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An Overview Of The Insurance Sector
Posted by: Intelligent Speculator (IP Logged)
Date: August 22, 2012 07:47AM

Today I decided to do an analysis of the top Canadian and US insurance stocks. Why insurance? The first part of the reason is the fact that a fellow blogger, Jeff from GoodFinancialCents created an insurance movement which means that over a hundred blogs are writing about the subject today. Personally I’ve been a big fan of insurance companies for years now and it wasn’t a big surprise that I added Aflac (AFL) to the Ultimate Sustainable Portfolio a few months ago.

Why Insurance?

Investing in insurance companies brings many important benefits along with a couple of drawbacks. I personally think the main drawback is that their balance sheets and activities are more complex than the average large cap company. That being said, it remains much easier than trying to figure out many financials/banks.

There are several interesting benefits though both for dividend and other fundamental investors.

-Stable Business (companies generally have reinsurance for larger events so these companies typically perform well no matter how the economy fares)

-Patterns: the big danger for insurance companies is to sell policies too agressively and when that happens, profitability can decline. It’s important for these companies to accept losing business or market share if the competition is too agressive. Therefore I try to look at historical performance as a very good indicator of the management’s

-Dividends: Because insurance company profits and cash flows are typically so reliable, they are able to pay out decent portions out to their shareholders as dividends.

Top Insurance Plays

Obviously, I consider Alfac to be a very solid dividend play but there are many others. Here are the biggest insurance names in Canada and the US. As you can imagine, a few of the names are traded in both countries:

TickerNameIndustryPriceDividend YieldP/EPayout RatioMarket CapAnnual Total Return Last 5 YearsCountry
BRK/BBerkshire Hathaway IncReinsurance85.22N/AN/A0 $211,345,906,250.001.36US1.36
LFCChina Life Insurance Co LtdLife/Health Insurance41.731.13N/A35.46 $77,028,085,937.50-5.33US-5.33
AIGAmerican International Group IncMulti-line Insurance34.13N/A25.280 $55,635,964,843.75-49.79US-49.79
METMetLife IncMulti-line Insurance35.332.096.911.46 $37,529,312,500.00-9.45US-9.45
PUKPrudential PLCLife/Health Insurance25.552.06N/A43.09 $32,659,804,687.502.95US2.95
INGING Groep NVLife/Health Insurance7.32N/AN/A0 $28,047,023,437.50-23.18US-23.18
PRUPrudential Financial IncLife/Health Insurance54.932.649.2518.98 $25,597,380,859.38-7.06US-7.06
ACEACE LtdMulti-line Insurance74.132.648.8522.33 $25,136,914,062.507.16US7.16
TRVTravelers Cos Inc/TheProperty/Casualty Ins65.232.8211.7746.95 $25,136,910,156.257.59US7.59
AFLAflac IncLife/Health Insurance46.512.847.1828.11 $21,779,312,500.000.23US0.23
MFCManulife Financial CorpLife/Health Insurance11.234.68N/A703.76 $20,379,023,437.50-18.54US-18.54
CBChubb Corp/TheProperty/Casualty Ins73.622.2313.1926.52 $19,571,798,828.1310.51US10.51
ALLAllstate Corp/TheMulti-line Insurance38.252.39.7355.51 $18,548,441,406.25-3.99US-3.99
MMCMarsh & McLennan Cos IncInsurance Brokers33.832.7216.6748.54 $18,410,136,718.758.48US8.48
AONAon PLCInsurance Brokers52.631.216.4520.51 $16,968,255,859.385.41US5.41
LLoews CorpMulti-line Insurance40.490.6216.29.5 $16,017,706,054.69-1.7US-1.7
AVAviva PLCLife/Health Insurance10.495.97N/A102.73 $15,306,634,765.63N/AUS#VALUE!
SLFSun Life Financial IncLife/Health Insurance23.266.27N/AN/A $13,817,549,804.69-8.89US-8.89
PGRProgressive Corp/TheProperty/Casualty Ins19.782.0616.2124.43 $12,049,155,273.441.48US1.48
HIGHartford Financial Services Group IncMulti-line Insurance18.552.168.2133.33 $8,084,361,816.41-24.79US-24.79
PFGPrincipal Financial Group IncLife/Health Insurance26.783.149.7731.33 $7,903,300,292.97-11.39US-11.39


TickerNameIndustryPriceDividend YieldP/EPayout RatioMarket CapAnnual Total Return Last 5 Years
GWOGreat-West Lifeco IncLife/Health Insurance22.235.5310.5257.8121114507813-4.27
MFCManulife Financial CorpLife/Health Insurance11.094.69N/A703.7620124968750-19.74
PWFPower Financial CorpLife/Health Insurance25.35.5310.7759.7317916792969-4.37
SLFSun Life Financial IncLife/Health Insurance23.046.25N/AN/A13686858398-10.17
POWPower Corp of CanadaLife/Health Insurance23.764.881152.6710928293945-5.66
FFHFairfax Financial Holdings LtdProperty/Casualty Ins378.752.6833.53N/A811043457015.59
IFCIntact Financial CorpProperty/Casualty Ins61.812.5913.1537.86800771191410.19
IAGIndustrial Alliance Insurance & Financial Services IncLife/Health Insurance25.453.8525.271.942305845459-4.64
ELFE-L Financial Corp LtdMulti-line Insurance4120.1224.08N/A1655996460N/A
EFHEGI Financial Holdings IncProperty/Casualty Ins8.98N/A19.960108046585.1-4.02
I personally have a preference for a few of these names such as:

-Prudential (PRU): Earnings per share growth, dividends and sales have all increased signifciantly over the past 5 years, the stock is trading at a decent P/E ratio and while the return has not been spectacular by any means, it remains reasonable given the context

-Aflac (AFL): No doubt about, this has been my top name with all important metrics increasing by 10% or so or more per year in the past 5, an attractive P/E, international exposure and the stock has done fairly well. From a dividend perspective, this has been a winner.

-Power Financial (PWF.TO): Very strong dividend yield with a reasonable payout ratio, this is one of the better looking Canadian stocks without any doubt.

Other Stocks Worth Looking Into

-Power Corp (POW.TO)
-Industrielle Alliance (IAG.TO)

Insurance As The Basis Of Your Portfolio?

Having a heavy weighting in insurance stocks would provide you with important cash flows that can be used to increase assets in your other holdings.

Don’t laugh! That is pretty much what Warren Buffett’s Berkshire (BRK/B) has been doing for years now. The incredible success story has been able to build its investments book thanks mainly to the cash flows generated by its insurance businesses such as Geico.

Stocks Discussed: AFL, PRU, BRK.B, BRK.A,
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