Insurance is one of the most reliable sectors in times of economic uncertainty. Despite a challenging 2022, the insurance industry looks set to grow strongly in the long term. To that end, it would be wise to add the financially strong insurance stocks of Tokio Marine (TKOMY), MS&AD Insurance (MSADY) and Fairfax Financial Holdings (FRFHF) to your portfolio. Read more.
In today’s world of uncertainty, the need for insurance is urgent. Given the insurance industry’s long-term growth prospects, I think investors would be wise to add quality insurance stocks such as Tokio Marine Holdings, Inc. (TKOMs), MS&AD Insurance Group Holdings, Inc. (MSADA) and Fairfax Financial Holdings Limited (FRFHF) to your portfolio.
Before discussing why these stocks should be added to your portfolio, let’s discuss what’s going on in the insurance industry.
Conservative investors often find the insurance business attractive because the business is known to thrive regardless of the economic cycle. Various types of insurance are required by law to help protect people from unexpected losses.
The insurance industry has struggled in 2022 due to high inflation, losses from natural disasters and increased claims associated with the pandemic. High inflation meant that people were taking on more risks and renegotiating their insurance policies. According to the Swiss Re Institute, natural disasters have caused insured losses in 2022 are estimated at $115 billion..
Despite the challenges of investing in technology and data, the insurance industry looks set to grow strongly. As inflation declines and the Fed is likely to continue raising interest rates, financial firms, including insurers, are expected to benefit.
Insurers hold long-term safe bonds to repay promised profits to policyholders. As interest rates rise, the return on such investments increases. Due to the rapid warming of the planet, the number of natural disasters is increasing, which leads to an increase in the demand for property and casualty insurance.
The global property and casualty insurance market is expected to grow 6.7% CAGR between 2023 and 2033. Investor interest in the property and casualty insurance industry is evidenced by the Invesco KBW Property & Casualty Insurance ETF (KBVP) 11.4% returned in the last six months.
Against this background, it would be wise for investors to add TKOMY, MSADY and FRFHF to their portfolios.
Let’s dive into these stocks to see what makes them a good investment.
Tokyo Marine Holdings, Inc. (TKOMs)
Headquartered in Tokyo, Japan, TKOMY is engaged in life and life insurance, as well as financial and general enterprises in Japan and abroad. It operates through four segments: the domestic non-life insurance business, the domestic life insurance business, the international insurance business, and the finance and other business.
On November 24, 2022, TKOMY announced that it will increase its stake in PT Asuransi Tokio Marine Indonesia from 60% to 80% through its subsidiary Tokio Marine Asia Pte. OOO
The acquisition of an additional shareholding will help TKOMY to achieve sustainable growth and increase in profits, as well as improve a diversified business portfolio by capitalizing on growth opportunities in developing countries.
From a forward’s point of view EV/Sales, the TKOMY ratio of 0.74x is 62.3% lower than the industry average of 1.95x. Likewise, its forward price/sale of 0.86x is 60.2% lower than the industry average of 2.16x.
For the nine months ended December 31, 2022, TKOMY’s ordinary income increased 19.2% year on year to 5.21 trillion yen ($39.20 billion). Its investment income rose 24.8% year-over-year to 692.72 billion yen ($5.21 billion). The company’s regular profit was 346.29 billion yen ($2.61 billion).
Analysts expect TKOMY’s FY 2023 revenue to increase significantly to $45.22 billion. Fiscal 2024 earnings per share are expected to rise 12% year-over-year to $1.68. Shares are up 8.1% over the past six months to close the last trading session at $19.36.
TKOMs Power Ratings reflect its solid prospects. The stock has an overall rating of A, which is a strong buy in our proprietary rating system. POWR ratings evaluate stocks on 118 different factors, each of which has its own weight.
It is rated A for growth and stability and B for momentum and stability. It is ranked 2nd out of 55 stocks in the B ranking. Insurance – Property and Accident industry. Click here to see other TKOMY Value and Quality rankings.
MS&AD Insurance Group Holdings, Inc. (MSADA)
MSADY, headquartered in Tokyo, Japan, is an insurance holding company providing insurance and financial services worldwide. The company offers fire and related products, marine, casualty, voluntary car, mandatory car liability, non-insurance products, life insurance products and reinsurance services. It also provides risk related services.
In terms of forward EV/Sales, MSADY of 0.05x is 97.6% lower than the industry average of 1.95x. Its EV/EBITE of 1.25x is 88.2% lower than the industry average of 10.62x. Likewise, its forward price/sale of 0.42x is 80.3% lower than the industry average of 2.16x.
In the nine months ended December 31, 2022, MSADY’s ordinary income increased 7.5% year on year to 4.02 trillion yen ($30.25 billion). Its investment income rose 23.8% year-over-year to 607.15 billion yen ($4.57 billion). Its net income attributable to the owners of the parent company was 87.95 billion yen (661.71 million dollars).
In fiscal 2023, MSADY’s revenue is expected to increase 166.8% year-over-year to $39.41 billion. Shares are up 16.6% over the past six months to close the last trading session at $15.58.
MSADY’s strong fundamentals are reflected in the POWR ratings. The stock has an overall rating of A, which is a strong buy in our proprietary rating system.
It has an A for mood and a B for growth, momentum, and stability. In the same industry, it ranks 3rd. To see other MSADY rankings for value and quality, Click here.
Fairfax Financial Holdings LimitedFRFHF)
FRFHF, headquartered in Toronto, Canada, provides property, casualty, reinsurance and investment management services in the US, Canada, Asia and overseas. The company operates in the property and casualty, life and disposal insurance and reinsurance segments, as well as non-insurance segments.
In terms of forward EV/Sales, the FRFHF of 0.81x is 58.7% lower than the industry average of 1.95x. Its EV/EBITE of 9.64x is 9.2% lower than the industry average of 10.62x. Likewise, its forward price/sales is 0.53 times 75.3% lower than the industry average of 2.16 times.
FRFHF net premiums for the fourth quarter ended December 31, 2022 rose 15.6% year-over-year to $5.61 billion. The company’s net income rose 112.9% year on year to $2.10 billion. It also posted earnings per share of $78.33, up 132.8% from last year.
Street expects FRFHF’s earnings per share and revenue for the quarter ended March 31, 2023 to increase 622.7% and 24.5% year-on-year to $32.45 billion and $7.45 billion, respectively. It has beaten Street EPS estimates in three of the last four quarters. The stock has risen 43.5% over the past six months to close the last trading session at $663.82.
The strong outlook for FRFHF is reflected in the POWR rankings. The stock has an overall rating of A, which is a strong buy in our proprietary rating system.
He is rated B for Growth, Value, Momentum, Stability, and Mood. It ranks first in the property and casualty insurance industry. Click here to see the FRFHF rating for quality.
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TKOMY shares remained unchanged in premarket trading on Tuesday. YTD, TKOMY is down 9.66% compared to the benchmark S&P 500’s 7.87% gain over the same period.
About the author: Dipanjan Banchur
While still a schoolboy, Dipanjan was interested in the stock market. This led to him earning a master’s degree in finance and accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a keen interest in reading and analyzing new trends in the financial markets.
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