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a day ago
- Business
- Yahoo
Berkshire Hathaway vs. Allstate: Which Insurer is a Safer Play?
Improved pricing, rising climate-related risks and rapid digitalization are poised to shape the insurance industry's trajectory in 2025. While insurers continue to face exposure to catastrophe losses linked to climate change, stronger pricing is helping to sustain profitability. MarketScout's Market Barometer reports a 3% composite rate increase in the commercial insurance segment, with personal lines seeing a more pronounced rise of 4.9% in the first quarter of 2025, up from 4% in the fourth quarter of 2024. Although the Federal Reserve has maintained interest rates between 4.25% and 4.5% since December, speculation is rising around a potential rate cut in July or September. Yet, Berkshire Hathaway Inc. (BRK.B) and The Allstate Corporation ALL — two insurance behemoths — are expected to stay strong. Meanwhile, the industry's growing embrace of digital innovation is expected to fuel a surge in merger and acquisition (M&A) activity, especially in technology-driven deals, according to Willis Towers Watson's Quarterly Deal Performance Monitor. Yet, as an investment option, which stock is more attractive for long-term insurance-focused investors? Let's closely look at the fundamentals of these stocks. Berkshire Hathaway is a diversified conglomerate with ownership in more than 90 subsidiaries across a broad range of industries, including insurance and consumer products, helping to minimize concentration risk. Of these, insurance is the most prominent, contributing approximately one-fourth of the company's total revenues. This segment is well-positioned for continued growth, driven by increased market exposure, disciplined underwriting practices and favorable pricing growth of its insurance business not only expands its float but also strengthens earnings, improves return on equity and provides the financial flexibility to pursue strategic acquisitions. With a strong cash position, Berkshire frequently acquires companies or raises its stakes in those that deliver consistent earnings and high returns on equity. While large acquisitions introduce new growth opportunities, smaller bolt-on deals enhance operational efficiency and by Warren Buffett, Berkshire has consistently followed a disciplined investment philosophy, targeting undervalued assets with strong long-term potential. Key investments in firms like Coca-Cola, American Express, Apple, Bank of America, Chevron and Occidental Petroleum exemplify this the company remains solid, with its net margin improving by 190 basis points year over year. With over $100 billion in cash reserves, minimal debt, and a strong credit profile, Berkshire Hathaway's balance sheet continues to reflect exceptional resilience and financial return on equity of 7.2% lags the industry average of 8% but this company has improved the same over time. BRK.B shares have gained 8.2% year to date, outperforming the industry's increase of 8.1%. Allstate is the third-largest property-casualty insurer and the largest publicly traded personal lines carrier in the United States. The company is focused on transforming into a low-cost, digitally enabled insurer with broad distribution capabilities. Its auto insurance segment has returned to target margins, while the homeowners segment continues to deliver solid returns. Allstate is refining its strategy by emphasizing core strengths and exiting less profitable business expects growth in total Property-Liability policies in force, driven by improving auto policy renewal rates and an increase in new business. However, its strong dependence on the U.S. market presents geographic concentration margin has expanded by 980 basis points over the past two years, supported by prudent underwriting practices. Nonetheless, ongoing efforts to reduce losses may lead to fewer policies in force. The increase in vehicle traffic could result in higher claim frequency, making it more difficult for Allstate to maintain its mid-90s combined ratio target in auto. Additionally, inflation, supply chain constraints, and advanced automotive technologies are driving up repair and replacement costs, adding further pressure on these challenges, Allstate's disciplined capital deployment strategy continues to support growth and shareholder returns. However, its relatively high debt level remains a concern, with leverage and interest coverage metrics falling short of industry return on equity of 24.6% is better than the industry average. ALL shares have gained 3.9% year to date, but underperformed the industry. The Zacks Consensus Estimate for BRK.B's 2025 revenues implies a year-over-year increase of 8.6% while that for EPS implies a year-over-year decrease of 6.7%. EPS estimates have moved 0.2% north over the past 30 days. Image Source: Zacks Investment Research The Zacks Consensus Estimate for ALL's 2025 revenues implies a year-over-year increase of 7.6% while that for EPS implies a year-over-year decrease of 0.7%. EPS estimates have moved 1.7% north over the past 30 days. Image Source: Zacks Investment Research Berkshire is trading at a price-to-book multiple of 1.61, above its median of 1.39X over the last five years. ALL's price-to-book multiple sits at 2.65, above its median of 1.97X over the last five years. Image Source: Zacks Investment Research Holding shares of Berkshire Hathaway adds dynamism to shareholders' portfolios. It gives the feel of investing in mutual funds while being rewarded with higher returns. Above all, the company has Warren Buffett at its helm, who has been creating tremendous value for shareholders over nearly six decades with his unique skills. However, all eyes are now on how the behemoth fares when Greg Abel succeeds Warren Buffett as CEO of Berkshire, starting Jan. 1, 2026. Warren Buffett will continue to be the company's executive chairman. BRK.B has a VGM Score of represents a compelling investment opportunity, underpinned by improved profitability through disciplined underwriting, ongoing digital transformation, and a renewed emphasis on its core personal lines business. While short-term challenges such as inflation and elevated claims costs persist, the rebound in auto margins, increasing policy count, and a robust capital return strategy position the company well for sustained long-term growth. ALL has a VGM Score of the basis of return on equity, which reflects a company's efficiency in generating profit from shareholders' equity as well as gives a clear picture of the company's financial health, ALL scores higher than BRK.B. Though both these stocks carry a Zacks Rank #3 (Hold), ALL has an edge over BRK.B. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Berkshire Hathaway Inc. (BRK.B) : Free Stock Analysis Report The Allstate Corporation (ALL) : Free Stock Analysis Report This article originally published on Zacks Investment Research ( Zacks Investment Research
Globe and Mail
14-05-2025
- Business
- Globe and Mail
BRK.B vs. AIG: Which Global Insurance Giant Can Offer Better Returns?
Better pricing, climate change, which exposes insurers to catastrophe losses, and accelerated digitalization are likely to have an impact on the insurance industry. Though the Fed has held the borrowing rate between 4.25% and 4.5% since December, a July or September cut is now more likely, per media reports. Yet Berkshire Hathaway Inc. ( BRK.B ) and American International Group, Inc. AIG — two insurance behemoths — are expected to stay strong. Pricing plays an important part in their profitability. Per a recent analysis by MarketScout's Market Barometer, the commercial insurance sector saw a composite rate increase of 3%. Per the report, the personal lines composite rate increased 4.9% in the first quarter of 2025, up from 4% in the fourth quarter of 2024. Given the increased adoption of technology, merger and acquisition (M&A) activity is projected to witness momentum in 2025, driven by a higher number of technology-driven deals, per a report by Willis Towers Watson's Quarterly Deal Performance Monitor. Yet, as an investment option, which stock, BRK.B or AIG, is more attractive for long-term insurance-focused investors? Let's closely look at the fundamentals of these stocks. Factors to Consider for BRK.B Berkshire Hathaway is a diversified conglomerate with over 90 subsidiaries spanning a wide range of industries, including insurance and consumer products, which helps mitigate concentration risk. Among its various operations, insurance is the most significant, contributing roughly one-fourth of the company's total revenues. This segment is well-positioned for sustained growth, driven by increased market exposure, disciplined underwriting and favorable pricing trends. The continued expansion of its insurance business boosts float, enhances earnings, maximizes return on equity, and provides the financial flexibility for strategic acquisitions. With substantial cash reserves, Berkshire Hathaway regularly acquires companies or increases its holdings in firms with consistent earnings and strong returns on equity. While large-scale acquisitions create new business opportunities, smaller bolt-on deals strengthen existing operations and improve profitability. Warren Buffett has consistently targeted undervalued assets with strong growth potential. His investments in companies like Coca-Cola, American Express, Apple, Bank of America, Chevron, and Occidental Petroleum reflect Berkshire's disciplined and strategic investment approach. Net margin, measuring a company's profitability, expanded 190 basis points in a year. It has strengthened its balance sheet with more than $100 billion in cash reserves, low debt, and a high credit rating. Berkshire's return on equity of 7.2% lags the industry average of 8% but this company has improved the same over time. BRK.B shares have gained 13% year to date. . Factors to Consider for AIG American International Group, better known as AIG, is a leading global insurance organization, providing a wide range of property casualty insurance, life insurance, retirement solutions, and other financial services to customers in more than 80 countries and jurisdictions. The company has been focusing on implementing stricter underwriting discipline, divesting non-core businesses, reducing debt, launching strategic transformation initiatives and modernizing operations and technology infrastructure, as well as investing heavily in data and digital strategies. These have led AIG to generate $2 billion annually in underwriting profit, on average, over the past three years. AIG is also benefiting from reinvesting assets at higher yields, including increasing asset allocation to private credit at attractive spreads. The company stated that the deconsolidation of Corebridge accelerated the AIG Next initiative, resulting in $450 million in exit run-rate savings for 2024. The company also expects to lower its expense ratio to between 1% and 1.5% of net premiums earned by the end of 2025. Net margin is yet to recover. Net margin was -7% in the first quarter of 2025 versus 24% in the first quarter of 2024. A solid capital deployment strategy supports growth and helps return wealth to shareholders. Last month, its board increased the share repurchase authorization to $7.5 billion and approved a 12.5% increase in quarterly dividend. Its return on equity of 7.1% lags the industry average. AIG has gained 14.9% year to date. Estimates for BRK.B and AIG The Zacks Consensus Estimate for BRK.B's 2025 revenues implies a year-over-year increase of 1% while that for EPS implies a year-over-year decrease of 6.9%. EPS estimates have moved 1.7% north over the past 30 days. The Zacks Consensus Estimate for AIG's 2025 revenues implies a year-over-year decrease of 16.3% while that for EPS implies a year-over-year increase of 26.1%. EPS estimates have moved 1.3% north over the past 30 days. Are BRK.B and AIG Shares Expensive? Berkshire is trading at a price-to-book multiple of 1.68, above its median of 1.39 over the last five years. AIG's price-to-book multiple sits at 1.6, above its median of 0.89 over the last five years. Conclusion Holding shares of Berkshire Hathaway adds dynamism to shareholders' portfolios. It gives the feel of investing in mutual funds while rewarding investors with higher returns. Above all, the company has Warren Buffett at its helm, who has been creating tremendous value for shareholders over nearly six decades with his unique skills. However, it remains to be seen how the behemoth fares when Greg Abel succeeds Warren Buffett as CEO of Berkshire, effective Jan. 1, 2026. Buffett will, however, remain the company's executive chairman. Meanwhile, strategic business de-risking, acquisitions, cost-control efforts, investment in digitalization and accelerated capital deployment drive AIG. Though AIG Next initiative is designed to save costs, the net margin is still in the red. However, it has a solid capital deployment strategy that enhances shareholders' value. On the basis of return on equity, which reflects a company's efficiency in generating profit from shareholders' equity as well as gives a clear picture of the company's financial health, BRK.B scores higher than AIG. Though Berkshire Hathaway and AIG carry a Zacks Rank #3 (Hold) each, BRK.B has an edge over AIG. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. Zacks' Research Chief Names "Stock Most Likely to Double" Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest. This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months. Free: See Our Top Stock And 4 Runners Up Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. American International Group, Inc. (AIG): Free Stock Analysis Report Berkshire Hathaway Inc. (BRK.B): Free Stock Analysis Report
