudslide, two severe wind and hailstorms struck Texas and some parts of Southeastern states in April. A not so active cat setting continues to support underwriting results for insurers. Price hikes are further adding to this upside.

A rising interest rate environment is aiding better investment results. The Fed chairman Jerome Powell announced intentions of three rate hikes this 2018. A raised rate is expected to positively impact the net investment income, a major component of an insurer’s top line. A broader invested asset base and alternative asset classes are other positives.

Also, the tax revision, which slashed the corporate tax rate to 21% from 35%, will act as an impetus to industry players. A lower tax burden widens scope for more capital deployment, evident from dividend hikes, special dividends as well as share buybacks pursued by many insurers.

The Property and Casualty Insurance industry is ranked at #162 (denoting the bottom half of the Zacks Industry Rank for 265 plus industries) and has underperformed the S&P 500 index’s growth of 3.2% year to date with a 2.3% decline. The industry is currently undervalued compared with elite the S&P 500 index.