Feature Industry Review Insurance

The Best Companies of the Insurance Industry – October 2015

Best Companies of the Insurance IndustryWhile ModernGraham supports the bottom-up approach to investing, many investors do utilize the top-down method, whereby an industry is selected before the company itself.  With that in mind, this article will take a brief look at the best companies of the Insurance industry, selecting the most promising investment opportunities within the industry, and giving a broad look into the industry as a whole.

Out of the more than 560 companies reviewed by ModernGraham, 28 were identified as being closely related to the insurance industry.  Of those, eight are suitable for the Defensive Investor, eleven are suitable for the Enterprising Investor, and the remaining nine are considered speculative at this time.  Excluding any extreme outliers, the average company was rated as being priced at 82.34% to its MG Value (estimated intrinsic value), with an average PEmg ratio of 16.52.  The industry as a whole, therefore would appear to be fairly valued (within a margin of safety relative to the current price), particularly in comparison to the market (see Mr. Market’s Mental State).

The Elite

The following companies have been rated as the most undervalued and suitable for either the Defensive Investor or the Enterprising Investor:

ACE Limited (ACE)

Ace Limited qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, an accomplishment indicative of the company’s strong financial position.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $6.42 in 2011 to an estimated $8.84 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.96% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

AFLAC Incorporated (AFL)

Aflac Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong fundamentals.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.92 in 2011 to an estimated $6.07 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.51% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price. (See the full valuation)

Allstate Corp (ALL)

Allstate passes the initial requirements of the Enterprising Investor but not the Defensive Investor. In fact, the company passes every requirement of the Enterprising Investor types, but the Defensive Investor is concerned by the lack of earnings stability and insufficient earnings growth over the last ten years. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from $1.38 in 2011 to an estimated $4.97 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of only 2.69% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 52% annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that Allstate is significantly undervalued at the present time.  (See the full valuation)

American Financial Group Inc (AFG)

American Financial Group Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the initial requirements of both investor types, an indication that the company has  a very strong financial position.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.58 in 2011 to an estimated $5.01 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.82% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

American International Group Inc (AIG)

American International Group Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the insufficient earnings growth or stability over the last ten years, and the inconsistent dividend record, while the company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.

As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from a loss of $109.06 in 2011 to an estimated gain of $5.36 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 1.66% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.  (See the full valuation)

CIGNA Corporation (CI)

Cigna Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.11 in 2011 to an estimated $6.94 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 6.79% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Marsh & McLennan Companies, Inc. (MMC)

Marsh & McLennan Companies qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned with the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.38 in 2011 to an estimated $2.56 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.34% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Metlife Inc (MET)

MetLife passes the initial requirements of the Enterprising Investor but not the Defensive Investor. In fact, the company passes every requirement of the Enterprising Investor types, but the Defensive Investor is concerned by the lack of earnings stability and insufficient earnings growth over the last ten years. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from $3.02 in 2011 to an estimated $4.48 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of only 2.15% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 9.6% annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that MetLife is significantly undervalued at the present time.  (See the full valuation)

Principal Financial Group Inc (PFG)

Principal Financial Group qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth over the last ten years.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.99 in 2011 to an estimated $3.48 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.79% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Torchmark Corporation (TMK)

Torchmark Corporation qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the initial requirements of both investor types, an indication that the company has  a very strong financial position.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.63 in 2011 to an estimated $3.95 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.42% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Travelers Companies Inc (TRV)

Travelers Companies qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, an accomplishment indicative of the company’s strong financial position.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $5.25 in 2011 to an estimated $8.88 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.81% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Unum Group (UNM)

Unum Group qualifies for both the Defensive Investor and the Enterprising Investor, as the company passes all of the requirements of both investor types.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.89 in 2011 to an estimated $2.73 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.29% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

The Good

The following companies have been rated as fairly valued and suitable for either the Defensive Investor or the Enterprising Investor:

Aetna Inc (AET)

Aetna Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the low current ratio.  The Enterprising Investor is willing to overlook concerns with the level of debt relative to the current assets because the company passes the more conservative Defensive Investor requirements.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.03 in 2011 to an estimated $6.02 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 4.96% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.  (See the full valuation)

Anthem Inc (ANTM)

Anthem Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short dividend history while the Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $7.25 in 2011 to an estimated $8.88 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 4.01% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Assurant, Inc. (AIZ)

Assurant Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the inconsistent dividend record and the insufficient earnings growth over the last ten years.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.09 in 2011 to an estimated $5.41 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 3.07% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Chubb Corp (CB)

Chubb Corporation qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong fundamentals.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $6.08 in 2011 to an estimated $7.68 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.63% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Cincinnati Financial Corporation (CINF)

Cincinnati Financial Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth over the last ten years.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.16 in 2011 to an estimated $2.92 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 5.22% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Progressive Corp (PGR)

Progressive Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years as well as the inconsistent dividend record.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.37 in 2011 to an estimated $1.91 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 3.96% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

The Full List

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Clicking on the company name will take you to the company’s latest valuation.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
ACE ACE Limited D 8/18/2015 $174.88 $104.33 59.66% 11.80 2.57%
AET Aetna Inc D 7/21/2015 $140.03 $113.04 80.73% 18.78 0.88%
AFG American Financial Group Inc D 8/7/2015 $102.26 $70.26 68.71% 14.02 1.42%
AFL AFLAC Incorporated D 9/11/2015 $151.52 $59.32 39.15% 9.77 2.63%
AHL Aspen Insurance Holdings Limited S 8/9/2015 $135.34 $47.39 35.02% 12.71 1.77%
AIG American International Group Inc E 8/9/2015 $206.31 $58.28 28.25% 10.87 1.92%
AIZ Assurant, Inc. E 8/11/2015 $98.32 $79.68 81.04% 14.73 2.51%
AJG Arthur J Gallagher & Co S 8/11/2015 $45.27 $42.11 93.02% 21.38 3.51%
ALL Allstate Corp E 7/30/2015 $191.40 $59.90 31.30% 12.05 2.00%
ANTM Anthem Inc E 9/14/2015 $135.33 $142.85 105.56% 16.09 1.75%
AON Aon Plc S 11/30/2014 $74.30 $91.52 123.18% 23.17 1.31%
BRK.B Berkshire Hathaway Inc. S 8/19/2015 $221.44 $132.38 59.78% 18.34 #N/A
CB Chubb Corp D 9/21/2015 $125.96 $123.40 97.97% 16.07 1.85%
CI CIGNA Corporation E 7/17/2015 $202.11 $139.69 69.12% 20.13 0.03%
CINF Cincinnati Financial Corporation E 8/8/2015 $55.58 $55.05 99.05% 18.85 3.34%
GNW Genworth Financial Inc S 6/2/2015 $0.00 $4.88 N/A N/A N/A
HIG Hartford Financial Services Group Inc S 6/3/2015 $69.66 $46.67 67.00% 25.78 1.80%
HUM Humana Inc E 7/24/2015 $100.78 $183.71 182.29% 24.01 0.63%
L Loews Corporation S 11/5/2014 $0.00 $36.65 N/A 17.13 0.68%
MET Metlife Inc E 7/22/2015 $102.74 $47.79 46.52% 10.67 3.14%
MMC Marsh & McLennan Companies, Inc. E 9/8/2015 $87.95 $53.77 61.14% 21.00 2.31%
PFG Principal Financial Group Inc E 8/11/2015 $108.33 $49.09 45.32% 14.11 3.10%
PGR Progressive Corp E 8/19/2015 $38.57 $31.39 81.38% 16.43 2.20%
PRU Prudential Financial Inc S 12/16/2014 $20.69 $77.28 373.51% 18.44 3.00%
TMK Torchmark Corporation D 7/22/2015 $93.18 $57.28 61.47% 14.50 0.94%
TRV Travelers Companies Inc D 8/15/2015 $259.72 $101.86 39.22% 11.47 2.40%
UNM Unum Group D 8/11/2015 $59.44 $32.73 55.06% 11.99 2.26%
XL XL Group plc S 3/30/2015 $64.32 $36.33 56.48% 21.75 2.20%

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To view the MG Value and PEmg information,  you must be logged in as a premium member.  Clicking on the company name will take you to the company’s latest valuation.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
ACE ACE Limited D 8/18/2015 $104.33 2.57%
AET Aetna Inc D 7/21/2015 $113.04 0.88%
AFG American Financial Group Inc D 8/7/2015 $70.26 1.42%
AFL AFLAC Incorporated D 9/11/2015 $59.32 2.63%
AHL Aspen Insurance Holdings Limited S 8/9/2015 $47.39 1.77%
AIG American International Group Inc E 8/9/2015 $58.28 1.92%
AIZ Assurant, Inc. E 8/11/2015 $79.68 2.51%
AJG Arthur J Gallagher & Co S 8/11/2015 $42.11 3.51%
ALL Allstate Corp E 7/30/2015 $59.90 2.00%
ANTM Anthem Inc E 9/14/2015 $142.85 1.75%
AON Aon Plc S 11/30/2014 $91.52 1.31%
BRK.B Berkshire Hathaway Inc. S 8/19/2015 $132.38 #N/A
CB Chubb Corp D 9/21/2015 $123.40 1.85%
CI CIGNA Corporation E 7/17/2015 $139.69 0.03%
CINF Cincinnati Financial Corporation E 8/8/2015 $55.05 3.34%
GNW Genworth Financial Inc S 6/2/2015 $4.88 N/A
HIG Hartford Financial Services Group Inc S 6/3/2015 $46.67 1.80%
HUM Humana Inc E 7/24/2015 $183.71 0.63%
L Loews Corporation S 11/5/2014 $36.65 0.68%
MET Metlife Inc E 7/22/2015 $47.79 3.14%
MMC Marsh & McLennan Companies, Inc. E 9/8/2015 $53.77 2.31%
PFG Principal Financial Group Inc E 8/11/2015 $49.09 3.10%
PGR Progressive Corp E 8/19/2015 $31.39 2.20%
PRU Prudential Financial Inc S 12/16/2014 $77.28 3.00%
TMK Torchmark Corporation D 7/22/2015 $57.28 0.94%
TRV Travelers Companies Inc D 8/15/2015 $101.86 2.40%
UNM Unum Group D 8/11/2015 $32.73 2.26%
XL XL Group plc S 3/30/2015 $36.33 2.20%

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Disclaimer: 

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here.  This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions.  Please also read our full disclaimer.

One thought on “The Best Companies of the Insurance Industry – October 2015

  1. Suggestion: Instead of “The Best Companies…”, wouldn’t it be more appropriate to say something like “The Best Investment Values …”?

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