Insurance companies serve as the backbone of risk management, providing essential protection and financial security for individuals and businesses. Still, investors are uneasy as insurers face challenges from catastrophic events and potential regulatory changes. These doubts have certainly contributed to insurance stocks’ recent underperformance - over the past six months, the industry’s 10.6% gain has fallen behind the S&P 500’s 12.9% rise.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. With that said, here is one insurance stock poised to generate sustainable market-beating returns and two we’re steering clear of.
Two Insurance Stocks to Sell:
Lemonade (LMND)
Market Cap: $3.88 billion
Built on the principle of giving back unused premiums to charitable causes selected by policyholders, Lemonade (NYSE: LMND) is a technology-driven insurance company that offers homeowners, renters, pet, car, and life insurance through an AI-powered digital platform.
Why Does LMND Worry Us?
- Performance over the past five years shows its incremental sales were less profitable, as its 8% annual earnings per share growth trailed its revenue gains
- Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 18.4% annually over the last five years
- Negative return on equity shows that some of its growth strategies have backfired
Lemonade is trading at $50.28 per share, or 8x forward P/B. Dive into our free research report to see why there are better opportunities than LMND.
Cincinnati Financial (CINF)
Market Cap: $26.3 billion
Founded in 1950 by independent insurance agents seeking stable market options for their clients, Cincinnati Financial (NASDAQ: CINF) provides property casualty insurance, life insurance, and related financial services through independent agencies across 46 states.
Why Is CINF Not Exciting?
- Expenses have increased as a percentage of revenue over the last five years as its pre-tax profit margin fell by 16.2 percentage points
- Earnings per share lagged its peers over the last two years as they only grew by 18.4% annually
- Estimated book value per share growth of 4.7% for the next 12 months implies profitability will slow from its two-year trend
Cincinnati Financial’s stock price of $171.38 implies a valuation ratio of 1.5x forward P/B. Read our free research report to see why you should think twice about including CINF in your portfolio.
One Insurance Stock to Watch:
NMI Holdings (NMIH)
Market Cap: $3.43 billion
Founded in the aftermath of the 2008 housing crisis to bring new capacity to the mortgage insurance market, NMI Holdings (NASDAQ: NMIH) provides mortgage insurance that protects lenders against losses when homebuyers default on their mortgage loans.
Why Could NMIH Be a Winner?
- Pre-tax profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Annual book value per share growth of 16.1% over the past five years was outstanding, reflecting strong capital accumulation this cycle
- Market-beating return on equity illustrates that management has a knack for investing in profitable ventures
At $45.61 per share, NMI Holdings trades at 1.2x forward P/B. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
