Skip to Content
Quarter-End Insights

Financial Services: A Favorable Outlook for Insurance

Diversified insurance and property-casualty are particularly attractive in a sector that looks slightly undervalued overall.

Mentioned: , , ,
  • Markets have created more value in financial services, with the average price/fair value ratio estimate falling to 0.95 across our coverage. We see particular value in diversified insurance (P/FV of 0.91) and property and casualty insurance (P/FV of 0.95).
  • We believe investors often make the mistake of focusing on pricing to formulate their outlook for the P&C insurance industry, as historical results suggest that overall profitability levels are the key driver of insurance stock returns. Pricing increases have restored profitability in the P&C insurance market despite lower investment income. Although we are not necessarily optimistic that pricing will continue to increase, we think P&C insurers can modestly improve profitability going forward.
  • A gradually rising interest-rate environment would be a net positive for P&C insurers, in our view, given the relatively tight spread between rates and inflation. Overall, we think the current environment is conducive to investing in high-quality names.

While recent price increases have improved profitability in P&C insurance, we don't see a strong reason to assume that pricing will continue to improve. In our view, recent pricing increases have largely been driven by lower interest rates. As lower rates pushed down investment income, higher pricing and underwriting income have been necessary to maintain ROEs. Yields on new issues are still generally lower than yields on maturing securities, and investment income remains pressured. We believe interest rates will continue to have a positive impact on pricing in the very near term, but the effect should fade over time, barring a further decline in rates.

Erin Davis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.