In a recent analysis, we showcased a list of top-performing insurance stocks. This article delves into Lincoln National Corporation (NYSE:LNC), assessing its standing within that group and evaluating its overall performance.
The U.S. Insurance Market: A Landscape of Growth and Challenges
The United States boasts the largest insurance market globally, with a combined value of approximately $1.7 trillion as of 2024. This dominance is reflected in the presence of some of the world’s largest insurance companies, which significantly influence global markets. The life and health insurance sectors remain vital. The global health insurance market was valued at roughly $2.14 trillion in 2024, and is projected to reach $4.45 trillion by 2032, growing at a compound annual growth rate (CAGR) of 9.7%. North America led the health insurance market, holding a 62.15% market share in 2024.
Property and casualty (P&C) insurance also reported positive results. According to Deloitte, this sector generated $9.3 billion in underwriting gains during the first quarter of 2024, a considerable increase from an $8.5 billion loss in the first quarter of 2023. The industry’s combined ratio improved to 94.2%, due to rising rates in the personal lines sector.
Losses from Natural Disasters
Commercial lines insurers are expressing caution, as they foresee escalating loss trends, particularly in employment practices liability insurance. Social inflation is another concern. Global insured losses exceeded $140 billion in 2024, marking the fifth year in a row that insured damages surpassed $100 billion. Total economic losses were estimated at $350 billion, underscoring the growing impact of climate-related risks.
The property insurance industry in the U.S. is adapting its business models to address losses arising from California wildfires. A UCLA Anderson Forecast report suggests that these wildfires in L.A. County may have resulted in total losses between $95 billion and $164 billion, with insured losses estimated at $75 billion. “Insurance companies have been very clear-eyed about climate change for a long time and the effect that has on their balance sheets,” according to Benjamin Keys, a Wharton professor. He added, “And that will lead to higher premiums in risky areas. That’s what my research has borne out over these last few years. Insurers have sharply increased the ways in which they price disaster risk.” Keys expects insurance premiums in climate-vulnerable areas to grow, likely being capitalized into house prices, and concludes, “…the position that homeowners will be in is one of substantially higher premiums.”
Methodology
We utilized Finviz to identify insurance companies with market capitalizations exceeding $5 billion. We selected companies that demonstrated returns of over 15% in the last 1 year, as of January 26. The ranking of top-performing insurance stocks to buy was based on the number of hedge fund holders, as of Q4 2024.
Why the focus on hedge fund activity? Our research indicates that imitating the top stock picks of leading hedge funds can lead to outperforming the market. Our quarterly newsletter, which selects growth stocks each quarter has returned 373.4% since May 2014, surpassing its benchmark by 218 percentage points (see more details here).
Lincoln National Corporation (NYSE:LNC)
- 1-Year Returns: 40.76%
- No. of Hedge Fund Holders: 41
Lincoln National Corporation (LNC) is a Fortune 200 holding company operating a diverse portfolio of insurance and retirement businesses through subsidiary firms. Its operations are segmented into Annuities, Life Insurance, Group Protection, and Retirement Plan Services.
LNC had a strong 2024, achieving its highest full-year adjusted operating income in three years which reflected its solid financial performance. The company improved its RBC ratio to over 430% in 2024, which increased its financial flexibility. All major business segments delivered good results, with the Group protection business delivering record Q4 earnings. The Annuities business also saw robust earnings growth and its highest full-year sales in five years. Retirement Plan Services reported a 10th consecutive year of positive net flows, with a 25% full-year deposit growth. With strong quarterly and annual results, analysts raised their price targets for LNC shares. Well Fargo analyst Elyse Greenspan increased LNC’s price target from $28 to $36 per share, and Morgan Stanley analyst Nigel Dally raised their price target from $36 to $39 per share.
Overall, LNC ranked 9th on our list of the best-performing insurance stocks to buy. While we acknowledge LNC’s investment potential, our current investment recommendations favor the AI sector for potentially higher returns in a shorter timeframe. If you are looking for an AI stock that is more promising than LNC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
