Insurance companies serve as the backbone of risk management, providing essential protection and financial security for individuals and businesses. Market leaders have certainly capitalized on strong underwriting results and rising investment income to boost profitability, helping fuel a 9.2% gain for the industry over the past six months. This performance has closely followed the S&P 500.
Although insurers have produced good results, only a handful will thrive over the long term as insurtech disruptors are rapidly taking market share from the incumbents. On that note, here is one insurance stock boasting a durable advantage and two we would avoid.
Two Insurance Stocks to Sell:
CNO Financial Group (CNO)
Market Cap: $4.91 billion
Rebranded from Conseco in 2010 to signal a fresh start after navigating financial challenges, CNO Financial Group (NYSE: CNO) develops and markets health insurance, annuities, and life insurance products primarily targeting middle-income pre-retirees and retirees.
Why Is CNO Risky?
- Sluggish 1% annualized growth in net premiums earned over the last five years indicates the firm trailed its insurance peers
- Expenses have increased as a percentage of revenue over the last five years as its pre-tax profit margin fell by 8.9 percentage points
- Annual book value per share declines of 6.2% for the past five years show its capital management struggled during this cycle
At $52.61 per share, CNO Financial Group trades at 1.9x forward P/B. Dive into our free research report to see why there are better opportunities than CNO.
Essent Group (ESNT)
Market Cap: $5.94 billion
Serving as a crucial bridge between homebuyers and the American dream of homeownership, Essent Group (NYSE: ESNT) provides private mortgage insurance and title services that enable lenders to offer home loans with down payments of less than 20%.
Why Are We Cautious About ESNT?
- Sluggish 2.4% annualized growth in net premiums earned over the last two years indicates the firm trailed its insurance peers
- Day-to-day expenses have swelled relative to revenue over the last two years as its pre-tax profit margin fell by 8.3 percentage points
- Annual earnings per share growth of 3.1% underperformed its revenue over the last two years, showing its incremental sales were less profitable
Essent Group’s stock price of $64.42 implies a valuation ratio of 1x forward P/B. If you’re considering ESNT for your portfolio, see our FREE research report to learn more.
One Insurance Stock to Buy:
Bowhead Specialty (BOW)
Market Cap: $970.4 million
Named after the Arctic bowhead whale known for navigating challenging waters, Bowhead Specialty Holdings (NYSE: BOW) is a specialty insurance company that provides customized coverage for complex and high-risk commercial sectors.
Why Will BOW Beat the Market?
- Net premiums earned expanded by 33.5% annually over the last two years, demonstrating exceptional market penetration this cycle
- Earnings growth has trumped its peers over the last three years as its EPS has compounded at 42.9% annually
- Impressive 29.1% annual book value per share growth over the last two years indicates it’s building equity value this cycle
Bowhead Specialty is trading at $29.53 per share, or 1.9x 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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