Insurance companies serve as the backbone of risk management, providing essential protection and financial security for individuals and businesses. But worries about an economic slowdown and potential claims deterioration have kept sentiment in check, and over the past six months, the industry’s return was flat while the S&P 500 climbed by 14.1%.
A cautious approach is imperative when dabbling in insurance stocks as many are sensitive to catastrophic events and economic cycles. With that said, here are three insurance stocks we’re steering clear of.
MetLife (MET)
Market Cap: $51.83 billion
Founded in 1863 by a group of New York businessmen during the Civil War era, MetLife (NYSE:MET) is a global financial services company that provides insurance, annuities, employee benefits, and asset management services to individuals and businesses worldwide.
Why Are We Out on MET?
- Net premiums earned only expanded by 2.1% annually over the last five years, trailing its insurance peers as its scale limited incremental business
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 10% annually
- Book value per share tumbled by 11.6% annually over the last five years, showing insurance sector trends are working against its favor during this cycle
At $78.67 per share, MetLife trades at 2x forward P/B. To fully understand why you should be careful with MET, check out our full research report (it’s free for active Edge members).
Kemper (KMPR)
Market Cap: $2.31 billion
Originally known as Unitrin until rebranding in 2011, Kemper (NYSE:KMPR) is an insurance holding company that provides automobile, homeowners, life, and other insurance products to individuals and businesses across the United States.
Why Do We Steer Clear of KMPR?
- Insurance offerings faced market headwinds this cycle, reflected in stagnant net premiums earned over the last five years
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 4.7% annually, worse than its revenue
- Annual book value per share declines of 7.3% for the past five years show its capital management struggled during this cycle
Kemper is trading at $39.46 per share, or 0.9x forward P/B. Read our free research report to see why you should think twice about including KMPR in your portfolio.
Assured Guaranty (AGO)
Market Cap: $4.08 billion
Serving as a financial safety net for over $11 trillion in debt service payments since its founding in 2003, Assured Guaranty (NYSE:AGO) provides credit protection products that guarantee scheduled payments on municipal bonds, infrastructure projects, and structured finance obligations.
Why Do We Think AGO Will Underperform?
- 3.6% annual declines in net premiums earned for the past five years indicates policy sales struggled this cycle
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Underwhelming 7.8% return on equity reflects management’s difficulties in finding profitable growth opportunities
Assured Guaranty’s stock price of $88.64 implies a valuation ratio of 0.7x forward P/B. If you’re considering AGO for your portfolio, see our FREE research report to learn more.
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