The insurance sector isn’t generally considered very exciting, but it can nonetheless be a solid place for investors to buy financial risk amid a losing year in equities and concerns about the future. upcoming economic downturn. The group has firmly outperformed the broader market this year. The S&P 500 is down more than 16% year-to-date, while the iShares Insurance exchange-traded fund is up 8.5% through Thursday. In this area, several names have posted double-digit inventory levels this year, including Progressive and MetLife. Additionally, many of the companies in the group are also rated by analysts as buys and have a solid edge over their consensus price targets. “These stocks are the backbone of the economy and they have proven to be quality havens, especially in 2022,” said Ryan Shuchman, investment advisor at Cornerstone Financial Services in Southfield, Michigan. , where we see all this volatility.” Why insurance stocks perform better There are a number of factors that have led to the industry’s outperformance this year and are expected to drive the industry up in 2023. Mark Dwelle says insurers Property and casualty insurance has benefited from favorable valuations in recent years, said an analyst at RBC Capital Markets. Catastrophic events — most recently Hurricane Ian — can lead to significant claims, but without those, margins have improved, he said. According to Kevin Heal, fixed-income strategist and senior analyst at Argus Research, higher interest rates have helped offset some of the disaster losses, as portfolios benefit from high returns. more and insurance companies can weather rate hikes. In addition, there is safety in the essential nature of insurance. “People buy insurance because they have to, not because they want to, it’s not a discretionary expenditure,” Dwelle said, adding that this would help the sector in the event of a downturn in the US economy. weakness or decline. “There’s a lot of cool stuff here because it’s an area that people don’t usually spend a lot of time thinking about,” says Dwelle. Within the group, he focuses on property and casualty insurance as well as life insurance. Other analysts also see value in so-called multiline companies, which combine different types of insurance, and reinsurance, which insures insurers. The top pick of stock insurance analysts that Dwelle likes is AIG, which has property, casualty, and life insurance. “They can capture the benefits from both sides,” he said, adding that he likes the current valuation. In addition, the company is in a multi-year turnaround and has significantly reduced its exposure to disasters. “We see it as something worthy of a new look,” he said. AIG “was put in the box about a decade ago but it’s time to get them out.” Dwelle also likes Chubb, the most profitable company in the industry, and MetLife, he said. MetLife is also on Heal’s top picks list, as is Prudential – he has a buy rating on the stock although the general view of Wall Street is to hold the stocks rather than chase them. While these companies may see earnings suffer due to their key asset management sector, they are poised to perform well over the long term, he said. They are also well-positioned to take on any industry disruptors and stay ahead. “We feel that two [Met and Pru] will lead the market going forward,” Heal said, adding that life insurance, which has been hit during the pandemic, will grow and perform well if there are no other adverse health events. CFRA’s Cathy Seifert is also positive on assets and casualties, she said: “She has a buy rating on multiline companies AIG and Hartford Financial Services Group. She also has buy ratings on MetLife and Chubb.” They still have some compelling catalysts including the fact that the pricing environment remains tough,” she said, adding that expectations are January renewal season will see a sharp price increase. Seifert prefers trade names because their books are a bit more diverse, she said. The choice is Everest Re, a reinsurer also likely to benefit from strong valuations in 2023. Who should invest in insurance stocks Since this group has performed better in 2022, the Pricing doesn’t offer much of an advantage taking into account the rest of the market. However, there is reason to rely on the relative safety insurance companies provide. Even with solid earnings results this year, many companies are still trending healthy upward as reflected in analysts’ consensus target price, signaling further growth in a market volatile field. In addition, many insurance companies pay a reasonable dividend to supplement portfolio income beyond the potential for price appreciation. “They can actually get a return from investors, or they can use dividends as retirement income,” says Shuchman. MetLife has a dividend yield of 2.7%, while Prudential’s is 4.5%. There are some good companies in the insurance business, said Shuchman, so investors should diversify a bit rather than trying to pick one or two winners. He also recommends the insurance group for investors who want to orient themselves more cautiously and avoid buying beaten-down growth stocks, such as tech names. As a result, insurers can be particularly attractive to retirees or others looking to minimize risk while maximizing income. The easiest way to buy exposure with the entire pool is through an exchange-traded fund. The SPDR S&P Insurance ETF (KIE) is the largest ETF, closely followed by the iShares US Insurance ETF (IAK).