5 A+ Rated Insurance Stocks
NEW YORK (TheStreet) -- Only five actively traded insurance stocks are currently assigned coveted A+ (Excellent) ratings by TheStreet Ratings, and all are property and casualty carriers.
TheStreet Ratings takes a very conservative approach to rating all stocks publicly traded on the New York Stock Exchange, AMEX and NASDAQ, that have at least five quarters of financial data available. The ratings emphasize long-term total returns, as well as revenue trends, capital strength and dividends, while also considering short-term performance, financial stability and volatility. A rating of B-minus (Good) or higher is considered a "Buy" recommendation.
It's been a difficult two years for many insurance companies in the prolonged low rate environment. Property and casualty carriers are "particularly sensitive to low interest rates," according to Gavin Magor, a senior analyst with Weiss Ratings, since the group "typically seeks to break even on underwriting premiums, while making profits on cash invested in securities." The P&C carriers are "still under significant pressure and are struggling to implement a normal pricing that you would see in a hard market, due to oversupply."
Magor does see opportunities among certain P&C carriers that may be undervalued, saying that "speculators may start to look at the surviving bond and mortgage guaranty insurers, but they are not for Granny's pension."
Life insurance companies are also under pressure, as "profitability for the largest ones dropped by 84% during 2011," according to Magor, because "the life insurers have had a lot of guarantees on their annuities that they have to live up to, while they haven't got the yields to back them up."
Insurers have underperformed banks so far this year. The KBW Bank Index (I:BKX) was up 10% year-to-date, through Wednesday's close at 43.42, while the KBW Insurance Index (I:KIX) was down 1% to 109.50.
A quick look at two of the largest U.S. insurance companies -- by market capitalization -- paints a stark contrast for share valuations, and a possible opportunity for investors.
The shares closed at $81.72 Thursday, returning 7% year-to-date, following a 5% return during 2011. The shares trade for 1.8 times tangible book value, according to Worldscope data provided by Thomson Reuters, and 15 times the consensus 2013 earnings estimate of $5.40 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $4.93.