Mr. Market has been very hostile to insurance companies ever since pre-credit crisis times. Maybe the bad stigma is coming from the failing and near collapse of American International Group (AIG) but it seems like investors have held down prices of insurance stocks long enough. Positive sentiment is due to come back to the group soon, especially with the numerous stocks around trading at significant discounts to book value. Here are four stocks that should benefit from return of capital into the insurance space:
By 2016, MetLife expects to:
- increase its return on equity to between 12% and 14%, up from 10.3% for 2011, with the increase driven by higher operating earnings
- leverage its scale to improve the value it provides to customers and shareholders, thereby achieving $600 million in net pre-tax expense savings
- increase business in emerging markets to become 20% or more of operating earnings
- shift its product mix toward protection products and away from more capital-intensive products, in order to generate more predictable operating earnings and cash flows
- improve its risk profile and free cash flow
A number of authors on Seeking Alpha have given a positive opinion of the stock recently including just one last week. The valuations on the stock are very attractive. The stock, currently trading at a price of about $28 a share, is trading at a forward P/E ratio of just 5 with analysts expecting an EPS figure of $5.22 in FY12. It is also a bargain on price to book value with a ratio of just 0.53.
Forum National Investments (FMNL.PK) operates its life settlement insurance operations through its wholly owned subsidiary American Life Settlement Society. I was lost when I saw the life settlement term there as well but in reality, it is pretty simple. A life settlement is a financial transaction in which a policy owner possessing an unneeded or unwanted life insurance policy sells the policy to a third party for more than the cash value offered by the life insurance company. The purchaser becomes the new beneficiary of the policy at maturation and is responsible for all subsequent premium payments.
Something may be cooking with FMNL as the stock has seen a significant pickup in volume over the past few weeks. That may be due to its recent announcements about ongoing negotiations with ALIYA Lifespan on a working agreement to potentially merge their business interests in the US Life Settlement marketplace.
American Equity Investment Life Holding (AEL), through its wholly-owned operating subsidiaries, is a full service underwriter of a broad line of fixed annuity and life insurance products, with a primary emphasis on the sale of index and fixed rate annuities. The stock has underperformed the broad market over the past year, falling 20% versus the S&P 500 being about flat. Despite the fall in stock price, the company's operations are rock solid. Analysts expect the company to earn nearly $2 a share this year for a forward P/E of just 5. The consensus analyst target on the stock is $15.50. The price to book ratio of the stock is ridiculously cheap, just 0.45.
Prudential Financial (PRU) is one of the most diversified and largest insurance companies around, sporting a market cap of $21 billion. Prudential Financial companies serve individual and institutional customers worldwide and include The Prudential Insurance Company of America, one of the largest life insurance companies in the U.S. These companies offer a variety of products and services, including life insurance, mutual funds, annuities, pension and retirement-related services and administration, asset management, and banking and trust services.
The stock has performed very poorly over the past year and ever since the credit crisis. It is down over 50% from its pre-crisis highs. The stock has put together some runs since then but nothing strong enough to get above the $70 range. On an earnings basis, PRU is cheap, trading at a forward FY12 P/E of just under 7. Its price to book ratio is also depressingly low, trading at a multiple of just 0.62.