Aspen Insurance Holdings Limited (AHL): This Small Cap Insurance Business Is a Buy

The underwriting profitability of Fairfax Financial was less than Aspen Insurance Holdings Limited (NYSE:AHL), with a higher combined ratio of around 99.8% in 2012. The underwriting profit resulted from its two businesses, OdysseyRe and Fairfax Asia, at only 88.5% and 87% respectively in the combined ratio. What investors might be attracted to in Fairfax Financial is its historical sustainable high growth in its book value. From 1985 to 2012, the book value of Fairfax Financial experienced a high annual compounded growth of 22.7%. The acquisition of American Safety will give Fairfax around $480 million to invest. According to Stephen Crim, the President and CEO of American Safety, American Safety was considered a good fit with two of Fairfax subsidiaries, Crum & Forster and Hudson Insurance Group, leading to the smooth transition for American Safety’s customers.

My Foolish take

With an underwriting profit and cheap price-to-book valuation, Aspen Insurance Holdings Limited (NYSE:AHL) seems to be a good stock for investors in the long run. It also pays a decent dividend with a yield of 1.9%. Interestingly, the payout ratio is quite low, at only 19%. With those above-mentioned operating characteristics, Aspen should be worth at least its book value, or more than $50 per share. I also like Fairfax Financial, due to its historical high compounded annual growth in book value and the leadership of the “Canadian Warren Buffett,” Prem Watsa.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article This Small Cap Insurance Business Is a Buy originally appeared on Fool.com and is written by Anh HOANG.

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