Are You Buying This Pullback In Insurance Stocks?

Includes: AIG, CB, HIG, SAFT, TRV
by: Seeking Benny Frank

Insurance is a forever industry. The famous Benjamin Franklin quote should have read, "In this world nothing can be said to be certain, except death, taxes and insurance."

As many of you know the market had an exceedingly rough January as Fed taper concerns met Emerging Market currency sell-offs. The S&P 500 (NYSEARCA:SPY) fell roughly 5% and the Dow Jones dropped over 6%. Insurance companies' shares sold off more than 10% in January, a rate 2x the market, despite many insurance stocks trading at a discount to the S&P 500s Price to Earnings multiple of 18.7x.

Today you can buy high quality insurance companies such as Travelers (NYSE:TRV), a Dow Jones component, for 8.3x earnings, 1.1x Book Value, with a yield of 2.5%. The stock is currently trading at $80.49 per share, having lost over $11 per share from its 52-week high of $91.68. The insurer's most recent quarter was strong, beating estimates, but the earnings report did not stop the stock's slide. The problem a number of investors had with the quarter was the lack of any large natural disasters/catastrophic losses for the insurer. Instead of $1 billion-plus in Hurricane Sandy damages, like Q4 in 2012, the most recent quarter was very quiet for the Northeastern insurer.

Concerns aside, the record earnings are in the coffers and Travelers and I are buying the shares. The insurer added $5B to the buyback program on October 22nd, and has bought back more than half its shares since 2005.

Strong share buybacks and above average dividend growth are common within the insurance sector, and is illustrated by data/graphs for each company below.

TRV Annual Dividend Growth Rate: all from

2013: 9.5%

2012: 12.6%

2011: 12.8%

More High Quality Insurers On Sale:

Chubb Corporation CB

Market Cap: 20.9B

Book Value: 1.37x

PE Ratio: 11.6x

Yield: 2.1%

Annual Dividend Growth Rate

2013: 7.3%

2012: 5.1%

2011: 5.4%

Chubb is a holding company which operates mainly in the property and casualty insurance business. The business is divided into three units: Chubb Personal Insurance, Chubb Commercial Insurance and Chubb Specialty Insurance.

I had been waiting a while for this pullback in Chubb. The company is well valued and respected by the market at 1.37x Book Value currently, but sold for 14% more just a month ago. CB reported earnings on January 31st which topped estimates, but like Travelers investors noted the low amount paid out for catastrophic losses. Book Value per share was up 7.2% year over year, and the insurer saw 7% premium growth in the US. I have joined Chubb in buying its shares.

American International Group AIG

Market Cap: 70.1B

Book Value: 0.7x

PE Ratio: 9.9

Yield: 0.84%

Annual Dividend Growth Rate

2013: Dividend Reinstated

AIG is a global insurance company infamous for being bailed out massively during the 2008 financial crisis. The company provides a range of property casualty insurance, life insurance, retirement products, mortgage insurance and other financial services to customers in more than 130 countries.

Years after the crisis the shares still trade well below book value and many long-term investors are taking notice, most notably billionaire value investor Bruce Berkowitz. Berkowitz has 48.9% of his portfolio invested in AIG, 5.77% of the company. This current 15% pullback is a good opportunity to buy/add shares.

Below you can see the mass dilution caused by the government bailout. Currently a $1B buyback is underway, with more expected in the future.

Hartford Financial Services Group HIG

Market Cap: 14.7B

Book Value: 0.76x

PE Ratio: Forward P/E (fye Dec 31, 2014) 8.5x

Yield: 1.82

Annual Dividend Growth Rate

2013: 25%

2012: 0%

2011: 100%

HIG is an insurance and financial services company. The company is a provider of investment products as well as life, property and casualty insurance to both individual and business customers in the US. The company also maintains a retail mutual fund operation.

HIG just reported a good quarter two days ago and the stock rose 2% in trading the next day. As stated above, the stock trades for only 0.76x Book Value, and is priced at under 9x its 2014 earnings.

The number of HIG shares has actually risen from 303M in April 2006 to 447M in October 2013 due to the financial crisis. However a $2B buyback is now underway.

Safety Insurance Group SAFT

Market Cap: 828M

Book Value: 1.2x

PE Ratio: 13.9x

Yield: 4.4%

Annual Dividend Growth Rate

2013: 9.1%

2012: 10.1%

2011: 11.1%

Safety is a small regional insurance company focused primarily on the Massachusetts market. While automobile insurance makes up the bulk of Safety's business, the company also offers property and casualty products such as homeowners, business owner and umbrella policies.

Safety's stock has gained 317% since its IPO on the Nasdaq in 2002, and the dividend paid to shareholders quarterly has risen from 7 cents to 60 cents. At 14x earnings and 1.2x Book Value the stock is not overly expensive and the company agrees.

"The Board of Directors today also increased Safety's existing share repurchase program by authorizing repurchase of an additional $60.0 million of Safety's outstanding common shares. Previously, the Board of Directors had authorized up to $90.0 million under the program. Safety has previously purchased $60.4 million of its common shares on the open market under the program." November 4, 2013

The number of Safety shares outstanding has fallen from 16.31M in November 2008 to 15.39M in September 2013.


Insurance is a forever industry. The dividends are rising, the shares are being bought back, current valuations are attractive, and the industry is here to stay. If you are looking to add some insurance exposure to your portfolio, consider this current pullback.

Disclosure: I am long TRV, SAFT, CB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.