Insurance providers use their expertise in risk assessment to help protect assets while offering consumers peace of mind through comprehensive coverage options. These institutions have benefited from improved pricing power and robust premium growth, so it’s no surprise the industry has posted a 3.9% gain over the past six months, nearly mirroring the S&P 500.
Although insurers have produced good results, only a handful will thrive over the long term as insurtech disruptors are rapidly taking market share from the incumbents. On that note, here is one insurance stock boasting a durable advantage and two we’re steering clear of.
Two Insurance Stocks to Sell:
Selective Insurance Group (SIGI)
Market Cap: $4.84 billion
Founded in 1926 during the early days of automobile insurance, Selective Insurance Group (NASDAQ: SIGI) is a property and casualty insurance company that sells commercial, personal, and excess and surplus lines insurance products through independent agents.
Why Is SIGI Not Exciting?
- Earnings per share lagged its peers over the last two years as they only grew by 12.1% annually
- 6% annual book value per share growth over the last five years was slower than its insurance peers
- Low return on equity reflects management’s struggle to allocate funds effectively
Selective Insurance Group is trading at $80.63 per share, or 1.3x forward P/B. Check out our free in-depth research report to learn more about why SIGI doesn’t pass our bar.
Markel Group (MKL)
Market Cap: $24.88 billion
Often referred to as a "mini Berkshire Hathaway" for its three-engine business model of insurance, investments, and wholly-owned businesses, Markel Group (NYSE: MKL) is a specialty insurance company that underwrites complex risks, manages investment portfolios, and owns a diverse collection of operating businesses.
Why Are We Cautious About MKL?
- Large revenue base constrains its growth potential, as seen in its unexciting 2.5% annualized increases in net premiums earned over the last two years fell below our expectations for the insurance sector
- Forecasted revenue decline of 1.5% for the upcoming 12 months implies demand will fall off a cliff
- Estimated book value per share growth of 8.8% for the next 12 months implies profitability will slow from its two-year trend
Markel Group’s stock price of $1,975 implies a valuation ratio of 1.2x forward P/B. If you’re considering MKL for your portfolio, see our FREE research report to learn more.
One Insurance Stock to Watch:
NMI Holdings (NMIH)
Market Cap: $2.95 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 Are We Positive On NMIH?
- Pre-tax profit margin expanded by 20.4 percentage points over the last five years as it scaled and became more efficient
- Impressive 16.1% annual book value per share growth over the last five years indicates it’s building equity value this cycle
- Industry-leading 17.4% return on equity demonstrates management’s skill in finding high-return investments
At $38.67 per share, NMI Holdings trades at 1x forward P/B. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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