European Insurance Companies Trading at Low Levels

Though picking the month of August to discuss European insurance company stocks was perhaps not the most headline-inducing move, we nonetheless were interested in finding out if levels at which some of these companies trade mark good entry points. We spoke with senior analyst Duong Vuong, CFA.

With earnings season winding down, have companies in your coverage performed as expected? Were there many surprises?

There weren’t really any surprises. Much of it was expected as the writedowns of many insurance portfolios for insurance companies I cover.

The slowing economy in the U.S. and now elsewhere has created a drag on many industries. Where specifically has it hit your coverage thus far?

It has hit the insurance industry the hardest, as financial companies in general have felt the brunt of the sub-prime crisis.

What is your near- to mid-term outlook on companies you cover?

Positive on the near- to mid-term outlook. I personally believe that the share prices of some of the companies I cover have already discounted the most pessimistic outcomes. Moreover, on the macro front, oil prices are coming down and this will keep inflation in check, preventing a large rise in interest rate. I also believe that while the credit crisis may not be over, it has probably passed its worst point.

If you have two or three top Buy recommendations at this time, which stocks would they be?

I would recommend picking up Allianz (AZ) and Aegon (AEG), both insurance companies, for precisely the reasons I had just mentioned.

What should investors be mindful of before jumping into your industry?

Investors should be prepared for pain as the next 3-6 months can be quite bumpy and stock prices may go lower. However, I think the potential of investing now far outweighs the risk, especially if someone has a slightly longer-term horizon -- over one year.

Duong Vuong, CFA is a senior analyst covering the European insurance industry for Zacks Equity Research.