With so much uncertainty in the world today, it pays to have a little insurance. And it just so happens that insurance stocks look plenty attractive today.
The thing is, many insurers don’t make much money from selling insurance. Claims and the expenses of running the business often exceed the revenue from premiums in a typical year. To make up the difference, insurers invest capital in large and diversified portfolios of sovereign and corporate bonds, common and preferred stocks, mortgage loans and securities, real estate debt and equity, and other investments to generate returns.
The property and casualty insurance industry is several years into a hard market, and reinsurance has just entered one. Last year was tough for stocks and bonds, while the industry’s insured losses exceeded $100 billion globally for only the fifth time in history, according to Deutsche Bank analyst Cave Montazeri. This year is on track to top that figure—we’ve had hurricane damage in Florida, a devastating Turkish earthquake, and Maui wildfires, among other catastrophes.
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