Could insurance be the most underrated sector in the ASX 200?

Tech, big banks and mining are often crowd-favourite ASX 200 shares. However, insurers have been quietly outperforming the market.

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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. 

business man adjusting suit and tie on his young son representing a family business

Image source: Getty Images

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. 

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Steadfast Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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