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The performance of the insurance industry largely depends on the state of the economy, and recent changes are proving to be a challenge. Insurance companies need to adapt to this transformation and enhance their risk bearing capacity, while being customer-oriented and having the required skills for innovation and reinvention. The P&C industry is "bumping along" on a slow but steady growth path. Rates have increased in April and are expected to do so for the rest of the year, but at slow pace.

So, with such optimistic and promising growth, though on the slower side, it's time to look at some of the tickers in the industry. Analyzed below are three companies with dividend yield over 3%, positive sales and earnings growth, and lower valuations.

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*as of 5/9/2013.

Source: Yahoo! Finance

The One to Avoid

Tower Group International, Ltd. (TWGP) is a diversified insurance and reinsurance holding company based in Bermuda. The main business of its subsidiaries is to provide commercial, personal and specialty insurance and reinsurance products. For the first quarter of 2013, the net income came in at $15.1 million, or $0.33 per diluted share, against $19.2 million, or $0.43 per diluted share, in the corresponding quarter of 2012. The board of directors has approved quarterly dividends of $0.165 per share on May 7, 2013 payable on June 21, 2013 to stockholders of record as of June 10, 2013. The share repurchase program of $50 million was also approved by the Board. For the current quarter and for full year, analysts have a negative outlook on the performance.

The company entered into a transformational merger with Canopius Holdings Bermuda Limited. The merger will help the company fulfill its long-term vision of becoming a global diversified insurance and reinsurance company. The merger will further help the company to expand itself into markets like the United States, Bermuda and London.

While the insurance firm has low debt and appears undervalued based on the P/E, forward P/E and PEG, investors would be better off waiting to see what guidance is given next quarter before entering a position.

The One to Watch

Safety Insurance Group, Inc. (SAFT) is an insurance company which provides private passenger automobile insurance products mainly in Massachusetts and New Hampshire. First quarter 2013 earnings for the company came in at $0.91 per share. The net earned premiums for the first quarter came in at $166.4 million, an increase of 7% from $155.5 million quarter-over-quarter.

The firm has recently expanded into New Hampshire, and if it succeeds in the new territory, it will likely boost dividends and serve as a major factor in future share appreciation. The debt of company is nil, its P/E is also low at 12.84 (TTM) and its forward P/E is 15.02. Its PEG is 0.86. The metrics show that the stock has pretty good chances of producing solid returns for shareholders.

Safety should also be on investors' watch lists, and if there are hints that its expansion in New Hampshire is getting results, it is definitely worth buying.

The One to Buy

Horace Mann Educators Corporation (HMN) is the most dominant national multiline company that targets educators' financial needs and provides auto and homeowners insurance, retirement annuities, life insurance and other financial solutions. Forbes Magazine has named Horace Mann Educators as one of America's 100 Most Trustworthy Companies. Also in the news, the company recently witnessed a massive change in management; Marita Zuraitis was named as the president and chief executive officer effective May 13, 2013 by the board of directors.

There were some declines in the net income of the company's annuity and life insurance segments in the first quarter of 2013 against the corresponding quarter of the previous year. The company has, however, raised its assets under management and its spread margins are also good on the fixed annuity book. According to the rating agency Fitch, the low losses in credits will help the segment to grow in 2013. However, the margins and fixed annuity sales will be affected by low interest rates. Horace Mann's earnings have been stable, and the revenue and risks are diversified. The company is also able to pay dividends. The annuity and life insurance segment posted strong results in 2012, fueled by good management of interest margins, larger assets under management.

Horace Mann's P/E ratio is 8.92 . The forward P/E is also low, standing at just 10.50. The price-to-book ratio is as low as 0.71. These valuations suggest that the company has ample room to grow. Moreover, it will be able to provide dividends and maintain its current yield.

All of the companies discussed above have a good chance of growth and can deliver some strong returns to investors. The dividend payments for all three companies are consistent and have impressive yields. The future growth prospects are also promising and the valuation metrics are compelling; however, among the three, Horace Mann is the buy. It has strong fundamentals with promising returns; it has also been featured in the Forbes 100 list of trustworthy companies.

Source: Insurance Companies With Dividend Yields Greater Than 3%: 1 To Buy, 1 To Avoid, 1 To Watch

Additional disclosure: Black Coral Research, Inc. is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.