Top 10 Insurance Stock With Strong Performance

Slow And Steady

In the financial sector, insurance is a relatively “boring segment.” It is far from the Wolf of Wall Street or The Big Short speculations. It is also not associated with the glamorous lifestyle of investment bankers. It is nevertheless an absolutely massive sector, making no less than 9.4% of total GDP among OECD countries.

The central idea of insurance is to pay a certain price against uncertain events, spreading the average risks between millions, and for the insurance company to properly calculate that risk so it can collect a small premium for providing this service. This makes the quality of management very important in insurance, where solid risk assessment and cautious asset management win the day over riskier behaviors.

The boring nature of the insurance business can be a good thing for investors looking for a safe haven and steady returns. This means insurance is generally regarded as slow-growing and safer than most other financial sectors.

In this article, we will look at some of the insurance stocks with a strong historical performance over a long period, reflecting the quality of their strategy and management.

Top 10 Insurance Stocks With Strong Performance

1. UnitedHealth Group Incorporated

UnitedHealth Group Incorporated (UNH -3.37%)

One of the largest healthcare insurance companies in the USA, it serves insurance to almost 40 million people: 26+ million active and 13 million on Medicare and retirement.

It also provides health services through Optum, with Optum Health providing direct healthcare to 103 million people through 70,000 physicians. Optum Rx and Optum Insight provide pharmacy care services and data insight to healthcare professionals and organizations.

This brings the total number of people UnitedHealth Group serves to 149 million.

Source: United Health

The company provides many types of health insurance, from Medicare & Medicaid to private insurance; employers provide dental, vision, and accident insurance.

The company sees a long-term outlook growth of 13% – 16% for earnings per share. In part, it is carried by the high returns on invested capital, and in part due to the growing number of people needing extra healthcare due to the aging of the population.

UnitedHealth stock price has gone up x1000 since 1985, not including dividends. Due to its massive size, such explosive growth might slow down at one point, but it nevertheless makes for a very stable stock backed by one of the largest companies in the USA.

2. Chubb Limited

Chubb Limited (CB -1.61%)

Chubb is the world’s largest property and casualty  (P&C) insurer based on market capitalization. P&C concerns mostly commercial companies and often requires a high level of technical expertise and customized offers, covering every risk from environmental to crime, medical, railroad, aviation, agriculture, building, etc..

Chubb is exclusively an insurer with no other line of business.

Source: Chubb

In practice, Chubb is like a conglomerate of insurance companies, bringing together:

• P&C globally
• The largest commercial line insurer in the USA and one of the largest globally.
• P&C reinsurance (providing financial protection to other insurers).
• An Asia-focused life insurer.

P&C represents 57% of the total activity. The company is active in 54 countries, and 42% of the business is conducted out of the USA.

Source: Chubb

Chubb stock has been a very successful holding for its shareholders, with its price going up 20x since 1995, not including dividends. The company has also been very cautious with its investment portfolio, with 86% invested in fixed-income securities.

Source: Chubb

This reflects the company’s conservative approach but might also be something investors want to keep in mind when assessing the stock in the context of rising interest rates.

3. The Cigna Group

Cigna Corporation (CI -3.72%)

Cigna is a large health insurance group split between 2 segments:

• Cigna Healthcare: the insurance segment, with 14 million users.
• EverNorth Health Services: they are used by 60% of U.S. health plans for things like fertility assistance, digital formulary, vaccination programs, home-based care/telemedicine, or cost containment strategies.
  • These services are key in digitalizing healthcare and help Cigna improve treatments, reduce costs, collect data, and drive growth for the whole group.

Source: Cigna

Cigna impacts the healthcare of 180 million people in the USA and abroad.  Because of the broad reach of its health services, Cigna benefits from the overall growth in healthcare spending in the USA. It also targets high-growth sectors like US government employee insurance specialty pharmacy.

Cigna Insurance has outgrown its industry, with revenue growing at 7.1% CAGR in 2018-2021, compared to its 3.5%. Combined with aggressive stock repurchase (more than half of available cash flow), this allowed the company to target a 10-13% CAGR for earnings per share, on top of a growing dividend.

Source: Cigna

Considering Cigna stock’s persistent pattern of accretive growth, the 20x performance since 1995 is likely not a fluke but something that Cigna might manage to keep doing in the future, at least for some time.

4. Humana Inc.

Humana Inc. (HUM -3.45%)

Humana is a health insurance provider with a focus on senior demographics. It is the #1 senior-focused primary care provider, #1 home health provider, and 4^th largest pharmacy benefit manager.

The company business is carried by the aging of the population, with 1 in 5 US residents having reached retirement age by 2030.

Humana has a leading position and strong competitive advantage on Medicare Advantage, an alternative to standard Medicare services, often offering greater coverage in exchange for a more limited network of doctors and care providers available. The company estimates that by 2030, 60% of Medicare users will be enrolled in Medicare Advantage.

Source: Humana

In addition to lower costs and larger treatment selection, Humana’s “value-based” care provides significantly better health outcomes, including less hospital time and fewer ER trips.

Humana is also expanding in providing care directly through its CenterWell senior care clinics, where more than half of patients in new markets are not initially Humana patients. It takes approximately 3-4 years for a new CenterWell to break even from its initial investment. The company has 350+ CenterWell locations, hiring 9,000+ physicians and therapists.

Source: Humana

The company stock has gone up 20x since 2004 and should keep growing thanks to the CenterWell expansion and strong underlying market dynamics.

5. The Allstate Corporation

The Allstate Corporation (ALL -2.15%)

Allstate is an insurance company focused on property and liability insurance. So, it covers vehicles, homes, life insurance, and renters insurance. In practice, most of the company’s business is in auto insurance and property insurance.

Source; Allstate

The company has recently suffered losses due to severe weather events (hurricanes, fires, tornados, etc.), leading to a one-time $2.1B loss. The company is looking to increase growth in its auto business and optimize its costs to turn back into profitability.

Higher returns from investment due to rising interest yields also reduce the losses. In addition, the company has increased its rate by 16.9% in 2023.

Allstate is an insurance stock that had difficulties in the 1990s to 2010 period but has since strongly outperformed, with the stock price going up 5x since 2011.

Considering the recent losses were due to extreme weather events, this does not damage the case for the company to be a solid insurance company with a good track record and a focus on profitability. The company also provides a more than 3% dividend yield.

6. Markel Group Inc.

Markel Corporation (MKL -1.7%)

Markel is a specialty insurer covering risks that other insurance companies refuse to cover. This gives it an edge and a unique position in the insurance market, with access to niche markets that other larger corporations choose to ignore.

For example, it provides insurance to the life science industry for things like clinical trial liability, the shipping & maritime industry, the construction market contract bonds, or even event insurance for weddings, parties, etc.

Source: Markel

Another unique feature of Markel is how it handles its available cash. All insurance companies have access to a very large “float,” the amount of money collected from insurance contracts but not yet distributed in case of an accident. Most insurance companies invest it in safe and low-yield bonds.  Instead, Markel invests around 1/3rd of its assets in publicly traded stock, replicating what Warren Buffett’s Berkshire Hathaway does to increase returns and offer more competitive insurance offers.

So Markel is both an insurance company and a holding company, with one of its top holding stocks of Berkshire Hathaway itself and many other companies through its Markel Venture segment.

In Q2 2023, Markel investments have brought in as much as 1/4^th of the entire earned premiums from the insurance activity.

Berkshire Hathaway’s astonishing returns are partly due to Buffett’s genius and its leveraging of insurance float to provide abundant capital.

This makes Markel interesting for investors looking for a similar company but at a much smaller scale and an insurance company with a strong focus on specialty niches.

7. W. R. Berkley Corporation

W. R. Berkley Corporation (WRB -0.8%)

Berkley is an insurer active in the insurance market for high-net-worth individuals and commercial entities. It works through a network of 50 different smaller insurance businesses, with specializations like cyber-risk, offshore, oil & gas, agribusiness, life science, sport, industrial, etc…

The portfolio is quite diversified, with a focus on liabilities. Berkley is also active in reinsurance, with a focus on casualty insurance.

Source: Berkley

The company has been growing its activity, with steadily rising premiums and a record net income in 2022.

The company is especially cautious about avoiding catastrophic rare events and has managed to limit its exposure to events like hurricanes, the 2009 financial crisis, or earthquakes much better than the rest of the insurance industry.

The company is also active in insuring startups, seeing them as growing businesses with growing insurance premiums over time, even if the first 2 to 3 years are much more modest and represent a slight loss for the insurance company.

Berkley’s focus on the high-net-worth market has paid off handsomely, with the stock price increasing 100x since 1974. Thanks to its diversified and international network of insurance businesses, it is likely to keep performing well, keeping with a long tradition of low volatility and profitable activity.

8. Loews Corporation

Loews Corporation (L -2.63%)

Loews is a diversified holding company, with activity in insurance (Property and Casualty – P&C), but also in plastic packaging (Altium), oil & gas pipelines (Boardwalk), and hotels (11 hotels owned, 12 in joint venture, 2 managed, and 4 in development). Still, the insurance business is the largest part of the group and makes up $10.8B out of the $14B+ market capitalization.

Source: Loews

Loews’ float and investment are mostly cash or short-term, reducing its exposure to potential losses from rising interest rates. The company actively reduces its total shares, mainly returning money to shareholders.

Loews’ stock price has gone up 10x since 1988, a relatively good performance, reflecting the group’s steady and slowly growing nature. The company is focused on safe investments and conservative management of its float, making it a good pick for investors looking for good performance and safety.

9. RenaissanceRe Holdings Ltd.

RenaissanceRe Holdings Ltd. (RNR -1.26%)

RenaissanceRe is a global provider of reinsurance, especially in P&C. As such, it transfers the risk of existing contracts, reducing the risk to individual insurers. This is similar to large banks writing derivatives in financial instruments, except they are more focused on reducing risks than maximizing profits.

Renaissance has been growing strongly since 2014, increasing its Gross Premium Written (GPW) from $1.6B to $9.2B

Source: RenaissanceRe

RenaissanceRe has recently moved to acquire Validus Re, a reinsurer with $2.7B activity, which would increase RenaissanceRe’s size by 30%. The company is active in most major insurance sectors, including property, casualty, and specialty. The acquisition will put RenaissanceRe among the top 5 largest reinsurers, just behind Berkshire Hathaway.

Source: RenaissanceRe

RenaissanceRe stock has gone up by 10x since 2000. With the mounting of new risks from geopolitics or the pandemic, the demand for reinsurance is not going anywhere and should ensure a steady growth pattern for the company.

10. Unum Group

Unum Group (UNM -2.08%)

Unum is an insurance company specializing in life insurance and insurance against diseases or accidents.

The company is insuring 45 million workers and their families and has helped more than 348,000 individuals return to work, paying $8B in benefits in 2022. It is the leader in disability insurance in both the US and the UK.

Source: Unum

The company has experienced dramatic growth year-to-year on the exit of the pandemic, with earnings per share up 43% in early 2023. Another growth driver for the company has been the growing ESG push for more socially responsible HR policies. Moving onward, earnings per share growth is expected to be in the 8-12%.

Considering the type of insurance business that Unum covers (disability, life insurance), if it managed to go through the worst pandemic in a century, it should be able to stay profitable moving forward.

The company stock has had a very volatile few years, notably due to the pandemic crash in 2020, from which it has bounced back up x3. It is also still trading at a very low price if measured by the P/E ratio.