Insurance firms play a critical role in the financial system, offering everything from property coverage to life insurance and specialized risk solutions. But concerns about claims severity and tightening regulations have tempered enthusiasm, limiting the industry’s gains to 1.1% over the past six months. This return lagged the S&P 500’s 16.5% climb.
While some insurers have strong balance sheets and diversified product offerings that enable them to thrive in any environment, the odds aren’t great for the ones we’re analyzing today. On that note, here are three insurance stocks we’re swiping left on.
CNO Financial Group (CNO)
Market Cap: $3.82 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 Do We Think Twice About CNO?
- Insurance offerings faced market headwinds this cycle, reflected in stagnant net premiums earned over the last five years
- Day-to-day expenses have swelled relative to revenue over the last four years as its pre-tax profit margin fell by 7.3 percentage points
- Book value per share tumbled by 4.9% annually over the last five years, showing insurance sector trends are working against its favor during this cycle
CNO Financial Group is trading at $39.40 per share, or 1.5x forward P/B. To fully understand why you should be careful with CNO, check out our full research report (it’s free).
Markel Group (MKL)
Market Cap: $24.37 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 Are We Wary of MKL?
- Large revenue base constrains its growth potential, as seen in its unexciting 2.9% annualized increases in net premiums earned over the last two years fell below our expectations for the insurance sector
- Estimated sales decline of 6.4% for the next 12 months implies a challenging demand environment
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 8% annually
Markel Group’s stock price of $1,926 implies a valuation ratio of 1.4x forward P/B. Dive into our free research report to see why there are better opportunities than MKL.
Enact Holdings (ACT)
Market Cap: $5.64 billion
Playing a critical role in helping first-time homebuyers access the housing market, Enact Holdings (NASDAQ: ACT) provides private mortgage insurance that enables lenders to offer home loans with lower down payments while protecting against borrower defaults.
Why Is ACT Not Exciting?
- 1.3% annualized net premiums earned growth over the last five years lagged behind its insurance peers
- Costs have risen faster than its revenue over the last two years, causing its combined ratio to worsen by 15 percentage points
- Annual earnings per share growth of 2.9% underperformed its revenue over the last two years, showing its incremental sales were less profitable
At $38.22 per share, Enact Holdings trades at 1x forward P/B. Read our free research report to see why you should think twice about including ACT in your portfolio.
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