Management track record is something to be highlighted in this company. Margins are outstanding: operating margin of 57.6% comfortably surpasses the 7.3% industry mean; same is the case of the 45.6% net margin, versus the industry average of 4.8%. Return on Assets and Return on Equity are also top in the industry reaching 6.5% and 14.5% respectively. Furthermore, capital management has also been exceptional, resulting in very healthy loss reserves and a low-risk balance sheet with an 0.1 debt to equity ratio. Capital deployments have proven beneficial for investors, as the firm´s strong cash position has enabled it to both repurchase considerable amounts of stock and pay cash dividends, yielding 2%.
While rating agencies like A.M. Best and Fitch have recognized ProAssurance Corporation (NYSE:PRA)´s financial strength and long-term credit rating, its stock price doesn’t seem to reflect it. Trading at only 9.4 times its earnings, versus the 12.8 times industry mean, I would recommend getting hold of this stock while it is still cheap as earnings upside proves to be plenty (projected in 10% over the next 5 years).
Another good bet
Yet another potential outperformer in the property-casualty insurance sector for both the short and long-run is The Allstate Corporation (NYSE:ALL). Although its first quarter came in sluggish due to high catastrophe losses, leading to greater claims and operating expenses, earnings surpassed consensus estimates. The negative results were somewhat counterbalanced by improved premiums and a 12.7% upsurge in book value per share. Trading at only 10.21 times consensus earnings, below the 13.93 times industry average, I’d say this stock is a buy.
For starters, The Allstate Corporation (NYSE:ALL)´s scale provides it with access to lower costs and a high amount of customers between which fix costs can be divided. As a consequence, the company can offer lower prices for policies than most of its competitors. This has been reflected in a much steadier profitability than its peers.
Meanwhile, the company seems well protected from competition since, unlike its peers that offer its products through independent agents, it relies on network of about 10,000 exclusive agencies only selling the firm´s products.
Further encouraging is management´s administration of investments. On the one hand, it has considerably ameliorated its risk profile by selling risky investments. On the other, it has made some highly profitable strategic investments directed to improve the performance of some underachieving sectors. Best example is the online auto insurance sales, which retrieved boosted results after the acquisition of Esurance and Answer Financial from White Mountains Insurance Group, third largest in the U.S.
Moreover, management has also been successful in actively administering cash flows and risks while increasing shareholder value. The Allstate Corporation (NYSE:ALL) pays a 2% dividend yield and has been consistently repurchasing stock for almost 20 years. Several buybacks are bound to occur in the future, especially since the company is sufficiently liquid to continue with planned repurchases while maintaining good leverage levels.
Bottom line
Above I have presented three insurance companies that offer very compelling growth prospects at reasonable valuations. Expected to outperform the market and grow at above average rates, all of these firms deserve a look and constitute a potential buy. Choosing which one you like the most is up to you.
The article 3 Names in the Property & Casualty Insurance Business originally appeared on Fool.com and is written by Victor Selva.
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