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 7.7% 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. Taking that into account, here are three insurance stocks we’re steering clear of.
Prudential (PRU)
Market Cap: $40.01 billion
Recognized by its iconic Rock of Gibraltar logo symbolizing strength and stability since 1896, Prudential Financial (NYSE: PRU) provides life insurance, annuities, retirement solutions, investment management, and other financial services to individual and institutional customers globally.
Why Are We Bearish on PRU?
- Insurance policy sales contracted this cycle as net premiums earned decreased by 2.9% annually over the last two years
- Book value per share tumbled by 10.9% annually over the last five years, showing insurance sector trends are working against it during this cycle
- High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Prudential’s stock price of $115.92 implies a valuation ratio of 1.2x forward P/B. Check out our free in-depth research report to learn more about why PRU doesn’t pass our bar.
Trupanion (TRUP)
Market Cap: $1.23 billion
Born from a vision to help pet owners avoid economic euthanasia when faced with expensive veterinary bills, Trupanion (NASDAQ: TRUP) provides medical insurance for cats and dogs through data-driven, vertically-integrated products priced specifically for each pet's unique characteristics.
Why Are We Hesitant About TRUP?
- Muted 2.4% annual book value per share growth over the last five years shows its capital generation lagged behind its insurance peers
- Estimated book value per share growth of 4.1% for the next 12 months implies profitability will slow from its two-year trend
- Negative return on equity shows management lost money while trying to expand the business
At $28.04 per share, Trupanion trades at 2.8x forward P/B. If you’re considering TRUP for your portfolio, see our FREE research report to learn more.
RenaissanceRe (RNR)
Market Cap: $14.59 billion
Born in Bermuda after the devastating Hurricane Andrew created a crisis in the catastrophe insurance market, RenaissanceRe (NYSE: RNR) provides property, casualty, and specialty reinsurance and insurance solutions to customers worldwide, primarily through intermediaries.
Why Does RNR Worry Us?
- Net premiums earned plateaued over the last two years, signaling weak incremental demand for its insurance policies
- Sales are projected to tank by 11.9% over the next 12 months as demand evaporates
- Earnings per share lagged its peers over the last two years as they only grew by 11.6% annually
RenaissanceRe is trading at $352.52 per share, or 1.3x forward P/B. Read our free research report to see why you should think twice about including RNR in your portfolio.
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