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, and over the past six months, the industry has pulled back by 7.1%. This performance was disappointing since the S&P 500 stood firm.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. On that note, here are two insurance stocks we think can generate sustainable market-beating returns and one we’re swiping left on.
One Insurance Stock to Sell:
MGIC Investment (MTG)
Market Cap: $5.52 billion
Founded in 1957 when the modern mortgage insurance industry was in its infancy, MGIC Investment (NYSE: MTG) provides private mortgage insurance that protects lenders when homebuyers default on their loans, enabling borrowers to purchase homes with smaller down payments.
Why Is MTG Not Exciting?
- Insurance offerings face significant market challenges this cycle as net premiums earned contracted by 1.1% annually over the last five years
- Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend
- Earnings per share lagged its peers over the last two years as they only grew by 11.6% annually
MGIC Investment’s stock price of $25.68 implies a valuation ratio of 1x forward P/B. Check out our free in-depth research report to learn more about why MTG doesn’t pass our bar.
Two Insurance Stocks to Watch:
W. R. Berkley (WRB)
Market Cap: $24.62 billion
Founded in 1967 and operating through more than 50 specialized insurance units across the globe, W. R. Berkley (NYSE: WRB) underwrites commercial insurance and reinsurance through specialized subsidiaries serving industries from healthcare to construction to transportation.
Why Do We Watch WRB?
- Market penetration was impressive this cycle as its net premiums earned expanded by 12.4% annually over the last five years
- Share buybacks catapulted its annual earnings per share growth to 33%, which outperformed its revenue gains over the last five years
- Stellar return on equity showcases management’s ability to surface highly profitable business ventures
W. R. Berkley is trading at $65.76 per share, or 2.3x forward P/B. Is now the time to initiate a position? Find out in our full research report, it’s free.
RLI (RLI)
Market Cap: $5.33 billion
Founded in 1965 and named after its original focus on "replacement lens insurance" for contact lens wearers, RLI (NYSE: RLI) is a specialty insurance company that underwrites property, casualty, and surety products through wholesale brokers, independent agents, and carrier partnerships.
Why Is RLI on Our Radar?
- Impressive 13.7% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Net premiums earned expanded by 13.3% annually over the last five years, demonstrating exceptional market penetration this cycle
- ROE punches in at 27.9%, illustrating management’s expertise in identifying profitable investments
At $57.99 per share, RLI trades at 2.9x forward P/B. Is now the right time to buy? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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