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 11.7% 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. With that said, here are three insurance stocks we would avoid.
Assurant (AIZ)
Market Cap: $13.91 billion
With roots dating back to 1892 when it was founded by a Civil War veteran, Assurant (NYSE: AIZ) provides specialized insurance products and services that protect major consumer purchases like mobile devices, vehicles, homes, and appliances.
Why Are We Wary of AIZ?
- Outsized scale creates growth headwinds as its 5.2% annualized net premiums earned increases over the last five years underperformed other financial institutions
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 15.6% annually
- Large asset base makes it harder to grow book value per share quickly, and its annual book value per share growth of 4.4% over the last five years was below our standards for the insurance sector
At $281.93 per share, Assurant trades at 2.2x forward P/B. Dive into our free research report to see why there are better opportunities than AIZ.
RenaissanceRe (RNR)
Market Cap: $13.39 billion
Born in Bermuda after the devastating Hurricane Andrew created a crisis in the catastrophe insurance market, RenaissanceRe (NYSE: RNR) provides property, casualty, and specialty reinsurance and insurance solutions to customers worldwide, primarily through intermediaries.
Why Is RNR Not Exciting?
- Insurance offerings faced market headwinds this cycle, reflected in stagnant net premiums earned over the last two years
- Projected sales decline of 9% for the next 12 months points to a tough demand environment ahead
- Earnings per share lagged its peers over the last two years as they only grew by 11.6% annually
RenaissanceRe’s stock price of $322.16 implies a valuation ratio of 1.2x forward P/B. If you’re considering RNR for your portfolio, see our FREE research report to learn more.
Everest Group (EG)
Market Cap: $14.12 billion
Rebranded from Everest Re in 2023 to reflect its evolution beyond just reinsurance, Everest Group (NYSE: EG) underwrites property and casualty reinsurance and insurance worldwide, serving insurance companies, corporations, and other clients across six continents.
Why Are We Out on EG?
- Net premiums earned only expanded by 1.2% annually over the last two years, trailing its insurance peers as its scale limited incremental business
- Sales are projected to tank by 13.4% over the next 12 months as demand evaporates
- Earnings per share fell by 15.5% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
Everest Group is trading at $369.08 per share, or 0.9x forward P/B. Dive into our free research report to see why there are better opportunities than EG.
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