In its FOMC meeting, the Federal Reserve announced cutting the interest rate by 50 basis points. This is the first time in four years that the central bank has taken such an action. The interest rate is now 4.75%-5%, down from a more than two-decade high of 5.25%-5.5%. All the major indices — the S&P 500, Dow Jones Industrial Average and Nasdaq — declined yesterday. 

Despite the lowered rate, Cincinnati Financial Corporation CINF, W. R. Berkley Corporation WRB and AXIS Capital Holdings Limited AXS are poised to perform well banking on prudent pricing, increased exposure, streamlined operations, global presence and a solid capital position. 

Insurers are direct beneficiaries of a rising rate environment. They invest a portion of their premiums. Long-tail insurers tend to gain more from rising rates as they have more time to invest their premiums and earn a higher rate of return. With a lower rate of return, investment income will suffer.

As far as commercial insurers are concerned, lower interest rates can make it difficult for them to maintain adequate reserves for long-tail liabilities. This can lead to increased volatility in claims reserve.

The insurance industry contributes significantly to the GDP.  Per the Federal Reserve issued FOMC statement, “Recent indicators suggest that economic activity has continued to expand at a solid pace.” U.S. GDP grew 3% in the second quarter after growth slowed to 1.4% in the first quarter. Thus, an improving GDP indicates better performance of the insurance industry. 

As inflation approaches the target of 2%, stable employment and improved retail sales data will likely lead to more rate cuts. Per a report published in CNBC, “In addition to this reduction, the committee indicated through its dot plot” the equivalent of 50 more basis points of cuts by the end of the year, close to market pricing. The matrix of individual officials’ expectations pointed to another full percentage point in cuts by the end of 2025 and a half point in 2026. In all, the dot plot shows the benchmark rate coming down about 2 percentage points beyond Wednesday’s move.”

3 Insurance Stocks to Buy Now

With the help of the Zacks Stock Screener, we have selected three P&C insurers that have an impressive Value Score of A or B. Each of these stocks either carries a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy). Back-tested results have shown that stocks with a solid Value Score and a favorable Zacks Rank are the most attractive, and their returns are better. The stocks also have been witnessing rising earnings estimates and have a beta of less than 1, indicating less volatility than the market and a strong dividend yield.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Cincinnati Financial: Headquarters in Fairfield, OH, Cincinnati Financial markets property and casualty insurance. Prudent pricing, an agent-centric model, a higher level of insured exposures and disciplined expansion of Cincinnati Re will drive this insurer. This Zacks Rank #2 insurer has increased its annual cash dividend rate for 64 consecutive years, a record that is believed to be matched by only seven other U.S. publicly traded companies. 

The Zacks Consensus Estimate for CINF’s 2024 and 2025 earnings suggests 9.1.% and 7.1% year-over-year growth, respectively. The consensus estimate for 2024 and 2025 has moved up 5.6% and 0.9%, respectively, in the past 60 days. 

The stock currently has a P/B ratio of 1.67. It has a Value Score of B and a beta of 0.66.