Explore the key factors driving growth in the property and casualty (P&C) insurance industry and compare the performance of Palomar Holdings and Axis Capital. Discover how Palomar Holdings is better positioned in terms of price performance, return on equity, leverage, growth projection, combined ratio, and revenue estimates.
The Growth Factors Driving the P&C Insurance Industry
The property and casualty (P&C) insurance industry has experienced significant growth due to various factors such as higher retention rates, streamlined operations, global presence, improved pricing, solid underwriting, a favorable rate environment, and strong capital positions.
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One of the key drivers of growth in the P&C insurance industry is the rise in global commercial insurance prices for 25 consecutive quarters, as reported by the Marsh Global Insurance Market Index. This trend, along with operational strength, higher retention rates, and strong renewals, is expected to drive higher premiums. According to Deloitte Insights, gross premiums are estimated to increase six-fold to $722 billion by 2030. Swiss Re Institute predicts a 5.5% growth in premiums by 2024.
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However, the industry has also faced challenges in the form of catastrophe losses. In 2023, total economic losses amounted to $380 billion, with insured losses reaching $118 million, according to Aon. Additionally, AM Best reported a total net underwriting loss of $38 billion in 2023, the highest in a decade, primarily due to weather-related losses, high inflation, and reinsurance pricing pressure. Catastrophe losses alone contributed 780 basis points (bps) to the combined ratio of 103.7 in the same period, as estimated by AM Best. The expected combined ratio for 2024 is 100.7, with catastrophe losses contributing 680 bps.
Despite these challenges, the P&C insurance industry remains resilient. Factors such as exposure growth, improved pricing, prudent underwriting, favorable reserve development, and strong capital positions help insurers absorb catastrophe losses. Furthermore, the frequent occurrence of natural disasters accelerates the policy renewal rate.
Comparison of Palomar Holdings and Axis Capital
Two notable companies in the P&C insurance industry are Palomar Holdings, Inc. (PLMR) and Axis Capital Holdings Limited (AXS). Palomar Holdings offers personal and commercial specialty property insurance products in the United States, while Axis Capital provides various specialty insurance and reinsurance products globally. Both companies currently hold a Zacks Rank #1 (Strong Buy).
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When comparing Palomar Holdings and Axis Capital, several key parameters indicate that Palomar Holdings is better positioned. Palomar Holdings has outperformed Axis Capital in terms of price performance, with a 50.7% growth in the past year compared to Axis Capital’s 15.5%. Palomar Holdings also has a higher return on equity (ROE) of 19.3% compared to Axis Capital’s 19.2% and the industry average of 7.3%.
In terms of valuation, Axis Capital has a lower price-to-book (P/B) ratio of 1.15 compared to Palomar Holdings’ P/B ratio of 4.39. However, Palomar Holdings has a lower debt-to-capital ratio of 10 compared to Axis Capital’s 21.3, giving it an advantage in terms of leverage.
In terms of growth projection, the Zacks Consensus Estimate for 2024 earnings indicates a 3% growth for Axis Capital and a 16.3% increase for Palomar Holdings. Palomar Holdings also boasts a better combined ratio of 76.6% compared to Axis Capital’s 99.9%.
Furthermore, revenue estimates for 2024 suggest a 24.5% year-over-year increase for Palomar Holdings and a 3.6% increase for Axis Capital.
In conclusion, Palomar Holdings appears to be better positioned than Axis Capital in several key aspects such as price performance, return on equity, leverage, growth projection, combined ratio, and revenue estimates. Although Axis Capital has a more favorable valuation, the overall scale tilts in favor of Palomar Holdings.
