By Andrew Hawkins
During the credit crisis, many insurance companies took a large hit. We saw global insurance giant American International Group (AIG) crumble and a few years after the start of it all, Investment Underground decided to catch up with four insurance companies. It is hard to exactly pinpoint the health of all of these companies because of the recent tornadoes and hurricanes that have been creating billions in damages. It will take a little more time from insurance companies to realize a lot of the losses. Despite that, here are four insurance companies that IU took a look at.
Progressive (PGR): Progressive is one of the largest auto insurance providers in the United States. It also provides insurance for specialty line products such as motorcycle, ATVs, RVs, water crafts, snow mobiles and mobile homes. In addition to its personal line of insurance products, Progressive also covers commercial auto vehicles. Progressive focuses on providing the best online experience to its customers. Keynote Systems ranked it the #1 Auto Insurance website for 2010. PGR is trading around $20.00 and has a market cap of $13.1 billion.
Progressive has a price to earnings ratio of 11.65 compared to an industry average of 12.38. It has an earnings per share of 1.72 compared to an industry average of 1.35. In the first quarter of 2011, net income was $363 million, which is a 22% jump from Q1 2010. In the same quarter, Progressive also experienced a $0.11 jump in earnings per shares. EPS came in at $0.55. Revenue rose slightly from $3.666 billion to $3.894 billion. Progressive does not have a consistent dividend, but does issue special dividends on occasion. In 2009 no dividend were issued, but in 2010 Progressive distributed $1.1613, which makes for a 5.84% yield. In February, PGR distributed $0.3987 to shareholders. With a good quarter behind it, Progressive is looking to continue this trend of success.
CNA Financial Corporation (CNA): CNA Financial is a property and casualty insurance provider. It serves mostly commercial businesses and organizations in the United States, Europe and Canada. Its products include standard and excess property coverage. This could include marine coverage, workers compensation, general and product liability, commercial auto coverage, umbrella coverage and machinery coverage. CNA also provide risk management services, claims administration services and information services. CNA Financial is a subsidiary of Loews Corporation (L). CNA is currently trading around $28.80 and has a market cap of $7.756 billion.
CNA has a price to earnings ratio of 11.2 compared to an industry average of 10.2. It also has weak margins. Net margin is 6.7% and operating margin is 11.8%, compared to industry averages of 10% and 15%, respectively. In the first quarter of 2011, CNA Financial completed the acquisition of CNA Surety. CNA Surety specializes in surety bonds, a type of insurance on contract defaults. Despite that, it still had a less than stellar quarter. Revenue was stagnant at $2.3 billion and net income was down from $245 million to $223 million. CNA did start paying distributions again for the first time since 2008. CNA paid out $0.10 in quarterly dividend. CNA has some reorganizing to do before I would be confident in purchasing the stock. I would like to see stable earnings growth and consistent margin expansion before buying shares.
The Allstate Corporation (ALL): The Allstate Company provides a wide range of insurance products. Allstate provides personal property and casualty insurance, auto insurance, boat, RV and homeowners insurance. It also provides roadside assistance services. Auto insurance has been a rising portion of Allstate’s business compared to life insurance which makes up only a fraction of total revenue. ALL is currently trading around $30.24 and has a market cap of $15.8 billion.
Allstate had a solid first quarter this year. It saw profits improve because of lower catastrophic losses and higher investment gains. Revenues jumped 4.5% from $7.749 billion in Q1 2010 to $8.095 billion. Operating income jumped 32.5% to $497 million from same quarter 2010. Allstate will pay out a quarterly dividend of $0.21, which gives a projected yield of 2.8%.
Despite the first quarter results, I think the second quarter will be more turbulent. The tragic tornados and hurricanes that hit Joplin, Boston and other cities across the country have caused billions in damage, leaving insurance companies like Allstate with a large bill. On the brighter side, Allstate announced in May that it will purchase Esurance and Answer Financial for $700 million and the tangible book value of the entities acquired at close. Esurance is the third largest provider of online auto insurance quotes and will help Allstate bolster its online insurance position.
The Travelers Companies, Inc. (TRV): Travelers provides commercial and personal property and casualty insurance products. The company has three segments Business, Personal and Financial, Professional and International Insurance. Business Insurance segment offers general liability, commercial auto and workers compensation insurance to a wide range of businesses. The Personal Insurance segment offers mainly auto and homeowners insurance to individuals. The third segment offers surety and financial liability coverage, as well as, property and casualty insurance to the U.S., U.K., Ireland and Canada. The current share price for TRV is about $58.58 and the company has a market cap of $24.5 billion.
Travelers had great first quarter results. Total revenue increased 3% from Q1 2010. It went from $6.199 billion to $6.278 billion. While this is not a huge increase, operating and net income both made a huge jump by 31% and 30% respectively. This shows a widening of margins, which is really nice to see because it will translate into higher profits. Price to earnings is 8.0, operating margin is 17.5% and net margin is 13.5%. During the first quarter, Travelers repurchased 18.9 million common shares for about $1.1 billion. Travelers also increased quarterly dividends by 14% to $0.41, producing a projected annual yield of 2.8%. Travelers has a free cash flow of $6.01 billion.