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3 Insurance Stocks Walking a Fine Line

ⓘ This article is third-party content and does not represent the views of this site. We make no guarantees regarding its accuracy or completeness.

CNO Cover Image

Insurance companies serve as the backbone of risk management, providing essential protection and financial security for individuals and businesses. 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 6.1%. This drawdown was disheartening since the S&P 500 gained 1.1%.

A cautious approach is imperative when dabbling in insurance stocks as many are sensitive to catastrophic events and economic cycles. Taking that into account, here are three insurance stocks we’re steering clear of.

CNO Financial Group (CNO)

Market Cap: $3.79 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 Is CNO Risky?

  1. Net premiums earned plateaued over the last five years, signaling weak incremental demand for its insurance policies
  2. Expenses have increased as a percentage of revenue over the last two years as its pre-tax profit margin fell by 2.3 percentage points
  3. Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 7.2% annually over the last five years

CNO Financial Group is trading at $39.57 per share, or 1.3x forward P/B. Check out our free in-depth research report to learn more about why CNO doesn’t pass our bar.

Trupanion (TRUP)

Market Cap: $1.12 billion

Born from a vision to help pet owners avoid economic euthanasia when faced with expensive veterinary bills, Trupanion (NASDAQ: TRUP) provides medical insurance for cats and dogs through data-driven, vertically-integrated products priced specifically for each pet's unique characteristics.

Why Does TRUP Fall Short?

  1. Book value per share stagnated over the last five years, limiting its ability to leverage its balance sheet to make additional investments
  2. Negative return on equity shows management lost money while trying to expand the business

At $26.13 per share, Trupanion trades at 2.6x forward P/B. Dive into our free research report to see why there are better opportunities than TRUP.

American Financial Group (AFG)

Market Cap: $10.58 billion

With roots dating back to 1872 and a business model that empowers local decision-making, American Financial Group (NYSE: AFG) is an insurance holding company that specializes in commercial property and casualty insurance products for businesses through its Great American Insurance Group.

Why Are We Out on AFG?

  1. Sluggish 3.9% annualized growth in net premiums earned over the last two years indicates the firm trailed its insurance peers
  2. Earnings per share fell by 1.3% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
  3. Annual book value per share declines of 6% for the past five years show its capital management struggled during this cycle

American Financial Group’s stock price of $127.03 implies a valuation ratio of 2.1x forward P/B. If you’re considering AFG for your portfolio, see our FREE research report to learn more.

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