What are we looking for?
Some investors rushed to sell North American insurance stocks as Hurricane Sandy barrelled towards the Atlantic seaboard last October. Insurance companies are on the hook for about $30-billion (U.S.) in claims, but the storm may have helped the industry by pushing up the prices of policies. Today my colleague Rob Belanger and I take a closer look at the insurance industry.
We sorted North American insurers by market capitalization and looked at only those worth more than $1-billion, and with a dividend yield of 1.5 per cent or greater.
Return on equity (ROE) measures a firm’s profitability by calculating how much profit it can generate in relation to the cash that shareholders have invested. Businesses showing a high ROE are more profitable; we have listed only companies with an ROE greater than 8 per cent.
Return on assets (ROA) indicates how profitable a company is relative to its total assets. It gives investors an idea as to how efficiently management uses its assets to generate returns. We have listed only companies with an ROA greater than a 0.4 per cent.
Price to book (P/B) compares a company’s market value to its book value – the net asset value of the business. The lower the P/B ratio, the cheaper the stock. Our list shows those with a P/B of less than three.
Price to earnings (P/E) is the share price divided by the forecast earnings per share for the next 12 months. Again, a lower number indicates a cheaper stock.
What did we find?
AFLAC sports the highest ROE, and counts 50 million customers.
Sun Life makes the grade in most areas, while Manulife is absent from our screen because of its very low 3 per cent ROE.
Predominantly a business property and casualty company, RLI Corp. displays the highest yield, but also one of the highest P/E ratios. Unum Group and Assurant Inc. represent the best value with their low P/E and P/B ratios.
With interest rates moving higher, it may be time to take a hard look at the industry, but as always, do your own research or talk to an investment professional before buying.
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Insurance industry screen
|ROE %||ROA %|
|Sun Life Financial||SLF-T||29.86||17.92||9.55||0.65|
|WR Berkley Corp.||WRB-N||41.54||5.65||11.57||2.51|
|Amer. Financial Group||AFG-N||49.18||4.42||10.63||1.31|
|Indus. Alliance Ins.||IAG-T||40.12||3.90||12.75||0.89|
|First American Fin.||FAF-N||21.79||2.36||13.67||5.17|
All currencies in US$. Source: Bloomberg, Wickham Investment Counsel Inc.
|ROE %||ROA %||P/B||
Total Return %
(Trailing 12 mos)
|Sun Life Financial||SLF-T||29.86||17.92||9.55||0.65||1.3||11.7||4.57||45.80|
|WR Berkley Corp.||WRB-N||41.54||5.65||11.57||2.51||1.3||13.6||3.27||8.89|
|Amer. Financial Group||AFG-N||49.18||4.42||10.63||1.31||0.9||11.6||2.00||27.58|
|Indus. Alliance Ins.||IAG-T||40.12||3.90||12.75||0.89||1.5||12.7||2.33||74.39|
|First American Fin.||FAF-N||21.79||2.36||13.67||5.17||1.0||10.5||1.84||28.78|
- Travelers Companies Inc$105.60-0.69(-0.65%)
- Great-West Lifeco Inc$33.87-0.25(-0.73%)
- Aflac Inc$58.00-0.21(-0.36%)
- Allstate Corp$63.33-0.04(-0.06%)
- Chubb Ltd$108.89-3.36(-2.99%)
- Sun Life Financial Inc$38.47-0.83(-2.11%)
- Progressive Corp$30.73+0.03(+0.10%)
- Principal Financial Group Inc$35.78-1.03(-2.80%)
- Unum Group$26.24-1.44(-5.20%)
- Cincinnati Financial Corp$60.93+0.68(+1.13%)
- Intact Financial Corp$79.86-2.32(-2.82%)
- W. R. Berkley Corp$51.18+0.07(+0.14%)
- American Financial Group Inc$66.10-0.53(-0.80%)
- Industrial Alliance Insurance and Financial Services Inc$39.26-1.34(-3.30%)
- Assurant Inc$76.23-2.25(-2.87%)
- ProAssurance Corp$48.23-0.56(-1.15%)
- First American Financial Corp$32.75-0.68(-2.03%)
- RLI Corp$60.24+0.80(+1.35%)
- Updated February 8 4:00 PM EST. Delayed by at least 15 minutes.