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 3.7%. This drop was worse than the S&P 500’s 2.1% loss.
Investors should tread carefully as many of these insurers are also cyclical, and any misstep can have you catching a falling knife. Taking that into account, here are three insurance stocks we’re swiping left on.
Lincoln Financial Group (LNC)
Market Cap: $6.64 billion
Founded in 1905 by a group of Fort Wayne, Indiana businessmen who named the company after Abraham Lincoln, Lincoln National Corporation (NYSE: LNC) provides insurance, retirement plans, and wealth management products through its subsidiaries, operating under four main segments: Annuities, Life Insurance, Group Protection, and Retirement Plan Services.
Why Are We Hesitant About LNC?
- Net premiums earned plateaued over the last five years, signaling weak incremental demand for its insurance policies
- Products and services are facing significant credit quality challenges during this cycle as book value per share has declined by 15.1% annually over the last five years
- ROE of 11.1% reflects management’s challenges in identifying attractive investment opportunities
Lincoln Financial Group is trading at $35.90 per share, or 0.6x forward P/B. Dive into our free research report to see why there are better opportunities than LNC.
Globe Life (GL)
Market Cap: $11.28 billion
With roots dating back to 1900 and a rebranding from Torchmark Corporation in 2019, Globe Life (NYSE: GL) is an insurance holding company that offers life insurance, supplemental health insurance, and annuity products through various distribution channels.
Why Are We Cautious About GL?
- Annual revenue growth of 4.5% over the last two years was below our standards for the insurance sector
- Growth in insurance policies was lackluster over the last two years as its 4.8% annual growth underperformed the typical financial institution
- Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 2.2% annually over the last five years
Globe Life’s stock price of $143.53 implies a valuation ratio of 1.7x forward P/B. Read our free research report to see why you should think twice about including GL in your portfolio.
Fidelis Insurance (FIHL)
Market Cap: $1.66 billion
Founded in Bermuda in 2014 and designed to adapt nimbly to evolving market conditions, Fidelis Insurance (NYSE: FIHL) is a global specialty insurance and reinsurance company focused on creating value through strategic capital allocation, expert risk selection and a network of long-term underwriting partnerships.
Why Does FIHL Worry Us?
- Efficiency has decreased over the last two years as its pre-tax profit margin fell by 45.9 percentage points
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 4.7% annually while its revenue grew
- Annual book value per share growth of 9.3% over the last two years was below our standards for the insurance sector
At $19.22 per share, Fidelis Insurance trades at 0.7x forward P/B. If you’re considering FIHL for your portfolio, see our FREE research report to learn more.
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