Progressive, Chubb and W.R. Berkley rise to the top of a property/casualty insurance sector that offers favorable opportunities for investors, Morningstar said in a new report.

“We think the current environment creates a favorable backdrop for investing in the insurance industry,” Morningstar’s April 2015 Financial Services Observer concludes. “Profitability levels for property and casualty insurance companies are solid, and we believe they will improve in the coming years.”

Why are Progressive, Chubb and W.R. Berkley at the top of P/C insurers worthy of investing in? The Morningstar report said that each have narrow moats (a term that refers to sustainable competitive advantages) and also “exemplary stewardship ratings.”

Morningstar argues that investors should see the P/C environment as a sector that presents viable long-term investment options.

“We think investors often focus too much on pricing when analyzing where we are in the P&C insurance cycle,” the Morningstar report noted.

Morningstar said that telematics can also be an important factor when considering insurance industry investment opportunities.

Telematics are relevant, the Morningstar report said, because they “will strengthen or erode the [sustainable competitive advantages] of individual auto insurers, depending on their response, by upsetting traditional scale-based advantages.”

Morningstar said that the long-term outlook for P/C insurers is favorable.

“Pricing increases have restored profitability in the P&C insurance market despite low investment income,” the Morningstar report noted. “While we are not necessarily optimistic that pricing will continue to increase, we think P&C insurers can modestly improve profitability moving forward.”

Morningstar noted that the insurance industry’s return on investment has improved steadily in recent years as pricing increases outstripped trends in claim losses.

The report also asserted that conditions where interest rates rise gradually would be “a net positive” for P/C insurers, “given the relatively tight spread between inflation and yields.”

Source: Morningstar