ACGL or ALL: Which P&C Insurance Stock Should You Buy Now?

Industry Performance - The Zacks Property and Casualty Insurance industry has risen 13% year to date, outperforming the Zacks S&P 500 composite's rise of 10.8% and the Finance sector's increase of 3.7% [1] - Improved performance in personal auto insurance, better investment results, and lower claims are expected to fuel insurers' performance this year according to Fitch Ratings [1] Catastrophe Impact - Total economic losses from catastrophes exceeded $45 billion in Q1 2024, with insured losses at $17 million, primarily due to severe weather events in the U.S., Europe, and Japan [2] - Catastrophe losses are estimated to contribute 680 basis points to the expected combined ratio of 100.7 in 2024 [2] - Global commercial insurance prices have risen for 26 consecutive quarters, increasing by 1% in Q1 2024, although the rate of increase has slowed [2] Interest Rate Environment - The insurance industry benefits from a rising rate environment, with the Fed making four rate hikes in 2023, totaling 11 since March 2022 [3] - Long-tail insurers are expected to benefit more from this environment, although concerns about potential rate cuts exist [3] Company Overview - Allstate Corporation has a market capitalization of $43.3 billion, making it the third-largest property-casualty insurer and the largest publicly-held personal lines carrier in the U.S. [4] - Arch Capital Group Ltd. has a market capitalization of $38.3 billion and offers insurance, reinsurance, and mortgage insurance globally [4] Price Performance - Arch Capital Group Ltd. (ACGL) has gained 37.2% year to date, while Allstate Corporation (ALL) has risen by 17.2% [5] Return on Equity - ACGL has a return on equity (ROE) of 21.8%, surpassing ALL's ROE of 14.4% and the industry average of 7.8% [6] Return on Invested Capital - ACGL's return on invested capital (ROIC) stands at 16.6%, significantly higher than the industry average of 5.9% and ALL's ROIC of 4.5% [7] Dividend Yield - Allstate's dividend yield is 2.5%, exceeding the industry average of 0.3%, while Arch Capital does not pay dividends [8] Debt-to-Equity Ratio - ALL's debt-to-equity ratio is 43, higher than the industry average of 21.7 and ACGL's ratio of 16.3 [8] Growth Projection - The Zacks Consensus Estimate for ACGL's 2024 earnings indicates a 1.2% increase, while ALL's estimate suggests a significant year-over-year increase of 1,494.7% [9] - For 2025, ACGL's earnings are expected to grow by 5.2%, while ALL's growth projection is 14.4% [9] - The expected long-term earnings growth rate for ACGL is 5.1%, compared to ALL's 7% [9] Net Margin - ACGL's proforma net margin for the trailing 12 months is 33.7%, significantly higher than ALL's margin of 2.3% [10] Conclusion - Comparative analysis indicates that ACGL outperforms ALL in price performance, return on capital, leverage, and net margin, while ALL leads in dividend yield and growth projections [11]