Insurance companies serve as the backbone of risk management, providing essential protection and financial security for individuals and businesses. But concerns about claims severity and tightening regulations have tempered enthusiasm, and over the past six months, the industry has pulled back by 5.6%. This performance was worse than the S&P 500’s 2.1% decline.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Taking that into account, here are two insurance stocks we think can generate sustainable market-beating returns and one that may face trouble.
One Insurance Stock to Sell:
Reinsurance Group of America (RGA)
Market Cap: $13.45 billion
Operating behind the scenes of the insurance industry since 1973, Reinsurance Group of America (NYSE: RGA) provides life and health reinsurance services to insurance companies, helping them manage risk and meet regulatory requirements.
Why Are We Cautious About RGA?
- Net premiums earned only expanded by 6.9% annually over the last two years, trailing its insurance peers as its scale limited incremental business
- Products and services are facing profitability challenges during this cycle, as seen in its flat book value per share over the last five years
- Estimated book value per share decline of 11.8% for the next 12 months implies a challenging profitability environment
Reinsurance Group of America is trading at $205.16 per share, or 0.9x forward P/B. Read our free research report to see why you should think twice about including RGA in your portfolio.
Two Insurance Stocks to Watch:
Primerica (PRI)
Market Cap: $8.04 billion
With a sales force of over 140,000 licensed representatives operating on an independent contractor model, Primerica (NYSE: PRI) provides term life insurance, investment products, and other financial services to middle-income households in the United States and Canada.
Why Does PRI Catch Our Eye?
- Solid 9% annual revenue growth over the last two years indicates its offering’s solve complex business issues
- Pre-tax profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Industry-leading 27.7% return on equity demonstrates management’s skill in finding high-return investments
At $253.88 per share, Primerica trades at 3x forward P/B. Is now a good time to buy? Find out in our full research report, it’s free.
Travelers (TRV)
Market Cap: $63.57 billion
Tracing its roots back to 1853 when it insured travelers against accidents on steamboats and railroads, Travelers (NYSE: TRV) provides a wide range of commercial and personal property and casualty insurance products to businesses, government units, associations, and individuals.
Why Does TRV Stand Out?
- Pre-tax profit margin expanded by 7.8 percentage points over the last two years as it scaled and became more efficient
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Exciting book value per share outlook for the upcoming 12 months calls for 19.7% growth, an acceleration from its two-year trend
Travelers’s stock price of $292.95 implies a valuation ratio of 1.7x forward P/B. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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