Insurance sector reversal may favor Allstate and Progressive

Investing.com -- Insurance stocks have underperformed the broader market since April 2025 tariff announcements, according to Bank of America analysts, who now see signs of potential reversal in the sector.

The insurance sector has traded below historical valuation ranges as investors focused on concerns about future margin normalization rather than strong earnings results. Bank of America noted the sector has been caught between peak underwriting margins and a market favoring secular growth.

Insurance stocks typically carry low beta, modest trading velocity and limited short interest, characteristics that active managers currently avoid. These traits provide downside protection during market stress but become disadvantages in momentum-driven markets where investors seek higher-growth opportunities.

Bank of America cautioned against assuming that one stock's performance represents an entire subsector. The firm pointed to the recent rally in Brown & Brown (NYSE: BRO), the worst performer among U.S. large-cap insurance stocks, which contrasted with more muted performance from Aon (NYSE: AON), Marsh McLennan (NYSE: MMC) and Willis Towers Watson (NASDAQ: WTW). The analysts suggested BRO's strength may indicate the stock has reached a valuation floor rather than signaling broad sector recovery.

The firm highlighted Allstate (NYSE: ALL) and Progressive (NYSE: PGR) as companies that continue to beat earnings expectations while facing investor skepticism about margin sustainability. Progressive has been among the sector's most significant underperformers outside insurance brokers, causing its valuation multiples to compress.

Both companies have consistently exceeded earnings estimates by wide margins and increased market share. Bank of America stated the combination of recurring earnings upside, prior underperformance and low valuations creates conditions where improving sentiment could be supported by fundamentals. The firm expects personal lines to outperform multi-line property and casualty insurers and insurance brokers.

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