Insurance firms play a critical role in the financial system, offering everything from property coverage to life insurance and specialized risk solutions. But concerns about claims severity and tightening regulations have tempered enthusiasm, limiting the industry’s gains to 2.9% over the past six months. This return lagged the S&P 500’s 8.5% climb.
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 is one insurance stock boasting a durable advantage and two we’re steering clear of.
Two Insurance Stocks to Sell:
Prudential (PRU)
Market Cap: $36.99 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 Do We Steer Clear of PRU?
- Stagnant net premiums earned over the last five years suggest the firm needs alternative growth strategies
- Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 9% annually over the last five years
- High net-debt-to-EBITDA ratio of 5× could force the company to raise capital on unfavorable terms if market conditions deteriorate
Prudential is trading at $107.99 per share, or 1.1x forward P/B. Read our free research report to see why you should think twice about including PRU in your portfolio.
Reinsurance Group of America (RGA)
Market Cap: $13.51 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 Wary of RGA?
- Net premiums earned only expanded by 2.1% annually over the last two years, trailing its insurance peers as its scale limited incremental business
- Incremental sales over the last two years were less profitable as its 7.8% annual earnings per share growth lagged its revenue gains
- Projected book value per share decline of 3.3% for the next 12 months points to tough credit quality challenges ahead
At $212.69 per share, Reinsurance Group of America trades at 1x forward P/B. Check out our free in-depth research report to learn more about why RGA doesn’t pass our bar.
One Insurance Stock to Buy:
Kinsale Capital Group (KNSL)
Market Cap: $7.16 billion
Founded in 2009 during the aftermath of the financial crisis when many insurers were retreating from riskier markets, Kinsale Capital Group (NYSE: KNSL) is an insurance company that specializes in writing policies for hard-to-place, unusual, or high-risk businesses that standard insurers typically avoid.
Why Is KNSL a Good Business?
- Market penetration was impressive this cycle as its net premiums earned expanded by 18.8% annually over the last two years
- Incremental sales over the last five years have been highly profitable as its earnings per share increased by 42.9% annually, topping its revenue gains
- Impressive 30.2% annual book value per share growth over the last two years indicates it’s building equity value this cycle
Kinsale Capital Group’s stock price of $329.87 implies a valuation ratio of 3.5x forward P/B. Is now the time to initiate a position? Find out in our full research report, it’s free.
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