Insurance providers use their expertise in risk assessment to help protect assets while offering consumers peace of mind through comprehensive coverage options. Still, investors are uneasy as insurers face challenges from catastrophic events and potential regulatory changes. These doubts have certainly contributed to the industry’s recent underperformance - over the past six months, insurance stocks were flat while the S&P 500 was up 15.7%.
Investors should tread carefully as many of these insurers are also cyclical, and any misstep can have you catching a falling knife. With that said, here are three insurance stocks best left ignored.
Kemper (KMPR)
Market Cap: $3.23 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 Are We Out on KMPR?
- Stagnant net premiums earned over the last five years suggest the firm needs alternative growth strategies
- Earnings per share fell by 2% annually over the last five years while its revenue was flat, showing each sale was less profitable
- Products and services are facing significant credit quality challenges during this cycle as book value per share has declined by 6.3% annually over the last five years
At $51.49 per share, Kemper trades at 1x forward P/B. Check out our free in-depth research report to learn more about why KMPR doesn’t pass our bar.
The Hanover Insurance Group (THG)
Market Cap: $6.29 billion
Founded in 1852 during a time when fire insurance was crucial for protecting businesses and homes, The Hanover Insurance Group (NYSE: THG) provides property and casualty insurance products through independent agents, serving individuals, small businesses, and mid-sized companies.
Why Does THG Give Us Pause?
- Muted 5.4% annual revenue growth over the last two years shows its demand lagged behind its insurance peers
- Growth in insurance policies was lackluster over the last two years as its 5% annual growth underperformed the typical financial institution
- Annual book value per share growth of 2% over the last five years was below our standards for the insurance sector
The Hanover Insurance Group is trading at $175.77 per share, or 1.9x forward P/B. If you’re considering THG for your portfolio, see our FREE research report to learn more.
Old Republic International (ORI)
Market Cap: $10.03 billion
Founded during the Roaring Twenties in 1923 and weathering nearly a century of economic cycles, Old Republic International (NYSE: ORI) is a diversified insurance holding company that provides property, liability, title, and mortgage guaranty insurance through its various subsidiaries.
Why Are We Hesitant About ORI?
- Sluggish 5.2% annualized growth in net premiums earned over the last five years indicates the firm trailed its insurance peers
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 9.5% annually
- Annual book value per share growth of 8.2% over the last two years was below our standards for the insurance sector
Old Republic International’s stock price of $41.21 implies a valuation ratio of 1.5x forward P/B. To fully understand why you should be careful with ORI, check out our full research report (it’s free).
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