Insurance providers use their expertise in risk assessment to help protect assets while offering consumers peace of mind through comprehensive coverage options. Furthermore, favorable market conditions have supported premium growth and investment income, a trend that has enabled the industry to return 11.4% over the past six months, almost identical to the S&P 500.
Nevertheless, investors should tread carefully as many insurers are cyclical due to their exposure to claims risk and regulatory changes. On that note, here are three insurance stocks that may face trouble.
Horace Mann Educators (HMN)
Market Cap: $2.07 billion
Founded in 1945 and named after the 19th-century education reformer known as the "father of American public education," Horace Mann Educators (NYSE: HMN) is an insurance company that specializes in providing auto, property, life, and retirement products tailored for educators and other public service employees.
Why Do We Pass on HMN?
- Growth in insurance policies was lackluster over the last five years as its 6.4% annual growth underperformed the typical financial institution
- Book value per share tumbled by 3.3% annually over the last five years, showing insurance sector trends are working against it during this cycle
- Underwhelming 6.8% return on equity reflects management’s difficulties in finding profitable growth opportunities
Horace Mann Educators is trading at $51.41 per share, or 1.3x forward P/B. Read our free research report to see why you should think twice about including HMN in your portfolio.
Kemper (KMPR)
Market Cap: $1.64 billion
Originally known as Unitrin until rebranding in 2011, Kemper (NYSE: KMPR) is an insurance holding company that provides automobile, homeowners, life, and other insurance products to individuals and businesses across the United States.
Why Do We Steer Clear of KMPR?
- Insurance policy sales contracted this cycle as net premiums earned decreased by 3.3% annually over the last five years
- Sales were less profitable over the last five years as its earnings per share fell by 14.5% annually, worse than its revenue declines
- Book value per share tumbled by 11.3% annually over the last five years, showing insurance sector trends are working against it during this cycle
At $28.41 per share, Kemper trades at 0.7x forward P/B. To fully understand why you should be careful with KMPR, check out our full research report (it’s free).
Markel Group (MKL)
Market Cap: $22.41 billion
Often referred to as a "mini Berkshire Hathaway" for its three-engine business model of insurance, investments, and wholly-owned businesses, Markel Group (NYSE: MKL) is a specialty insurance company that underwrites complex risks, manages investment portfolios, and owns a diverse collection of operating businesses.
Why Is MKL Risky?
- Net premiums earned remained stagnant over the last two years, indicating expansion challenges this cycle
- Forecasted revenue decline of 2.7% for the upcoming 12 months implies demand will fall off a cliff
- Day-to-day expenses have swelled relative to revenue over the last five years as its pre-tax profit margin fell by 14.1 percentage points
Markel Group’s stock price of $1,816 implies a valuation ratio of 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than MKL.
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