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 3.6% gain has fallen behind the S&P 500’s 13.9% rise.
While some insurers have strong balance sheets and diversified product offerings that enable them to thrive in any environment, the odds aren’t great for the ones we’re analyzing today. With that said, here are three insurance stocks we’re swiping left on.
Unum Group (UNM)
Market Cap: $12.8 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 Are We Cautious About UNM?
- Large revenue base constrains its growth potential, as seen in its unexciting 2.7% annualized increases in net premiums earned over the last five years fell below our expectations for the insurance sector
- Earnings per share lagged its peers over the last two years as they only grew by 6.2% annually
- Annual book value per share growth of 3.8% over the last five years lagged behind its insurance peers as its large balance sheet made it difficult to generate incremental capital growth
Unum Group’s stock price of $76.11 implies a valuation ratio of 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than UNM.
Old Republic International (ORI)
Market Cap: $10.82 billion
Founded during the Roaring Twenties in 1923 and weathering nearly a century of economic cycles, Old Republic International (NYSE: ORI) is a diversified insurance holding company that provides property, liability, title, and mortgage guaranty insurance through its various subsidiaries.
Why Does ORI Worry Us?
- 3.3% annualized net premiums earned growth over the last five years lagged behind its insurance peers
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 9.9% annually
- Book value per share is projected to decrease by 1% over the next 12 months as capital generation weakens
Old Republic International is trading at $44.47 per share, or 1.6x forward P/B. Check out our free in-depth research report to learn more about why ORI doesn’t pass our bar.
American Financial Group (AFG)
Market Cap: $11.35 billion
With roots dating back to 1872 and a business model that empowers local decision-making, American Financial Group (NYSE: AFG) is an insurance holding company that specializes in commercial property and casualty insurance products for businesses through its Great American Insurance Group.
Why Are We Hesitant About AFG?
- Growth in insurance policies was lackluster over the last five years as its 4.8% annual growth underperformed the typical financial institution
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 4.5% annually while its revenue grew
- Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 4.8% annually over the last five years
At $136.06 per share, American Financial Group trades at 2.3x forward P/B. Dive into our free research report to see why there are better opportunities than AFG.
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