Insurance firms play a critical role in the financial system, offering everything from property coverage to life insurance and specialized risk solutions. Still, investors are uneasy as insurers face challenges from catastrophic events and potential regulatory changes. These doubts have caused the industry to lag recently as insurance stocks have collectively shed 3% over the past six months. This drawdown is a stark contrast from the S&P 500’s 7.5% gain.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Keeping that in mind, here is one resilient insurance stock at the top of our wish list and two best left ignored.
Two Insurance Stocks to Sell:
Unum Group (UNM)
Market Cap: $14.06 billion
Tracing its roots back to 1848 when financial security for workers was virtually non-existent, Unum Group (NYSE: UNM) provides workplace financial protection benefits including disability, life, accident, critical illness, dental and vision insurance primarily through employers.
Why Should You Dump UNM?
- Large revenue base constrains its growth potential, as seen in its unexciting 3.1% annualized increases in net premiums earned over the last five years fell below our expectations for the insurance sector
- Projected sales decline of 3.8% for the next 12 months points to an even tougher demand environment ahead
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 1.9% annually
Unum Group’s stock price of $88.02 implies a valuation ratio of 1.2x forward P/B. Dive into our free research report to see why there are better opportunities than UNM.
Assured Guaranty (AGO)
Market Cap: $3.33 billion
Serving as a financial safety net for over $11 trillion in debt service payments since its founding in 2003, Assured Guaranty (NYSE: AGO) provides credit protection products that guarantee scheduled payments on municipal bonds, infrastructure projects, and structured finance obligations.
Why Are We Out on AGO?
- 5.2% annual declines in net premiums earned for the past five years indicates policy sales struggled this cycle
- Projected sales decline of 24% over the next 12 months indicates demand will continue deteriorating
- Sales were less profitable over the last two years as its earnings per share fell by 15.4% annually, worse than its revenue declines
At $75.32 per share, Assured Guaranty trades at 0.6x forward P/B. Check out our free in-depth research report to learn more about why AGO doesn’t pass our bar.
One Insurance Stock to Buy:
HCI Group (HCI)
Market Cap: $2.01 billion
Starting as a Florida "take-out" insurer that assumed policies from the state-backed Citizens Property Insurance Corporation, HCI Group (NYSE: HCI) provides property and casualty insurance, primarily homeowners coverage, while leveraging proprietary technology to improve underwriting and claims processing.
Why Are We Backing HCI?
- Market penetration was impressive this cycle as its net premiums earned expanded by 21.1% annually over the last two years
- Additional sales over the last two years increased its profitability as the 54.9% annual growth in its earnings per share outpaced its revenue
- Annual book value per share growth of 48.1% over the last two years was superb and indicates its capital strength increased during this cycle
HCI Group is trading at $157.64 per share, or 1.6x forward P/B. Is now the right time to buy? See for yourself in our full research report, it’s free.
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