PLMR or AXS: Which P&C Insurance Stock is Better Positioned?

Industry Overview - The Zacks Property and Casualty (P&C) Insurance industry has experienced a 32.3% increase over the past year, outperforming the S&P 500 Composite's 28.6% and the Finance sector's 24.3% growth [1] - Key drivers for growth include higher retention, streamlined operations, global presence, better pricing, solid underwriting, and a strong capital position [1] Company Profiles - Palomar Holdings, Inc. has a market capitalization of $2 billion and offers personal and commercial specialty property insurance products in the U.S. [2] - Axis Capital Holdings Limited has a market capitalization of $5.3 billion and provides various specialty insurance and reinsurance products globally [2] - Both companies currently hold a Zacks Rank 1 (Strong Buy) [2] Pricing and Premium Growth - Global commercial insurance prices have risen for 25 consecutive quarters [2] - Gross premiums are projected to increase six-fold to $722 billion by 2030, with a 5.5% growth expected in 2024 [2] Economic Losses and Underwriting - Total economic losses in 2023 were $380 billion, with insured losses at $118 million [3] - The total net underwriting loss reached $38 billion, a 10-year high, primarily due to weather-related losses and high inflation [3] - The combined ratio was 103.7, with catastrophe losses contributing 780 basis points [3] Interest Rates and Capital Position - The Federal Reserve raised interest rates four times in 2023, benefiting insurers, especially long-tail insurers [4] - A solid capital level allows insurers to pursue strategic mergers and acquisitions, expand operations, and increase dividends [4] Technological Advancements - The use of real-time data and increased automation is expected to enhance premium calculation and operational efficiency [5] Performance Metrics - Palomar Holdings has gained 50.7% in the past year, outperforming Axis Capital's 15.5% increase [6] - Return on Equity (ROE) for Palomar Holdings is 19.3%, slightly higher than Axis Capital's 19.2% and significantly above the industry average of 7.3% [7] - Palomar Holdings has a price-to-book (P/B) ratio of 4.39, while Axis Capital's is 1.15, with the industry average at 1.53 [8] - Axis Capital's debt-to-capital ratio is 21.3, higher than the industry average of 18.8 and Palomar Holdings's 10 [9] Growth Projections - The Zacks Consensus Estimate for 2024 earnings indicates a 3% growth for Axis Capital and a 16.3% increase for Palomar Holdings [10] - Revenue estimates for Palomar Holdings and Axis Capital imply year-over-year increases of 24.5% and 3.6%, respectively [12] Combined Ratio - Axis Capital's combined ratio was 99.9% in 2023, while Palomar Holdings reported a significantly better ratio of 76.6% [11] Conclusion - Comparative analysis indicates that Palomar Holdings is better positioned than Axis Capital in terms of price, return on equity, leverage, growth projection, combined ratio, and revenue estimates [13]