Cheap Insurance Stocks

Insurance stocks are in the spotlight right now. In particular, property and casualty (P&C) insurers are in the spotlight.

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  • Property insurance and casualty insurance are types of coverage that help protect the stuff you own — your home or car, for example — and also provide liability coverage to help protect you if you’re found legally responsible for an accident that causes injuries to another person or damage to another person’s belongings.

    These are the types of coverage that provide protection against losses like fires, or natural disasters. Home owners affected by Hurricane Harvey or Irma will be filing claims against their P&C policies. So will businesses in the affected areas, along with renters and car owners.

    Damage estimates are imprecise and it will take years for the full impact of the disasters to be known. This is true even for the experts.

    Reuters reported that some Wall Street analysts have tagged insured losses at around $20 billion, catastrophe modeling firm AIR Worldwide issued an estimate on Aug. 28 showing insured losses resulting from Hurricane Harvey in Texas likely will range from $1.2 billion to $2.3 billion.

    Other non-flood insured loss estimates have been in the $6 billion range. These losses are largely covered by the National Flood Insurance Program. Some industry observers have said flood losses could reach as high those from 2005’s Hurricane Katrina, which were more than $15 billion for losses in Louisiana and Mississippi.

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  • Irma will create combined insured losses of $20 billion to $65 billion, according to a projection from risk modeling software company AIR Worldwide. The company includes in its estimate the United States and selected islands in the Caribbean.

    For the U.S. alone, insured losses are expected to reach between $15 billion to $50 billion, AIR said.

    Insurance Stocks Are Likely to React

    Traders in the stock market often overreact and that could be the case in the insurance sector. Although trading is by its very nature a high risk activity, traders tend to be risk averse. That means when news like a hurricane occurs, traders sell first to protect capital.

    They will have time to assess the impact later. If the selling was overdone, they can then buy back into the stocks they sold. If the selling turns out to be correct, traders always have time to add short positions as the damage estimates become clearer.

    Because there is a “sell first, ask questions later” mentality in the stock market trading, news events often create buying opportunities. This is because some good stocks will be caught in the initial selloff. As traders recognize these stocks should not have been sold, they will buy to take advantage of bargains.

    In fact, the selling could be relatively short lived.

    Individual investors tend to respond in different ways than professionals. Individuals may sell into bad news. But, they may not take the time to assess the situation and find bargains in the selloff. Or, they may just avoid the sector that was sold out of fear.

    Either inaction or deliberate avoidance can be a mistake.

    Hunting for Buys in the Sector

    We did take some time to consider the insurance stocks in the wake of the disasters. We screened for property and casualty insurers that pay a dividend, are cheap based on next year’s earnings estimates (defined as a price to earnings (P/E) ratio of less than 15) and are low-priced.

    This screen can be completed at as shown below.

    Six stocks passed this screen. These companies are simply in the P&C industry. They have little or no exposure to the regions affected by hurricanes. These are just the companies that made it through our initial, quantitative screen as ideas that are worth additional research.

    Maiden Holdings, Ltd. (Nasdaq: MHLD) provides reinsurance solutions to regional and specialty insurers in the United States, Europe, and internationally. The Diversified Reinsurance segment offers property and casualty reinsurance, including the writing of treaties on a quota share or excess of loss basis; and facultative risks. The AmTrust Reinsurance segment provides small commercial business insurance, including workers compensation, commercial package, and other property and casualty insurance products; and specialty risk and extended warranty coverage for consumer and commercial goods, as well as custom designed coverage, such as accidental damage plans and payment protection plans related to the sale of consumer and commercial goods. The company also offers auto and credit life insurance products through its insurer partners to retail clients.

    Heritage Insurance Holdings, Inc. (NYSE: HRTG) provides personal and commercial residential insurance products. The company offers personal residential insurance for single-family homeowners and condominium owners; rental property insurance; and commercial residential insurance, as well as insurance policies for residential wind insurance in the state of Florida, North Carolina, South Carolina, Hawaii, Georgia, Alabama, and Mississippi. As of December 31, 2016, the company had approximately 319,676 personal residential policies and 3,625 commercial residential policies. The company operates through a network of approximately 1,900 independent agents; and commercial residential voluntary policies through a network of approximately 400 independent agents.

    AmTrust Financial Services, Inc. (Nasdaq: AFSI) underwrites and provides property and casualty insurance in the United States and internationally. The Small Commercial Business segment offers workers compensation insurance products; and commercial package insurance products, such as commercial property, general liability, inland marine, automobile, and umbrella coverage, as well as other property and casualty insurance products to small businesses. The Specialty Risk and Extended Warranty segment provides coverage for consumer and commercial goods; custom designed coverages, such as accidental damage plans and payment protection plans; and coverage for niche property and casualty risks, as well as specialty liability risks comprising general liability, employers’ liability, and professional and medical liability. The Specialty Program segment provides workers compensation, general liability, commercial auto liability, property coverage, excess and surplus lines programs, and other specialty commercial property and casualty insurance products to small and middle market companies. In addition, the company also provides reinsurance services primarily for personal and commercial automotive business. It distributes its policies through a network of retail and wholesale agents, as well as through third-party brokers, agents, retailers, or administrators.

    Federated National Holding Company (Nasdaq: FNHC) engages in insurance underwriting, distribution, and claims processing in the United States. The company underwrites homeowners multi-peril, commercial general liability, federal flood, personal automobile, and other lines of insurance. It markets and distributes its own and third-party insurers products, and other services through a network of independent agents.

    Blue Capital Reinsurance Holdings Ltd. (NYSE: BRCH) Blue Capital Reinsurance Holdings Ltd., through its subsidiaries, provides collateralized reinsurance in the property catastrophe market.

    United Insurance Holdings Corp. (Nasdaq: UIHC) is as a property and casualty insurance holding company that sources, writes, and services residential and commercial property, and casualty insurance policies in the United States. It offers single-family homeowners, dwelling fire, renters, condominium unit owners, and commercial residential insurance policies, as well as federal flood, equipment breakdown, and identity theft insurance policies. The company markets and distributes its products through a network of independent agencies in Connecticut, Florida, Georgia, Hawaii, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina, and Texas.

    Kingstone Companies, Inc. (Nasdaq: KINS) underwrites property and casualty insurance products to small businesses and individuals in New York. The company provides personal lines insurance products, such as homeowners, dwelling fire, 3-4 family dwelling package, cooperative and condominium, renters, equipment breakdown, service line endorsements, and personal umbrella policies; and commercial liability policies comprising small business retail, service, and office risks without residential exposure to business owners. The company also offers for-hire vehicle physical damage only policies for livery and car service vehicles and taxicabs; and canine legal liability policies, as well as reinsurance products. In addition, the company, through its subsidiary, Payments, Inc., places contracts with a third party licensed premium finance company. Kingstone Companies, Inc. sells its products through independent retail and wholesale agents and brokers.

    Any one of these stocks could be considered a buy in the current stock market.


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