Some Insurance for Your Stock Portfolio
All insurance companies are not created equal and their exposure to the devastation of Sandy isn't equal either. That's why the analyst at Morgan Stanley who covers insurance companies recently predicted many companies will take an earnings hit in the fourth quarter to cover the losses they'll be paying.
Yet, according to an editorial in the Wall Street Journal by Brett Arends, "...
As we all know, no matter what industry we're focused on, a price war can often make all the players suffer. That's why, according to Meyer Shields, an insurance analyst at financial services firm Stifel, Nicolaus, "
The result, according to industry analysts, is that insurers now pay out more in claims and expenses than they collect in premiums. They try to make up for the shortfall by investing those premiums, but that hasn't worked too well. Their average return on capital has been a paltry 3% to 5%.
The Journal article claimed the major publicly traded insurance companies have averaged share price gains of around 16% so far this year. Finding that hard to believe, I looked for an ETF that trades mainly insurance-related companies. Much to my surprise I found one.
The SPDR S&P Insurance ETF (KIE) attempts to correspond to the total return performance of an index that tracks the performance of publicly traded companies in the insurance industry.
Its year-to-date performance is up 15% and shares of KIE were trading at around $43.20 as of Monday. That's down a little from the 52-week high of $45.20. It yields around 1.7% and has a three-year average return of a little more than 7%.Here's a five-year chart that compares it with the S&P 500 SPDR ETF (SPY) . KIE data by YCharts
KIE sports an average PE of around 9, which also happens to be the forward (one-year) PE for ALL. TRV's forward PE is around 10. According to Arends' article, "Allstate shares...trades at roughly the net per-share value of the company's assets, and for about 63% of annual per-share revenue. The median for the past 15 years...