Insurance firms play a critical role in the financial system, offering everything from property coverage to life insurance and specialized risk solutions. But worries about an economic slowdown and potential claims deterioration have kept sentiment in check, and over the past six months, the industry has tumbled by 3.4%. This performance is a far cry from the S&P 500’s 6.9% ascent.
A cautious approach is imperative when dabbling in insurance stocks as many are sensitive to catastrophic events and economic cycles. Taking that into account, here are three insurance stocks that may face trouble.
Old Republic International (ORI)
Market Cap: $9.19 billion
Founded during the Roaring Twenties in 1923 and weathering nearly a century of economic cycles, Old Republic International (NYSE: ORI) is a diversified insurance holding company that provides property, liability, title, and mortgage guaranty insurance through its various subsidiaries.
Why Are We Out on ORI?
- 3.7% annualized net premiums earned growth over the last five years lagged behind its insurance peers
- Expenses have increased as a percentage of revenue over the last five years as its pre-tax profit margin fell by 10.7 percentage points
- Annual earnings per share growth of 5.9% underperformed its revenue over the last two years, showing its incremental sales were less profitable
Old Republic International is trading at $38.40 per share, or 1.5x forward P/B. Check out our free in-depth research report to learn more about why ORI doesn’t pass our bar.
American Financial Group (AFG)
Market Cap: $11 billion
With roots dating back to 1872 and a business model that empowers local decision-making, American Financial Group (NYSE: AFG) is an insurance holding company that specializes in commercial property and casualty insurance products for businesses through its Great American Insurance Group.
Why Do We Steer Clear of AFG?
- 3.2% annualized net premiums earned growth over the last two years lagged behind its insurance peers
- Earnings per share lagged its peers over the last two years as they only grew by 2.5% annually
- Products and services are facing significant credit quality challenges during this cycle as book value per share has declined by 6.4% annually over the last five years
American Financial Group’s stock price of $132.46 implies a valuation ratio of 2.1x forward P/B. To fully understand why you should be careful with AFG, check out our full research report (it’s free).
Chubb (CB)
Market Cap: $128.2 billion
Dating back to when a Civil War veteran created a frost-proof water meter, Chubb Limited (NYSE: CB) provides commercial and personal property and casualty insurance, reinsurance, and life insurance products to a diverse client base across 54 countries.
Why Are We Hesitant About CB?
- Outsized scale creates growth headwinds as its 7.5% annualized net premiums earned increases over the last two years underperformed other financial institutions
- Estimated sales growth of 2.6% for the next 12 months implies demand will slow from its two-year trend
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 15.9% annually
At $329.61 per share, Chubb trades at 1.6x forward P/B. If you’re considering CB for your portfolio, see our FREE research report to learn more.
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