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Stabilize Your Portfolio With Insurance Stocks

Chris Dios - February 19, 2020

insurance stocks

Insurance companies offer various types of property-related and health insurance products. Many of these companies are available on the stock market, so you can invest in them directly. However, the insurance business can be complicated, so identifying the best companies is not an easy task. This sweeping overview of insurance stocks will help you get started on the right foot. 

We’ve laid out all the most important facts and figures so you can get a feel for the sector, and understand what you’re dealing with. Our insurance stocks report includes a complete analysis of the best health and car insurance stocks available on the public market.  You’ll also find a breakdown of all the most important factors you should consider before investing in insurance stocks.

Investing in Insurance Companies

If you are a long-term investor, then insurance companies are right up your alley. Insurance stocks are usually low-volatility investments that can provide steady returns over long periods of time. Many insurance companies also pay decent dividends, adding another incentive to buy and hold these stocks for the long haul.

health insurance stocks market share

The insurance sector is also a favorite amongst value investors, including the world’s most notable value investor, Warren Buffet. Buffet is a major player in the insurance sector. He owns controlling stakes in several notable insurance firms, including GEICO, and his company, Berkshire Hathaway, is very active in the insurance industry as well. 

Buying insurance stocks might not be as exciting as investing in the tech sector, but these slow-and-steady gainers can play an important role in a well-balanced portfolio.  Insurance stocks probably won’t sky-rocket like high-growth tech stocks, but they tend to be more predictable and stable.

Best Health Insurance Stocks

SymbolNameMarket Cap ($ Billions)Insurance Type
RLIRLI Corp.4.31Life and Non-Life
UNHUnited Health286.31Health
GLGlobal Life11.98Life and Health
THGHanover Insurance Group 5.29Life
CINFCincinnati Financial18.76Life and Non-Life
METMetLife48.08Life and Non-Life
UNMUnum Group6.09Health

United Health Group (UNH)

United Health is the world’s largest health insurance company by market cap, and health insurance sales comprise over 80% of its total revenues. UNH is an excellent value pick. It has a low P/E ratio, steady earnings, and a rock-solid business model. However, it could be very sensitive to political headlines around the 2020 election because it’s such a prominent insurance stock. Healthcare is expected to be a major issue on the campaign trail this season, and United could be very volatile, depending on who gets the Democratic nod. 

Globe Life. (GL)

Globe Life provides healthcare for middle-income households across the US. The company divides its operations into four separate divisions: life insurance, supplemental health insurance, annuities, and investments.  Share prices have performed well over the last few months. However, it missed its earnings estimates for the final quarter of 2019. It pays only a small dividend yielding 0.63%, but its chart shows a strong uptrend which could continue well into 2020.

property insurers by market share

Car Insurance Stocks

The vehicle insurance industry operates much differently than the health/life sector. Costs associated with vehicles, homes, and properties can be a little more predictable. Also, healthcare reform is a major issue on the campaign trail this year, so the ups and downs of the presidential election could create significant headline-related volatility for health insurers. Property insurers are less susceptible to headline risk so, all and all, these car insurance stocks could be more stable than the major health insurance stocks.

Berkshire Hathaway’s GEICO 

The second-largest automobile insurance writer, GEICO, isn’t traded publicly, but it’s a subsidiary of Berkshire Hathaway. With industry maven Warren Buffet at the helm, Berkshire is an incredibly stable investment. Class A shares (BRK.A) are among the world’s most expensive stocks but, with the increasing availability of fractional-share trading, even low budget investors can buy a piece of the Berkshire empire. However, if you’re looking for dividends, look elsewhere. Berkshire only paid one dividend and it was back in 1967.

SymbolNameMarket Cap ($ Billions)Insurance Type
AIZAssurant8.64Mortgage, Renter's, Property
BRK.BBerkshire Hathaway555.69Automobile, Property, Renter's
PGRProgressive49.02Automobile, Property, Renter's
NMIHNatl. Mortgage Insurance Holdings.2.00Mortgage, Renter's, Property
ESNTEssent Group5.12Mortgage, Renter's, Property
ALLAllstate18.76Automobile, Life, Property

Progressive Corp.

 Best known for its quirky advertisements, Progressive is one of the largest vehicle insurers in the US. It’s a large-cap company that’s currently valued at over $48.7 billion. In addition to personal and commercial car insurance, Progressive also offers residential insurance and other specialized property-casualty insurance. 

In terms of P/E, Progressive appears to be an excellent value. It’s current P/E ratio is only slightly above the industry average at the moment, and that’s a bargain valuation considering the firm’s position in the national car insurance market. Progressive pays a small, 10-cent dividend on a quarterly basis. However, it recently paid a special dividend of $2.65, bringing its total TTM dividend yield to 3.16%. This stock looks like a strong value pick that could 

Other Insurance Stocks

Assurant Inc. (AIZ)

Assurant offers a wide array of property-related insurance products, including mortgage, renter’s, and property. They even insure mobile devices and other electronics. This stock has been an excellent performer as of late and grew steadily last year. However, it’s  P/E ratio has become relatively high at 24.40. That’s significantly higher than the industry average of 13.52. Assurant pays a 1.78% dividend which is below the market median. The company closed 2019 with a miss on earnings, but share prices recovered quickly. At current price levels, Assurant’s valuation is becoming stretched. However, it’s been rallying since the start of February 2020 and the momentum could help it follow through on its uptrend from last year. 

US premium growth

Understanding the Insurance Market

Like banks, insurance involves a lot of risk in its business. They transfer the risk of many individuals to a single company in exchange for a premium. This pool of risk then gets redistributed across a larger portfolio. The best part about this business is the huge floats, i.e., the combination of the advance premium paid against the risk and the future payout claims. This float is used to generate investment income. 

Insurance is a unique business. Basically, insurance companies gamble that they can make more in premiums than they will payout in coverage. It’s a finesses business, but you should consider the following factors when evaluating an insurance stock investment.

  • Is the company utilizing emerging and disruptive technology?
  • Does the company have a strong brand image?
  • Does it offer innovative products?
  • How well does the firm manage regulatory pressure?
  • Is the operation efficient in terms of margins? 

Also, there are some metrics that you should be aware of before you start evaluation insurance stocks. These ratios are commonly used in the industry to measure a company’s financial health and business performance.

Persistency Ratio

The persistency ratio is an indicator of revenue flow and customer retention. It measures continuing policies that have carried over from the previous year. 

Embedded Value

This ratio is similar to price-to-book-value (P/B). EV measures a company’s actual asset value in comparison to its share price. Unlike P/B, EV’s value measurement also includes future profits along with adjusted net asset value, so this metric is better-suited for evaluating insurance stocks.

Combined Ratio

This ratio measures underwriting performance. First, it takes all claim-related and business losses. Then, it divides that figure by premium earnings over the same period. This metric basically tells you how successful a company’s ‘gambles’ have been. A figure over 100% indicates profitability, while ratios below that benchmark indicate poor underwriting performance and financial losses. 

Insurance Market Size

According to a 2019 study, the market size of global life insurance in 2018 was $2600 billion. It is likely to hit $3526.8 billion at 7.9% CAGR by 2022. Insurance companies hold a lot of their assets in treasury bonds, so low-interest rates could have a negative impact on earnings this year. However, the overall outlook remains strong for the industry at large.

Insurance Stocks: Closing Thoughts

Insurance stocks are great value holdings and they can be an excellent defensive holding for many investors. Although they lack strong growth attributes, they compensate for it by offering stability and a higher level of certainty. Insurance stocks also make great hedges against possible economic hiccups, so they could get a boost if the market starts to take a turn this year. If you’re not holding any insurance companies, you should consider allocating a portion of your assets to this industry. 

To keep up with all the latest stock market news, sign up for the Stock Dork Cheat Sheet today. It’s your quick and easy guide to everything going on in the market. Join today and get our 2020 Growth Stock Guide FREE.

Chris Dios is an American writer and entrepreneur based in the Greater NYC area.

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