An ASX sector that’s quietly withstanding the selloff

Insurance – it may not be the most exciting industry but stocks like QBE Insurance (ASX: QBE) and Suncorp (ASX: SUN) have managed to rally in the face of a sharp pullback for the broader market.

Broadly speaking, insurance is a sector that’s leveraged to the rising interest rate environment, as insurers can earn higher returns on their fixed income portfolios. Additionally, higher premiums can be passed on, that often outpace the rate of inflation.

Insurance stocks at a glance

The insurance sector has performed relatively well compared to the broader market, especially on a one month basis where the ASX 200 is down around -3.1%.

Interestingly, most insurance names are trading relatively close to their 52-week highs. The average across the eight names below is 5.2% away.

How did reporting season go?

Most insurance-related companies posted relatively positive earnings. There were some results that were softer-than-expected but the stock still rallied on the industry's positive outlook.

QBE Insurance: First-half FY23 results beat analyst expectations and the stock rallied 7.4% on the day of the result. Goldman Sachs noted that the company’s portfolio is being positioned for resilience, how fixed income yields were benefiting from higher rates and premiums pricing remains above inflation. Among 13 different brokers, all of them were BUY-rated with an average price target of $17.26.

Suncorp: First-half net profit of $560m missed analyst expectations of $600m due to “lumpy insurance items”, according to UBS. Still, the broker said overall core trends look reasonable and a stepping stone for further margin expansion into the second half and beyond. UBS retained a BUY rating and $15.00 target price.

Insurance Australia: First-half results were mostly in-line with expectations and the stock rallied 4.5%. Although its operational performance appears to be an outlier among insurers. UBS notes how direct margins have collapsed and repricing appears to be lagging recent claim trends earlier this month, reiterating a SELL rating with a $4.20 target price.

Medibank: The cyber incident triggered a 20% selloff for Medibank shares last October. The stock managed to recoup roughly half the selloff, up 12% from lows of $2.73. Medibank’s half-year results slightly missed expectations, with underlying net profit of $226.7m compared to analyst forecasts of $230m. Still, the stock rallied 6.5% on earnings. Macquarie viewed the result as mixed, with stabilising policyholder growth and lower-than-expected FY23 cyber costs but remains NEUTRAL rated with a $3.35 target price, reflecting the ramifications of the cyber incident.