Shore up Your Portfolio With Insurance
Marshall is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It seems that with the U.S. healthcare reform act there will be a lot more individuals with health insurance, which is great for the health insurers, but there are a few choice insurance investments that might be worth checking out.
It appears that some of the major property and casualty insurers are being overlooked. The P&C insurance companies provide insurance on homes, cars, and businesses. As the economy shows signs of rebounding, more and more people will be buying up homes and cars, leading to increased demand in P&C insurance. Let's check out a few choice insurance picks.
Auto & homeowners
Travelers Companies (NYSE: TRV) is engaged in providing a range of commercial, personal property, and casualty insurance products and services. The company is the second largest writer of auto and homeowners insurance, and the sixth-largest writer of commercial U.S. property-casualty insurance.
Net written premiums were $22.4 billion in 2012, a slight improvement from the $22.2 billion in 2011. Its segments by premiums are: business insurance 52%, personal lines 35%, and financial professional and international lines 13%. Its underwriting results are also improving, where its 2012 combined ratio was 97.1%, versus 105.1% in 2011.
Travelers is also generating impressive returns on equity, currently at 14.1%, where the company plans on keeping an ROE between 14% and 16% over the long-term. From a valuation standpoint, the company is trading at a P/B of only 1.24 times and its forward P/E is less than 11 times.
Progressive (NYSE: PGR) is an insurance holding company, providing personal and commercial automobile insurance and other specialty property-casualty insurance and related services.
Specifically, the company is the fourth largest auto insurer in the U.S., the largest seller of motorcycle policies, and a market leader in commercial auto insurance. Progressive's key business is underwriting private passenger automobile insurance. Net written premiums totaled $16.4 billion in 2012, of which personal lines accounted for 90%, commercial and other lines 10%.
Earned premiums are expected to rise by 5% to 7% in 2013, thanks to market share gains. Based on those gains and superior marketing, the insurer does trade at a premium to some peers. Progressive has a 2.4 times P/B ratio and 18 times forward P/E. However, with an 18% return on equity and robust premium growth, this premium valuation is likely justified.
ACE (NYSE: ACE) is a global insurance and reinsurance organization. The specialty insurer provides commercial insurance and reinsurance for a diverse group of international clients. Its net premiums totaled $15.7 billion in 2012, an almost 2% increase from $15.4 billion in 2011.
As for premiums breakdown, property was 26% of total premiums, 34% casualty lines, 22% personal accident, 12% agriculture insurance, and 6% life insurance.
ACE's recent tailwinds include key acquisitions, helping expand its global footprint. Near the end of 2012, ACE snatched up 80% of PT Asuransi Jaya Proteksi in Indonesia, helping boost its presence in the South-Asian market -- in early 2013 ACE acquired the other 20%.
In October 2012, ACE bought Mexico's sixth largest P&C insurer, ABA Seguros from Ally Financial. More recently, the insurer acquired Fianzas Monterrey from New York Life Insurance Company.
Premiums are expected to increase by 4% to 6% in 2013, and another 3% to 6% in 2014, namely driven by acquisitions. Better yet, these acquisitions are expected to help boost ACE's long-term return on equity to 15% within the next three years. The company's current return on equity is 10% and it trades at just over 1.1 times book value.
Although there are some truly great ways to play the healthcare reform and aging Baby Boom generation, I believe there are some overlooked picks in the other areas of the market. Travelers has a stronghold on the homeowner insurance market, Progressive with auto insurance, and ACE with commercial insurance. Travelers and ACE have plans to boost return on equity and are cheap compared to book value. Progressive is already a market leader that should continue snatching up market share.
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Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Progressive. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!