Tech, mining and the big four banks typically dominate the spotlight for most traded ASX 200 shares.
But amongst the S&P/ASX 200 Index (ASX: XJO), there's an overlooked sector that has been quietly outperforming the broader market.
Say hello to insurance.
Brokers think insurers can outperform the ASX 200
Back in March, brokers delivered a flurry of buy recommendations towards insurers. This was on the basis that the insurance market was moving through a "hard cycle", where premiums increase and the capacity for most types of insurance decreases.
Multiple insurers, including Insurance Australia Group Ltd (ASX: IAG) and Suncorp Group Ltd (ASX: SUN), were upgraded with the view that premiums will increase, driving higher margins and revenues.
A number of insurers continue to meet with bullish broker notes, including:
AUB Group Ltd (ASX: AUB)
AUB is the largest equity-based insurance network in Australia and New Zealand. Macquarie comments that the company's March quarter results were strong with improvements in both revenue and margins. The broker highlighted the 5.9% increase in premium rates, which were at the top of the company's estimates and well ahead of Macquarie forecasts.
An outperform rating was retained, with the target price increasing from $20.40 to $23.13. AUB shares are up more than 30% year-to-date into record territory. Its shares are currently fetching $20.63.
Steadfast Group Ltd (ASX: SDF)
Steadfast is also a major general insurance broker network and the largest group of insurance underwriting agencies in Australia. The company recently upgraded its FY21 guidance, increasing FY21 underlying NPAT to $127 million – $132 million from its previous guidance of $120 million – $127 million.
Macquarie observes that stronger operating conditions have driven the guidance upgrade. The broker retained an outperform rating while edging its target price higher from $4.60 to $4.70. Steadfast shares have had a relatively quiet year-to-date performance, up a steady 4%. Its shares are currently trading at $4.17.
QBE Insurance Group Ltd (ASX: QBE)
UBS observes that QBE's first-quarter performance shows an average premium increase of 8.9%, slightly lower than 2020 figures but within the broker's expectations.
Despite a slower increase in premiums, the broker observes that volume growth appears ahead of expectations. A buy rating was retained with an increase in target price from $10.25 to $11.50.
It's been a volatile 12 months for the QBE share price, with its shares losing 50% in value during the initial COVID-19 sell-off. From a year-to-date perspective, its shares have pushed 30% higher to $10.81 but are still another 40% from pre-COVID highs.
